Notes to Condensed Consolidated Financial
Statements
June 30, 2019
(Unaudited)
NOTE 1 - ORGANIZATION
Business
Ozop Surgical Corp. (the” Company,”
“we,” “us” or “our”) was originally incorporated as Newmarkt Corp. on July 17, 2015, under
the laws of the State of Nevada, for the purpose of the renting different kind of Segways and bicycles, dual wheels self-balancing
electric scooters and related safety equipment. Following the acquisition of OZOP Surgical, Inc. as discussed below, we have been
engaged in the business of inventing, designing, developing, manufacturing and distributing innovative endoscopic instruments,
surgical implants, instrumentation, devices and related technologies, focused on spine, neurological and pain management procedures
and specialties.
Reverse Merger
On April 13, 2018, we entered into and completed
a share exchange agreement (the "Share Exchange Agreement") with OZOP Surgical, Inc. (“OZOP”), the shareholders
of OZOP (the “OZOP Shareholders”) and Denis Razvodovskij, the then holder of 2,000,000 shares of our common stock.
Pursuant to the terms of the Share Exchange Agreement, the OZOP Shareholders transferred and exchanged 100% of the capital stock
of OZOP in exchange for an aggregate of 25,000,000 newly issued shares of our common stock (the “Share Exchange”).
After giving effect to the redemption of 2,000,000 shares of our common stock pursuant to the Redemption Agreement discussed below
and the issuance of 25,000,000 shares of our common stock pursuant to the Share Exchange Agreement, we had 25,797,500 shares of
common stock issued and outstanding, with the OZOP Shareholders, as a group, owning 96.9% of such shares. Currently, our executive
officers and directors, as a group, own 6,374,223 of our shares representing 21.81 % of our issued and outstanding shares of common
stock. The merger was accounted for as a reverse merger, whereby OZOP was considered the accounting acquirer and became a wholly-owned
subsidiary of the Company. In accordance with the accounting treatment for a “reverse merger” or 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 OZOP prior to the reverse merger, in all future filings with the U.S. Securities and Exchange Commission (the “SEC”).
In connection with
the acquisition of OZOP, we purchased and redeemed 2,000,000 shares of our common stock from Mr. Razvodovskij for a total purchase
price of $350,000 pursuant to a Share Redemption Agreement (the “Redemption Agreement”). Pursuant to the terms of the
Share Exchange Agreement, effective April 13, 2018, Mr. Razvodovskij resigned as the Company's Chief Executive Officer, Chief Financial
Officer, Secretary, and sole director, and Michael Chermak, Salman J. Chaudhry (who resigned March 4, 2019) and Eric Siu (who resigned
March 5, 2019) were named as directors of the Company.
Corporate Matters
On March 28, 2019, the Company filed a Certificate
of Designation with the Secretary of State of Nevada to designate 1,000,000 shares as Series B Preferred Stock. The Series B Preferred
Stock is not convertible into common stock, nor does the Series B Preferred Stock have any right to dividends and any liquidation
preference. The Series B Preferred Stock entitles its holder to a number of votes per share equal to 50 votes. On April 1, 2019,
the Company issued 1,000,000 shares of Series B Preferred Stock to the Company’s CEO. The shares were valued at $68,000 of
which $25,000 was applied to accrued liabilities-related and $43,000 was recorded as stock-based compensation expense-related parties.
OZOP
OZOP was originally
incorporated in Switzerland on November 28, 1998 under the name Perma Consultants Holding AG (“Perma”). On July 19,
2016, Mr. Eric Siu (“Siu”), one of our directors purchased 100% of the outstanding capital stock of Perma and changed
the name from Perma to Ozop Surgical AG (“Ozop AG”). On February 1, 2018, Ozop AG was re-domiciled as a Delaware corporation
and changed its name to Ozop Surgical, Inc. On July 28, 2016, Ozop formed as the sole member, Ozop Surgical, LLC (“Ozop LLC”),
a Wyoming limited liability company. On October 28, 2016, Ozop acquired 100% of Ozop Surgical Limited (“Ozop HK”),
from Siu, the sole shareholder of Ozop HK. Ozop HK, is a private limited company incorporated in Hong Kong.
On February 16, 2018,
OZOP acquired the 100% membership interest (the “Membership Interest”) in Spinus, LLC, a Texas limited liability company
(“Spinus
”
), from RWO Medical Consulting LLC (“RWO”), a Texas limited liability company (the “Acquisition”).
OZOP purchased the Membership Interest from RWO in exchange for; (i) 5,000,000 shares OZOP’s common stock and ii) the assumption
of all liabilities of Spinus, including an obligation of $250,000 pursuant to a license agreement by and between Spinus and a third
party (the “Assumed Debt”). OZOP acquired Spinus to gain control of a license rights agreement for exclusive rights
to intellectual property related to minimally invasive spine surgery techniques. The Assumed Debt of $250,000 was paid in November
2018.
The following table summarizes the final valuation
of the consideration issued and the purchase price allocation of the fair value of assets acquired and liabilities assumed in the
acquisition:
|
|
|
Purchase
Price Allocation
|
|
Fair
value of consideration issued
|
|
$
|
250,000
|
|
|
Liabilities
assumed
|
|
|
278,779
|
|
|
Total
purchase consideration
|
|
$
|
528,779
|
|
|
Assets
acquired
|
|
$
|
289,628
|
|
|
Tradename
|
|
|
44,200
|
|
|
Goodwill
|
|
|
194,951
|
|
|
|
|
$
|
528,779
|
|
The total purchase price of $528,779 has been
allocated to the tangible and intangible assets acquired and liabilities assumed based on estimated fair values as of the completion
of the Acquisition. These allocations reflect various estimates that are currently available. The final fair value of Spinus’s
identifiable intangible assets were determined primarily using the income approach which requires an estimate or forecast of all
the expected future cash flows, either through the use of the relief-from-royalty method or the multi-period excess earnings method.
The Company will record amortization expense assuming a straight-line basis over the expected life of the finite lived intangible
assets, which approximates expected future cash flows.
Goodwill represents
the amount by which the estimated consideration transferred exceeds the historical costs of the assets the Company acquired and
the liabilities the Company assumed. The Company will not amortize the goodwill, but will instead test the goodwill for impairment
at least annually and whenever events or circumstances have occurred that may indicate a possible impairment.
NOTE 2 – 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 June 30, 2019, and the results of operations
and cash flows for the periods presented. The results of operations for the three and six months ended June 30, 2019, 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 16, 2019.
The unaudited condensed
consolidated financial statements include the accounts of the Company
and Ozop and
its wholly owned subsidiaries Ozop LLC, Ozop HK and Spinus. All intercompany accounts and transactions have been eliminated in
consolidation.
Emerging Growth Companies
The Company qualifies as an
“emerging growth company” under the 2012 JOBS Act. Section 107 of the JOBS Act provides that an emerging growth company
can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new
or revised accounting standards. As an emerging growth company, the Company can delay the adoption of certain accounting standards
until those standards would otherwise apply to private companies. The Company has elected to take advantage of the benefits of
this extended transition period.
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
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 six months ended June 30, 2019, and 2018, and
their accounts receivable balance as of June 30, 2019:
|
|
|
Sales % Three Months Ended June 30, 2019
|
|
Sales % Three Months Ended June 30, 2018
|
|
Sales % Six Months Ended June 30, 2019
|
|
Sales % Six
Months Ended
June 30, 2018
|
|
Accounts receivable balance
June 30, 2019
|
|
Customer A
|
|
|
100
|
%
|
|
|
43.6
|
%
|
|
|
100
|
%
|
|
|
48
|
%
|
|
$
|
3,228
|
|
|
Customer B
|
|
|
—
|
|
|
|
56.4
|
%
|
|
|
—
|
|
|
|
52
|
%
|
|
|
—
|
|
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
Inventory, which will consist of finished goods,
is valued at the lower of cost or net realizable value. Cost is determined using the first in first out (FIFO) method. Provision
for potentially obsolete or slow-moving inventory is made based on management analysis or inventory levels and future sales forecasts.
Purchase concentration
The principal purchases by the Company is comprised
of finished goods that the Company sells to its customers. Following is a summary of suppliers who accounted for more than ten
percent (10%) of the Company’s purchases for the three and six months ended June 30, 2019, and 2018:
|
|
|
Purchase % Three Months Ended June 30, 2019
|
|
Purchase % Three Months Ended June 30, 2018
|
|
Purchase % Six Months Ended June 30, 2019
|
|
Purchase % Six
Months Ended
June 30, 2018
|
|
Supplier A
|
|
|
100
|
%
|
|
|
41.3
|
%
|
|
|
100
|
%
|
|
|
45.7
|
%
|
|
Supplier B
|
|
|
—
|
|
|
|
58.7
|
%
|
|
|
—
|
|
|
|
54.3
|
%
|
Management believes
that other suppliers could provide similar raw materials on comparable terms. A change in suppliers, however, could cause a delay
and a possible loss of sales, which would adversely affect the Company's business, financial position and results of operations.
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.
Office equipment
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:
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Office equipment
|
|
$
|
9,590
|
|
|
$
|
9.590
|
|
|
Less: Accumulated Depreciation
|
|
|
(3,990
|
)
|
|
|
(2,391
|
)
|
|
Property and Equipment, Net
|
|
$
|
5,600
|
|
|
$
|
7,199
|
|
Depreciation expense
was $1,599 and $435 for the six months ended June 30, 2019, and 2018, respectively.
Intangible
Assets
Intangible
assets primarily represent purchased license rights and trademarks. The Company amortizes these costs over the shorter of the
legal life of the patent or its estimated economic life using the straight-line method. The Company evaluates long-lived assets
for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to future undiscounted
cash flows to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured
as the amount by which the carrying amount of the assets exceeds the fair value of the assets. For the six months ended June 30,
2019, the Company impaired $44,200 of tradenames as management has decided not to go forward with the use of the trade name Spinus.
For the six months ended June 30, 2019, the Company recorded amortization expense of $20,834.
There was no amortization expense for the six months ended June 30, 2018.
Goodwill
Goodwill
is measured as the excess of consideration transferred and the net of the acquisition date fair value of assets acquired,
and liabilities assumed in a business acquisition. In accordance with ASC 350,
“Intangibles—Goodwill and
Other,”
goodwill and other intangible assets with indefinite lives are no longer subject to amortization but
are tested for impairment annually or whenever events or changes in circumstances indicate that the asset might be impaired.
The Company reviews the goodwill allocated to each of our reporting units for possible impairment annually and whenever
events or changes in circumstances indicate carrying amount may not be recoverable. When assessing goodwill for impairment,
the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances
leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its’
carrying amount. If, after assessing the totality of events or circumstances, the Company determines it is more likely than
not that the fair value of a reporting unit is less than its’ carrying amount, then the Company performs a two-step
impairment test. If the Company concludes otherwise, then no further action is taken. The Company also has the option to
bypass the qualitative assessment and only perform a quantitative assessment, which is the first step of the two-step
impairment test. In the two-step impairment test, the Company measures the recoverability of goodwill by comparing a
reporting unit’s carrying amount, including goodwill, to the estimated fair value of the reporting unit. There were no
events or changes in circumstances that indicated potential impairment of goodwill during the six months ended June 30,
2019.
In
assessing the qualitative factors, the Company assesses relevant events and circumstances that may impact the fair value and the
carrying amount of the reporting unit. The identification of relevant events and circumstances, and how these may impact a reporting
unit’s fair value or carrying amount involve significant judgments and assumptions. The judgment and assumptions include
the identification of macroeconomic conditions, industry, and market considerations, cost factors, overall financial performance
and share price trends, and making the assessment as to whether each relevant factor will impact the impairment test positively
or negatively and the magnitude of any such impact.
The
carrying amount of each reporting unit is determined based upon the assignment of our assets and liabilities, including existing
goodwill and other intangible assets, to the identified reporting units. Where an acquisition benefits only one reporting unit,
the Company allocates, as of the acquisition date, all goodwill for that acquisition to the reporting unit that will benefit.
Where the Company has had an acquisition that benefited more than one reporting unit, The Company has assigned the goodwill to
our reporting units as of the acquisition date such that the goodwill assigned to a reporting unit is the excess of the fair value
of the acquired business, or portion thereof, to be included in that reporting unit over the fair value of the individual assets
acquired and liabilities assumed that are assigned to the reporting unit.
If
the carrying amount of a reporting unit is in excess of its fair value, an impairment may exist, and the Company must perform
the second step of the impairment analysis to measure the amount of the impairment loss, by allocating the reporting unit’s
fair value to its assets and liabilities other than goodwill, comparing the carrying amount of the goodwill to the resulting implied
fair value of the goodwill, and recording an impairment charge for any excess.
Revenue Recognition
Effective
January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes
revenue from the commercial sales of products 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. For the comparative
periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue Recognition. Under ASC 605,
revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the performance
of service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and
determinable; and (4) the collectability of the fee is reasonably assured. The Company has no outstanding contracts with any of
its’ customers. Revenues from Spinus of $1,521 and $49,123 for the three and six months ended June 30, 2019, and $34,660
and $41,387 for the three and six months ended June 30, 2018 (from February 17, 2018, the date of the acquisition of Spinus),
respectively, are recognized as an agent and are recorded at net. There was no impact on the Company’s financial statements
as a result of adopting Topic 606 for the three and six months ended June 30, 2019 and 2018.
Advertising and Marketing Expenses
The Company expenses advertising and marketing
costs as incurred. For the six months ended June 30, 2019, and 2018, the Company recorded $59,442 and $35,355 of advertising and
marketing (including trade shows) expenses, respectively.
Research and Development
Costs and expenses that can be clearly identified
as research and development are charged to expense as incurred. For the six months ended June 30, 2019, and 2018, the Company recorded
$63,604 and $10,565 of research and development expenses, respectively.
Convertible Instruments
The Company evaluates and accounts for conversion
options embedded in convertible instruments in accordance with ASC 815, Derivatives and Hedging Activities.
Applicable GAAP requires companies to bifurcate
conversion options from their host instruments and account for them as free standing derivative financial instruments according
to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative
instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument
that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with
changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative
instrument would be considered a derivative instrument.
The Company accounts for convertible instruments
(when it has been determined that the embedded conversion options should not be bifurcated from their host instruments) as follows:
The Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt
instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note
transaction and the effective conversion price embedded in the 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.
|
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
financial instruments that are measured at fair value on a recurring basis as of June 30, 2019, and December 31, 2018, for each
fair value hierarchy level:
|
June 30, 2019
|
|
Derivative
Liabilities
|
|
Total
|
|
Level I
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Level II
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Level III
|
|
$
|
1,342,404
|
|
|
$
|
1,342,404
|
|
|
December 31, 2018
|
|
Derivative
Liabilities
|
|
Total
|
|
Level I
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Level II
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Level III
|
|
$
|
1,199,514
|
|
|
$
|
1,199,514
|
|
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 bein
g 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.
Foreign Currency
Translation
The
accounts of the Company's Hong Kong subsidiary are maintained in Hong Kong dollars and the accounts of the U.S. companies are
maintained in USD. The accounts of the Hong Kong subsidiary were translated into USD in accordance with Accounting Standards Codification
("ASC") Topic 830, Foreign Currency Matters. According to Topic 830, all assets and liabilities were translated at the
exchange rate on the balance sheet date; stockholders' equity is translated at historical rates and statement of comprehensive
income items are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported
under other comprehensive income in accordance with ASC Topic 220, Comprehensive Income. Gains and losses resulting from the foreign
currency transactions are reflected in the statements of comprehensive income.
Relevant exchange
rates used in the preparation of the consolidated financial statements are as follows for the periods ended June 30, 2019 and
December 31, 2018, (Hong Kong dollar per one U.S. dollar):
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Balance sheet date
|
|
|
.1279
|
|
|
|
.1277
|
|
|
Average rate for statements of operations and comprehensive loss
|
|
|
.1275
|
|
|
|
.1276
|
|
Earnings
(Loss) Per Share
The Company
computes net loss per share in accordance with FASB ASC 260, “Earnings per Share.” ASC 260 requires presentation of
both basic and diluted earnings per share (EPS) on the face of the statement of operations. Basic EPS is computed by dividing
net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period.
Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using
the treasury stock method, and convertible notes and stock warrants, using the if-converted method. In computing diluted EPS,
the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of
stock options, warrants and conversion of convertible notes. Diluted EPS excludes all dilutive potential common shares if their
effect is anti-dilutive.
Recent Accounting
Pronouncements
In January 2017,
the FASB issued ASU 2017-01, “
Business Combinations (Topic 805) Clarifying the Definition of a Business
” (“ASU
2017-01”). The Amendments in this Update clarify the definition of a business with the objective of adding guidance to assist
entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.
The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill, and consolidation.
The guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those periods.
Early adoption of this standard is permitted. The Company adopted ASU 2017-01 on January 1, 2018, with no significant impact on
the consolidated financial statements.
With the exception
of the new standard discussed above, there have been no other recent accounting pronouncements or changes in accounting pronouncements
during the six months ended June 30, 2019, that are of significance or potential significance to the Company.
NOTE 3 – INTANGIBLE ASSETS
Patents as of June 30, 2019, and December 31, 2018, consist of
the following:
|
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
Patents and license rights
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
|
Accumulated amortization
|
|
|
(57,292
|
)
|
|
|
(36,458
|
)
|
|
Net carrying amount
|
|
$
|
192,708
|
|
|
$
|
213,542
|
|
Amortization expense for the
six months ended June 30, 2019, was $20,834. There was no amortization expense for the six months ended June 30, 2018.
NOTE 4 - CONVERTIBLE NOTES PAYABLE
During the year ended December 31, 2017, OZOP
issued 19 convertible promissory notes (the “2017 Notes”), in amounts of $10,000 to $50,000. OZOP received proceeds
of $710,000 in the aggregate. Of the 2017 Notes, $50,000 was from the wife of one of our Directors at the time (see Note 7). The
2017 Notes mature(d) on their one- year anniversary and bear interest at ten percent (10%). The initial conversion feature allowed
the holders to convert the note and any unpaid interest due, into shares of the Company’s common stock on the 15
th
business day that the Company becomes listed, at conversion prices equal to discounts of 35%-50% of the average of the three lowest
closing prices of the common stock. In August 2018, the Company offered any noteholder to convert their principal and interest
into shares of common stock at $0.50 per share. OZOP also issued $25,500 of convertible notes for consulting fees. During the year
ended December 31, 2018, the Company issued a $50,000 convertible promissory note (the “March 2018 Note”) and received
proceeds of $50,000.
The Company determined that the conversion feature of the 2017 Notes
and the March 2018 Note (together, the “Notes”) did not meet the criteria of an embedded derivative and therefore the
conversion feature was not bi-furcated and accounted for as a derivative because the Company was a private company, there was no
quoted price and no active market for the Company’s common stock.
On April 13, 2018, the Company determined the
conversion feature of the Notes represented an embedded derivative since the Notes were convertible into a variable number of shares
upon conversion. Accordingly, on April 13, 2018, the Notes were 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. Accordingly, the fair value of
the derivative instruments of the Notes that occurred prior to April 13, 2018, were recorded as a liability on April 13, 2018,
with the corresponding amount recorded as a discount to the Note. Such discount was amortized from the date of issuance to the
maturity dates of the Notes. The change in the fair value of the liability for derivative contracts are recorded in other income
or expenses in the reporting period, with the offset to the derivative liability on the balance sheet. The embedded feature included
in the Notes resulted in an initial debt discount of $620,075, interest expense of $14,000 and initial derivative liability of
$634,075. As of June 30, 2019, and December 31, 2018, the outstanding principal balance of the 2017 Notes was $165,000.
On April 13, 2018, we issued a convertible
promissory note in the principal amount of $442,175 (the “Note”), pursuant to a Securities Purchase Agreement we entered
into with an investor dated April 1, 2018. The Note bears interest at the rate of 12% per annum and is due and payable on April
13, 2019. The note is convertible at any time following the funding of the note into a variable number of the Company's common
stock, based on a conversion ratio of 55% of the average of the lowest trading price for the 25 days prior to conversion. The note
was funded on April 13, 2018, when the Company received proceeds of $350,000, after OID of $57,675, and disbursements for the lender’s
transaction costs, fees and expenses of $34,500, of which $25,000 were recorded as discounts against the debt to be amortized into
interest expense through maturity. Periodic payments are due by us on the Note at the rate of $850 per day (the “Repayment
Amount”) via direct withdrawal from our bank account, beginning on April 27, 2018 and to last for a 30-day period. Following
this period, the Repayment Amount increased to $1,100 per day until the Note is satisfied in full. On June 28, 2018, the Note was
amended to increase the Repayment Amount to $1,750 per day. On August 29, 2018, the parties agreed to stop the Repayment Amount,
and on November 20, 2018, the parties agreed to restart the Repayment Amount at $1,000 per day. From time to time the investor
waives any Repayment Amount for a period of time as agreed upon. During the six months ended June 30, 2019, principal payments
of $50,000 were made. The embedded conversion feature included in the note resulted in an initial debt discount of $359,500 interest
expense of $150,730 and an initial derivative liability of $510,230. For the six months ended June 30, 2019, amortization of the
debt discounts of $53,896 was charged to interest expense. During the six months ended June 30, 2019, the investor sold $30,000
of the note to another investor (see below). As of June 30, 2019, and December 31, 2018, the outstanding principal balance of the
note was $52,375 and $132,375, respectively, with a carrying value as of June 30, 2019, and December 31, 2018, of $52,375 and $78,479,
net of unamortized discounts of $53,896 as of December 31, 2018.
In connection with
our obligations under the Note, our executive officers at the time, and the Company entered into a Pledge Agreement (the “Pledge
Agreement”) whereby they pledged as collateral for the Note an aggregate of 19,900,000 shares of our common stock and we
pledged the shares of our subsidiary OZOP Surgical, Inc. (collectively, the “Collateral”). Upon a default under the
terms of the Note, Carebourn may, among other things, collect or take possession of the Collateral, proceed with the foreclosure
of the security interest in the Collateral or sell, lease or dispose of the Collateral.
On August 29, 2018, we issued a convertible
promissory note in the principal amount of $339,250 (the “Note”), pursuant to a Securities Purchase Agreement we entered
into with the investor. The Note bears interest at the rate of 12% per annum and is due and payable on August 29, 2019. The note
is convertible at any time following the funding of the note into a variable number of the Company's common stock, based on a conversion
ratio of 55% of the average of the lowest trading price for the 25 days prior to conversion. The note was funded on August 29,
2018, when the Company received proceeds of $280,000, after OID of $44,250, and disbursements for the lender’s transaction
costs, fees and expenses of $15,000, which were recorded as discounts against the debt to be amortized into interest expense through
maturity. Periodic payments are due by us on the Note at the rate of $1,000 per day (the “Repayment Amount”) via direct
withdrawal from our bank account, beginning on August 30, 2018, until the Note is satisfied in full. From time to time the investor
waives any Repayment Amount for a period of time as agreed upon. During the six months ended June 30, 2019, principal payments
of $50,000 were made. The embedded conversion feature included in the note resulted in an initial debt discount of $280,000 interest
expense of $112,403 and an initial derivative liability of $392,403. For the six months June 30, 2019, amortization of the debt
discounts of $186,902 was charged to interest expense. For the six months ended June 30, 2019, the investor converted a total of
$25,000 of the face value and $22,896 of accrued interest into 1,469,960 shares of common stock. As of June 30, 2019, and December
31, 2018, the outstanding principal balance of the note was $186,250 and $261,250, respectively, with a carrying value as of June
30, 2019, and December 31, 2018, of $150,755 and $38,853, net of unamortized discounts of $35,495 and $222,397, respectively.
On August 29, 2018, we issued a convertible
promissory note in the principal amount of $55,000 (the “Note”), pursuant to a Securities Purchase Agreement we entered
into with the investor. The Note bears interest at the rate of 12% per annum and is due and payable on March 1, 2019. The note
is convertible at any time following the funding of the note into a variable number of the Company's common stock, based on a conversion
ratio of 58% of the average of the lowest trading price for the 20 days prior to conversion. The note was funded on August 29,
2018, when the Company received proceeds of $50,000, after disbursements for the lender’s transaction costs, fees and expenses
of $5,000, which were recorded as discounts against the debt to be amortized into interest expense through maturity. The embedded
conversion feature included in the note resulted in an initial debt discount of $50,000 interest expense of $5,272 and an initial
derivative liability of $55,272. For the six months ended June 30, 2019, amortization of the debt discounts of $17,112 was charged
to interest expense. For the six months ended June 30, 2019, the investor converted a total of $21,750 of the face value into 75,000
shares of common stock. As of June 30, 2019, and December 31, 2018, the outstanding principal balance of the note was $33,250 and
$55,000, respectively with a carrying value as of June 30, 2019 and December 31, 2018, of $33,250 and $37,888, net of unamortized
discounts of $17,112 as of December 31, 2018.
On October 19, 2018, the Company issued a 12%
convertible promissory note, (the “Note”) in the principal amount of $78,000, pursuant to a Securities Purchase Agreement
we entered into with the investor. The Note matures 12 months after the date of issuance. The Note is convertible into shares of
the Company’s common stock beginning on the date which is 180 days from the issuance date of the Note, at a conversion price
equal to 65% multiplied by the average of the lowest two trading prices during the 15- trading day period ending on the last completed
trading date in the OTC Markets prior to the date of conversion. The note was funded on October 22, 2018, when the Company received
proceeds of $75,000 after disbursements for the lender’s transaction costs, fees and expenses of $3,000, which were recorded
as discounts against the debt to be amortized into interest expense through maturity. The embedded conversion feature included
in the note resulted in an initial debt discount and derivative liability of $57,700. For the six months ended June 30, 2019, the
investor converted a total of $26,960 of the face value into 2,326,783 shares of common stock. For the six months ended June 30,
2019, amortization of the debt discounts of $47,783 was charged to interest expense. On June 7, 2019, pursuant to a Note Assignment
Agreement, the investor sold the remaining principal balance of $51,040, accrued and unpaid interest of $5,546 and a repayment
balance of $20,414 to third party investor, for a total purchase price of $77,000. As of June 30, 2019, and December 31, 2018,
the outstanding principal balance to the initial noteholder of the note was $-0- and $78,000, respectively with a carrying value
as of December 31, 2018, of $30,217, respectively, net of unamortized discounts of $47,783.
On November 15, 2018, the Company issued a
12% convertible promissory note, (the “Note”) in the principal amount of $500,000, pursuant to a Securities Purchase
Agreement we entered into with the investor. The Note matures November 15, 2019. The Note is convertible into shares of the Company’s
common stock beginning on the date which is 180 days from the issuance date of the Note, at a conversion price equal to the lesser
of (1) the lowest trading price during the previous 20 trading day period ending on the last completed trading date prior to the
date of the Note and (2) 65% multiplied by the average of the 3 lowest trading prices of the Company’s common stock during
the 20 day trading period ending on the latest completed trading day of the common stock prior to the date of conversion of the
Note. Pursuant to the Note, the Company agreed to include on its next registration statement filed with the Securities and Exchange
Commission, all shares issuable upon conversion of the Note. Pursuant to the Security Agreement, all of the obligations under the
Note are secured by a first security interest in and to all of the Company’s rights, title and interests in, to and under
all assets and all personal property of the Company. The Security Agreement includes customary representations, warranties and
covenants by the Company. The note was funded on November 19, 2018, when the Company received proceeds of $458,500 after OID of
$37,500, and disbursements for the lender’s transaction costs, fees and expenses of $4,000, which were recorded as discounts
against the debt to be amortized into interest expense through maturity. The embedded conversion feature included in the note resulted
in an initial debt discount and derivative liability of $363,806. For the six months ended June 30, 2019, amortization of the debt
discounts of $202,653 was charged to interest expense. For the six months ended June 30, 2019, the investor converted a total of
$4,759 of the face value and $24,075 of accrued interest into 1,800,000 shares of common stock. As of June 30, 2019, and December
31, 2018, the outstanding principal balance of the note was $ 495,241 and $500,000, respectively, with a carrying value as of June
30, 2019, and December 31, 2018, of $344,889 and $146,994, respectively, net of unamortized discounts of $150,353 and $353,006,
respectively.
On December 5, 2018, the Company issued a 12%
convertible promissory note, (the “Note”) in the principal amount of $63,000, pursuant to a Securities Purchase Agreement
we entered into with the investor. The Note matures 12 months after the date of issuance. The Note is convertible into shares of
the Company’s common stock beginning on the date which is 180 days from the issuance date of the Note, at a conversion price
equal to 65% multiplied by the average of the lowest two trading prices during the 15- trading day period ending on the last completed
trading date in the OTC Markets prior to the date of conversion. The note was funded on December 10, 2018, when the Company received
proceeds of $60,000 after disbursements for the lender’s transaction costs, fees and expenses of $3,000, which were recorded
as discounts against the debt to be amortized into interest expense through maturity. The embedded conversion feature included
in the note resulted in an initial debt discount and derivative liability of $47,170. On June 5, 2019, pursuant to a Note Assignment
Agreement, the investor sold the principal balance of $63,000, accrued and unpaid interest of $3,708 and a repayment balance of
$26,683 to third party investor, for a total purchase price of $93,391 (see below). For the six months ended June 30, 2019, amortization
of the debt discounts of $46,330 was charged to interest expense. As of June 30, 2019, and December 31, 2018, the outstanding principal
balance to the initial noteholder of the note was $-0- and $63,000, respectively, with a carrying value as of December 31, 2018,
of $16,670, net of unamortized discounts of $46,330.
On January 7, 2019, the Company issued an 8%
convertible promissory note, (the “Note”) in the principal amount of $150,000, pursuant to a Securities Purchase Agreement
we entered into with the investor. The Note matures January 7, 2020. The Note is convertible into shares of the Company’s
common stock beginning on the date which is 180 days from the issuance date of the Note, at a conversion price equal to the lesser
of (1) the lowest trading price during the previous 20 trading day period ending on the last completed trading date prior to the
date of the Note and (2) 65% multiplied by the average of the 3 lowest trading prices of the Company’s common stock during
the 20 day trading period ending on the latest completed trading day of the common stock prior to the date of conversion of the
Note. The note was funded on January 9, 2019, when the Company received proceeds of $133,250 after OID of $14,000, and disbursements
for the lender’s transaction costs, fees and expenses of $2,750, which were recorded as discounts against the debt to be
amortized into interest expense through maturity. The embedded conversion feature included in the note resulted in an initial debt
discount and derivative liability of $111,500. For the six months ended June 30, 2019, amortization of the debt discounts of $61,523
was charged to interest expense. As of June 30, 2019, the outstanding principal balance of the note was $150,000 with a carrying
value as of June 30, 2019, of $83,272, net of unamortized discounts of $66,727.
On February 5, 2019, the Company issued an
8% convertible promissory note (the “Master Note”) in the aggregate principal amount of up to $165,000 in exchange
for an aggregate purchase price of up to $148,500 with an original issue discount of $16,500 to cover the Investor’s accounting
fees, due diligence fees, monitoring and other transactional costs incurred in connection with the purchase and sale of the Master
Note, which is included in the principal balance of the Note. On February 8, 2019, the Investor funded the first tranche under
the Master Note, and the Company received $49,500 ($47,500 after payment of $2,000 of the Investor’s legal fees) for this
first tranche of $55,000 under the Master Note and on the same date, the Company issued the Note to the Investor. The Note is convertible
into shares of the Company’s common stock, beginning on the date which is 180 days from the issuance date of the Master Note,
at a conversion price equal to the lesser of (1) the lowest trading price during the previous 20 trading day period ending on the
last completed trading date prior to the date of conversion of the Master Note and (2) 65% multiplied by the average of the 3 lowest
trading prices of the Company’s common stock during the 20 day trading period ending on the latest completed trading day
of the common stock prior to the date of conversion of the Master Note. The embedded conversion feature included in the Master
Note resulted in an initial debt discount and derivative liability of $38,502. For the six months ended June 30, 2019, amortization
of the debt discounts of $18,422 was charged to interest expense. As of June 30, 2019, the outstanding principal balance of the
Master Note was $55,000 with a carrying value as of June 30, 2019, of $27,420, net of unamortized discounts of $27,580.
On February 21, 2019, the Company issued a
12% convertible promissory note, (the “Note”) in the principal amount of $53,000, pursuant to a Securities Purchase
Agreement we entered into with an investor. The Note matures 12 months after the date of issuance. The Note is convertible into
shares of the Company’s common stock beginning on the date which is 180 days from the issuance date of the Note, at a conversion
price equal to 61% multiplied by the average of the lowest two trading prices during the 15- trading day period ending on the last
completed trading date in the OTC Markets prior to the date of conversion. The note was funded on February 22, 2019, when the Company
received proceeds of $50,000 after disbursements for the lender’s transaction costs, fees and expenses of $3,000, which were
recorded as discounts against the debt to be amortized into interest expense through maturity. The embedded conversion feature
included in the note resulted in an initial debt discount and derivative liability of $44,331. For the six months ended June 30,
2019, amortization of the debt discounts of $17,071 was charged to interest expense. As of June 30, 2019, the outstanding principal
balance of the note was $53,000 with a carrying value as of June 30, 2019, of $22,740, net of unamortized discounts of $30,260.
On March 7, 2019, the Company issued a 12%
convertible promissory note, (the “Note”) in the principal amount of $85,000, pursuant to a Securities Purchase Agreement
we entered into with an investor. The Note matures 12 months after the date of issuance. The Note is convertible into shares of
the Company’s common stock, at a conversion price equal to 58% of the average of the two lowest trading prices of the Company’s
common stock for the previous 20 trading day period ending on the date the notice of conversion of the Note is received by the
Company. The note was funded on March 11, 2019, when the Company received proceeds of $77,900 after OID of $3,000, and disbursements
for the lender’s transaction costs, fees and expenses of $4,100, which were recorded as discounts against the debt to be
amortized into interest expense through maturity. The embedded conversion feature included in the note resulted in an initial debt
discount and derivative liability of $77,394. For the six months ended June 30, 2019, amortization of the debt discounts of $26,454
was charged to interest expense. As of June 30, 2019, the outstanding principal balance of the note was $85,000 with a carrying
value as of June 30, 2019, of $26,960, net of unamortized discounts of $58,040.
On May 3, 2019, the Company issued a 12% convertible
promissory note, (the “Note”) in the principal amount of $58,000, pursuant to a Securities Purchase Agreement we entered
into with an investor. The Note matures 12 months after the date of issuance. The Note is convertible into shares of the Company’s
common stock beginning on the date which is 180 days from the issuance date of the Note, at a conversion price equal to 61% multiplied
by the average of the lowest two trading prices during the 15- trading day period ending on the last completed trading date in
the OTC Markets prior to the date of conversion. The note was funded on May 6, 2019, when the Company received proceeds of $55,000
after disbursements for the lender’s transaction costs, fees and expenses of $3,000, which were recorded as discounts against
the debt to be amortized into interest expense through maturity. The embedded conversion feature included in the note resulted
in an initial debt discount and derivative liability of $46,492. For the six months ended June 30, 2019, amortization of the debt
discounts of $8,207 was charged to interest expense. As of June 30, 2019, the outstanding principal balance of the note was $58,000
with a carrying value as of June 30, 2019, of $16,715, net of unamortized discounts of $41,285.
On May 7, 2019, the Company issued to a third-party
investor a convertible redeemable promissory note (the “Note”) with a face value of $52,500, including an original
issue discount of $2,500. The note matures on February 7, 2020, has a stated interest of 12% and is convertible into a variable
number of the Company's common stock, based on a conversion ratio of 58% of the average of the two lowest trading prices for the
20 days prior to conversion. The note was funded on May 8, 2019, when the Company received proceeds of $47,500, after disbursements
for the lender’s transaction costs, fees and expenses of $5,000, which were recorded as discounts against the debt to be
amortized into interest expense through maturity. The embedded conversion feature included in the note resulted in an initial debt
discount and derivative liability of $46,157. For the six months ended June 30, 2019, amortization of the debt discounts of $9,956
was charged to interest expense. As of June 30, 2019, the outstanding principal balance of the note was $52,500 with a carrying
value as of June 30, 2019, of $11,299, net of unamortized discounts of $41,201.
The Company received the funding of the second
tranche on May 10, 2019, in an amount of $23,500 (the “Second Tranche”) under the $165,000 Master Note issued by the
Company on February 5, 2019, after disbursements for the lender’s transaction costs, fees and expenses of $4,000, which were
recorded as discounts against the debt to be amortized into interest expense through maturity. The Company also issued a warrant
(the “Warrant”) to purchase 18,333 shares of the Company’s common stock at an exercise price of $1.50 for a term
of three (3) years to the Master Noteholder. The embedded conversion feature included in the note resulted in an initial debt discount
and derivative liability of $18,262. For the six months ended June 30, 2019, amortization of the debt discounts of $3,230 was charged
to interest expense. As of June 30, 2019, the outstanding principal balance of the Second Tranche of the Master Note was $27,500
with a carrying value as of June 30, 2019, of $8,469,
On May 29, 2019, the Company issued a 12% convertible
promissory note, (the “Note”) in the principal amount of $80,000, pursuant to a Securities Purchase Agreement we entered
into with an investor. The Note matures 12 months after the date of issuance. The Note is convertible into shares of the Company’s
common stock, at a conversion price equal to 58% of the average of the two lowest trading prices of the Company’s common
stock for the previous 20 trading day period ending on the date the notice of conversion of the Note is received by the Company.
The note was funded on March 29, 2019, when the Company received proceeds of $73,300 after OID of $2,800, and disbursements for
the lender’s transaction costs, fees and expenses of $3,900, which were recorded as discounts against the debt to be amortized
into interest expense through maturity. The embedded conversion feature included in the note resulted in an initial debt discount
and derivative liability of $70,418. For the six months ended June 30, 2019, amortization of the debt discounts of $22,601 was
charged to interest expense. As of June 30, 2019, the outstanding principal balance of the note was $80,000 with a carrying value
as of June 30, 2019, of $25,483, net of unamortized discounts of $54,517.
On June 5, 2019, an investor (the “Purchaser”)
pursuant to an Assignment Agreement, purchased a convertible note issued by the Company on December 5, 2018 (see above). The Purchaser
paid $93,391 to acquire the note. The Note matures 12 months after the date of issuance. The Note is convertible into shares of
the Company’s common stock beginning on the date which is 180 days from the issuance date of the Note, at a conversion price
equal to 65% multiplied by the average of the lowest two trading prices during the 15- trading day period ending on the last completed
trading date in the OTC Markets prior to the date of conversion. The embedded conversion feature pursuant to the Assignment Agreement
resulted in an initial debt discount and derivative liability of $59,909. For the six months ended June 30, 2019, amortization
of the debt discounts of $34,947 was charged to interest expense. As of June 30, 2019, the outstanding principal balance of assigned
note was $93,391, with a carrying value as of June 30, 2019, of $68,428, net of unamortized discounts of $24,962.
On June 7, 2019, an investor (the “Purchaser”)
pursuant to an Assignment Agreement, purchased a convertible note issued by the Company on October 19, 2018 (see above). The Purchaser
paid $77,000 to acquire the note. The Note matures 12 months after the date of issuance. The Note is convertible into shares of
the Company’s common stock beginning on the date which is 180 days from the issuance date of the Note, at a conversion price
equal to 65% multiplied by the average of the lowest two trading prices during the 15- trading day period ending on the last completed
trading date in the OTC Markets prior to the date of conversion. The embedded conversion feature pursuant to the Assignment Agreement
resulted in an initial debt discount and derivative liability of $49,335. For the six months ended June 30, 2019, amortization
of the debt discounts of $34,123 was charged to interest expense. As of June 30, 2019, the outstanding principal balance of assigned
note was $77,000, with a carrying value as of June 30, 2019, of $61,788, net of unamortized discounts of $15,212.
A summary of the convertible note balance as
of June 30, 2019, and December 31, 2018, is as follows:
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Principal balance
|
|
$
|
1,713,507
|
|
|
$
|
1,254,625
|
|
|
Unamortized discount
|
|
|
(564,663
|
)
|
|
|
(740,523
|
)
|
|
Ending balance, net
|
|
$
|
1,148,844
|
|
|
$
|
514,102
|
|
NOTE 5 – DERIVATIVE LIABILITIES
On April 13, 2018, the Company determined the
conversion feature of the Notes represented an embedded derivative since the Notes were convertible into a variable number of shares
upon conversion. Accordingly, on April 13, 2018, the Notes were 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 Company valued the derivative liabilities
at June 30, 2019, and December 31, 2018, at $1,342,404 and $1,199,514, respectively. The Company used the Monte Carlo simulation
valuation model with the following assumptions as of June 30, 2019, 2018, risk-free interest rates from 1.96% to 2.09% and volatility
of 34% to 41%, and as of December 31, 2018; risk-free interest rates from 2.56% to 2.62% and volatility of 61% to 65%. The initial
derivative liabilities for convertible notes issued during the six months ended June 30, 2019, used the following assumptions;
risk-free interest rates from 2.25% to 2.58% and volatility of 39% to 63%.
A summary of the activity related to derivative
liabilities for the six months ended June 30, 2019, and the year ended December 31, 2018, is as follows:
|
Balance- January 1, 2018
|
|
$
|
-0-
|
|
|
Issued during period
|
|
|
2,060,656
|
|
|
Converted or paid
|
|
|
(894,929
|
)
|
|
Change in fair value recognized in operations
|
|
|
33,787
|
|
|
Balance- December 31, 2018
|
|
|
1,199,514
|
|
|
Issued during the period
|
|
|
562,300
|
|
|
Converted or paid
|
|
|
(351,038
|
)
|
|
Change in fair value recognized in operations
|
|
|
(68,372
|
)
|
|
Balance June 30, 2019
|
|
$
|
1,342,404
|
|
NOTE 6 – NOTES PAYABLE
The Company has the following note payables
outstanding:
|
|
|
June
30, 2019
|
|
December
31, 2018
|
|
Note payable, interest at 8%, matured
September 6, 2018, in default
|
|
$
|
330,033
|
|
|
$
|
330,033
|
|
|
Other, due on demand
|
|
|
—
|
|
|
|
2,805
|
|
|
Total notes payable
|
|
$
|
330,033
|
|
|
$
|
332,838
|
|
NOTE 7 – RELATED PARTY TRANSACTIONS
Note payable
On October 25, 2017, the Company issued a $60,000
promissory note to the wife of an officer and director of the Company in exchange for $50,000. The note originally matured November
25, 2017, and was extended until November 25, 2018. As of June 30, 2019, and December 31, 2018, the balance of the note is $60,000
and is in default.
Convertible note payable
On October 16, 2017, OZOP issued a $50,000
convertible promissory note to the wife of an officer and director in exchange for $50,000. The note bears interest at ten percent
(10%), matured on October 16, 2018. The initial conversion feature allowed the holder to convert the note and any unpaid interest
due, into shares of the Company’s common stock on the 15
th
business day that the Company becomes listed, at conversion
prices equal to discounts of 35%-50% of the average of the three lowest closing prices of the common stock. In August 2018, the
Company offered any noteholder to convert their principal and interest into shares of common stock at $0.50 per share. As of June
30, 2019, and December 31, 2018, the balance of the note is $50,000 and is in default.
Management Fees and related party payables
For the three and six months ended June 30,
2019, and 2018, the Company recorded expenses to its officers in the following amounts:
|
|
|
Three months ended
June
30,
|
|
Six months ended
June 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
CEO, parent
|
|
$
|
45,000
|
|
|
$
|
30,000
|
|
|
$
|
90,000
|
|
|
$
|
60,000
|
|
|
Former CEO, Subsidiary
|
|
|
—
|
|
|
|
30,000
|
|
|
|
—
|
|
|
|
60,000
|
|
|
CCO
|
|
|
—
|
|
|
|
30,000
|
|
|
|
—
|
|
|
|
60,000
|
|
|
COO
|
|
|
45,000
|
|
|
|
—
|
|
|
|
90,000
|
|
|
|
—
|
|
|
CFO
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
60,000
|
|
|
|
60,000
|
|
|
Total
|
|
$
|
120,000
|
|
|
$
|
120,000
|
|
|
$
|
240,000
|
|
|
$
|
240,000
|
|
As of June 30, 2019, and December 31, 2018,
included in accounts payable and accrued expenses, related party is $498,882 and $552,806, respectively, for the following amounts
owed the Company’s officers for accrued fees, accounts payable and loans made. The loans have no terms of repayment.
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
CEO, parent
|
|
$
|
9,327
|
|
|
$
|
22,825
|
|
|
Former CEO, subsidiary
|
|
|
140,233
|
|
|
|
162,215
|
|
|
Former COO and CCO
|
|
|
190,785
|
|
|
|
236,905
|
|
|
COO
|
|
|
97,500
|
|
|
|
45,000
|
|
|
CFO
|
|
|
61,037
|
|
|
|
58,037
|
|
|
Non-officer affiliate
|
|
|
—
|
|
|
|
27,824
|
|
|
Total
|
|
$
|
498,882
|
|
|
$
|
552,806
|
|
Other
On February 9, 2018, the Company recorded a
stock subscription receivable from its officers and directors of $7,600 related to the issuance of 7,600,000 shares of common stock.
On April 1, 2019, the Company issued 1,000,000
shares of Series B Preferred Stock to the Company’s CEO. The shares were valued at $68,000 of which $25,000 was applied
to accrued liabilities-related and $43,000 was recorded as stock-based compensation expense-related parties.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
License
On February 1, 2018, Spinus entered into an
Intellectual Property Licensing Agreement (the “Licensing Agreement”). The Company assumed the obligations under the
Licensing Agreement and pledged the assets of Spinus as security. Pursuant to the terms of the Licensing Agreement, in consideration
of $250,000 Spinus has the exclusive rights to certain patents and the non-exclusive rights to other patents. The patents surround
mechanical or inflatable expandable interbody implant products. The Company paid the $250,000 on November 20, 2018. The Company
also will pay a royalty of 7% of net sales on any product sold utilizing any of the patents. There have not been any sales of the
licensed products and accordingly, no royalties have been incurred.
Consulting Agreements
On August 31, 2018, we entered into an
investor relations consulting agreement with Kingdom Building, Inc. (“Kingdom”) whereby Kingdom agreed to provide us
with investor relations, public relations and financial media relations consulting services. The term of the agreement is for a
period of 12 months. We may terminate the agreement after the initial six months on 60 days’ notice. We agreed to pay Kingdom
$8,500 per month which amount is deferred until we complete a financing transaction with a minimum raise of $1,500,000 in gross
proceeds. In addition, we issued Kingdom 650,000 shares of our unregistered common stock and reimburse them for certain out of
pocket expenses. The Company valued the common stock at $325,000, based on the market price of the common stock on the date
of the agreement, to be amortized over the one-year term. For the six months ended June 30, 2019, the Company amortized $162,500
as stock- based compensation expense. As of June 30, 2019, there remains $54,167 of deferred stock compensation on the consolidated
balance sheet, to be amortized over the remaining contract term.
On October 19, 2018, the Company entered into
a consulting agreement (the “Consulting Agreement”) with Draper Inc., a Nevada corporation (“Draper”).
Pursuant to the Consulting Agreement the Company engaged Draper as an independent consultant and Draper agreed to provide the Company
with consulting services. In exchange for the services to be provided by Draper pursuant to the Consulting Agreement, the Company
agreed to issue Draper a total of 1,800,000 unregistered shares of the Company’s $0.001 par value per share, common stock,
with 450,000 shares issued upon execution of the Consulting Agreement, and with 150,000 shares be issued and delivered each month
at the beginning of the fourth month to the beginning of the twelve month, until the total amount of shares is issued. Either party
can terminate the Consulting Agreement by giving 30 days written notice to the other party. The Company valued the initial 450,000
shares at $225,000, based on the market price of the common stock on the date of the agreement, to be amortized over the first
three months of the contract. For the six months ended June 30, 2019, the Company amortized $52,500 as stock-based compensation
expense. For the six months ended June 30, 2019, the Company recorded 900,000 shares of common stock to be issued, and valued the
shares at $400,470, based on the market price of the common stock on the date of the shares being earned. For the six months ended
June 30, 2019, the company amortized $395,920 as stock-based compensation expense. As of June 30, 2019, there remains $4,550 of
deferred stock compensation on the condensed consolidated balance sheet, to be amortized in July, 2019.
On February 27, 2019, the Company entered into
a Mutual Agreement of Understanding (the “Agreement”) with Eric Siu pursuant to which the Company agreed to approve
and ratify all of Mr. Sui’s and his related parties’ efforts at pursuing medical device sales and manufacturing in
greater China. Additionally, pursuant to the Agreement, the Company and Mr. Siu agreed to confirm and settle amounts owed to Mr.
Siu and related parties by the Company upon the completion of the audit of the Company as of December 31, 2018. On March 5, 2019,
Eric Sui resigned from his position as a member of the Board.
On March 4, 2019, the Company entered
into a Separation Agreement (the “Separation Agreement”) with Salman J. Chaudhry, pursuant to which Mr. Chaudry resigned
immediately from his positions as the CCO and Secretary of the Company and as a member of the Board and from all positions with
the Company effective immediately and 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. Mr. Chaudry’s resignation was
not
the result of any disagreement with the Company on any matter relating to the Company's operations, policies or practices. During
the six months ended June 30, 2019, the Company paid Mr. Chaudhry $36,415, and the balance owed is $190,785.
On March 24, 2019, the Company and Newbridge
Securities Corporation (“Newbridge”) entered into an Investment Banking Engagement Agreement (the “Agreement”).
Under the terms of the Agreement, Newbridge will provide investment banking and financial advisory services to the Company, including,
but not limited to assisting the Company with an up-listing process to a national exchange in the United States, introducing the
Company to other investment banking firms focused on servicing emerging growth companies; rendering advice related to capital structures,
capital market opportunities, evaluating potential capital raise transactions and assisting the Company to develop growth optimization
strategies. The term of the Agreement is 12 months from the date of the Agreement, however either party may terminate the Agreement
anytime upon 15 days written notice. As compensation for its services under the Agreement, Newbridge and its assignees received
171,400 shares of the Company’s common stock. The Agreement contains customary terms relating to payment of expenses, indemnification
and other matters. The Agreement also includes customary representations, warranties and covenants by the Company. The Company
valued the shares at $77,130, based on the market price of the common stock on the date of the agreement, to be amortized over
the one-year term of the contract. For the six months ended June 30, 2019, the Company amortized $20,782 as stock-based compensation
expense. As of June 30, 2019, there remains $56,348 of deferred stock compensation on the condensed consolidated balance sheet,
to be amortized over the remaining term of the agreement.
NOTE
9 - INCOME TAXES
The
Company was incorporated in the United States and has operations in two tax jurisdictions - the United States and Hong Kong. The
Company’s HK subsidiary is subject to a 16.5% profit tax based on its taxable net profit. The Company’s U.S. operations
are subject to income tax according to U.S. tax law.
A
reconciliation of the provision for income taxes determined at the U.S. statutory rate to the Company’s effective income
tax rate is as follows:
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
|
2019
|
|
2018
|
|
Pre-tax
loss
|
|
$
|
(2,821,397
|
)
|
|
$
|
(866,547
|
)
|
|
U.S. federal corporate
income tax rate
|
|
|
21
|
%
|
|
|
21
|
%
|
|
Expected U.S. income
tax credit
|
|
|
(592,493
|
)
|
|
|
(181,975
|
)
|
|
Tax rate difference
between U.S. and foreign operations
|
|
|
289
|
|
|
|
2,699
|
|
|
Permanent differences
|
|
|
414,713
|
|
|
|
71,445
|
|
|
Change
of valuation allowance
|
|
|
174,491
|
|
|
|
179,276
|
|
|
Effective
tax expense
|
|
$
|
—
|
|
|
$
|
—
|
|
The
Company had deferred tax assets as follows:
|
|
|
June
30, 2019
|
|
December
31, 2018
|
|
Net operating losses
carried forward
|
|
$
|
744,314
|
|
|
$
|
569,822
|
|
|
Less: Valuation
allowance
|
|
|
(744,314
|
)
|
|
|
(569,822
|
)
|
|
Net deferred
tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
As
of June 30, 2019, the Company has approximately $3,077,000 and $595,000 net operating loss carryforwards available in the United
States and Hong Kong, respectively, to reduce future taxable income. The net operating loss from Hong Kong operations can be carried
forward with no time limit from the year of the initial loss pursuant to relevant Hong Kong tax laws and regulations.
For
U.S. purposes the NOL deduction for a tax year is equal to the lesser of (1) the aggregate of the NOL carryovers to such year,
plus the NOL carry-backs to such year, or (2) 80% of taxable income (determined without regard to the deduction). Generally, NOLs
can no longer be carried back but are allowed to be carried forward indefinitely. The special extended carryback provisions are
generally repealed, except for certain farming and insurance company losses. The amendments incorporating the 80% limitation apply
to losses arising in tax years beginning after Dec. 31, 2017.
It is more likely than not that the deferred tax assets cannot
be utilized in the future because there will not be significant future earnings from the entity which generated the net operating
loss. Therefore, the Company recorded a full valuation allowance on its deferred tax assets.
As
of June 30, 2019, and December 31, 2018, the Company has no material unrecognized tax benefits which would favorably affect the
effective income tax rate in future periods, and does not believe that there will be any significant increases or decreases of
unrecognized tax benefits within the next twelve months. No interest or penalties relating to income tax matters have been imposed
on the Company during the six months ended June 30, 2019, and 2018, and no provision for interest and penalties is deemed necessary
as of June 30, 2019, and 2018.
The
U.S. Tax Cuts and Jobs Act (Tax Act) was enacted on December 22, 2017 and introduces significant changes to U.S. income tax law.
Effective in 2018, the Tax Act reduces the U.S. statutory tax rate from 35% to 21% and creates new taxes on certain foreign-sourced
earnings and certain related-party payments, which are referred to as the global intangible low-taxed income tax and the base
erosion tax, respectively. The Tax Act requires the Company to pay U.S. income taxes on accumulated foreign subsidiary earnings
not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets
and 8% on the remaining earnings.
Since the Company’s foreign subsidiaries have not generated income since inception, the Company believes
that Tax Act will not have significant impact on the Company’s consolidated financial statements.
NOTE
10 – STOCKHOLDERS’ EQUITY
Common stock
On October 13, 2018, the Board of Directors
of the Company authorized a Private Placement Memorandum (the “October PPM”) offering of a minimum of $50,000 and up
to $3,000,000 of up to 6,000,000 units (a “Unit”), for a price of $0.50 per Unit (the “Purchase Price”)
with each Unit consisting of one (1) share of Common Stock and a warrant (a “Warrant”) to purchase one (1) share of
Common Stock, with each Warrant having a three year term and an exercise price of $1.00 per share of Common Stock. During the six
months ended June 30, 2019, we sold 200,000 Units pursuant to the October PPM at $0.50 per Unit, issued 200,000 shares of our common
stock and received proceeds of $100,000.
During the six months ended June 30, 2019,
holders of an aggregate of $108,469 in principal and $46,971 of accrued interest of convertible notes issued by the Company, converted
their debt into 5,827,587 shares of our common stock at an average conversion price of $0.0267 per share.
On March 24, 2019, the Company
recorded the issuance of 171,400 of common stock for consulting services. The shares were valued at $0.45 per share (the
market price on the date of the agreement) and $77,130 was recorded as deferred stock-based compensation.
On June 14, 2019, the Company
recorded the issuance of 100,000 of common stock for consulting services. The shares were valued at $0.275 per share (the
market price on the date of the agreement) and $27,500 was recorded as stock-based compensation expense.
On June 27, 2019, the Company
recorded the issuance of 100,000 of common stock for consulting services. The shares were valued at $0.045 per share (the
market price on the date of the agreement) and $4,500 was recorded as stock-based compensation expense.
As of June 30, 2019, the Company has 290,000,000
(increased to 990,000,000 0n August 25, 2019) shares of $0.001 par value common stock authorized and there are 35,467,189 shares
of common stock issued and outstanding.
Common stock to be issued
On October 19, 2018, the Company entered into
a consulting agreement Draper (see note 8). Pursuant to the consulting agreement the Company engaged Draper as an independent consultant
and Draper agreed to provide the Company with consulting services. In exchange for the services to be provided by Draper pursuant
to the consulting agreement, the Company agreed to issue Draper a total of 1,800,000 unregistered shares of the Company’s
$0.001 par value per share, common stock, with 450,000 shares issued upon execution of the Consulting Agreement, and with 150,000
shares be issued and delivered each month at the beginning of the fourth month to the beginning of the twelve month, until the
total amount of shares is issued. Either party can terminate the Consulting Agreement by giving 30 days written notice to the other
party. For the six months ended June 30, 2019, the Company recorded 900,000 shares of common stock to be issued, and valued the
shares at $400,470, based on the market price of the common stock on the date of the shares being earned. For the six months ended
June 30, 2019, the company amortized $395,920 as stock-based compensation expense. As of June 30, 2019, there are 900,000 shares
of common stock to be issued.
Preferred stock
As of June 30, 2019, 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. On
March 28, 2019, the Company filed a Certificate of Designation with the Secretary of State of Nevada to designate 1,000,000 shares
as Series B Preferred Stock. The Series B Preferred Stock is not convertible into common stock, nor does the Series B Preferred
Stock have any right to dividends and any liquidation preference. The Series B Preferred Stock entitles its holder to a number
of votes per share equal to 50 votes. On April 1, 2019, the Company issued 1,000,000 shares of Series B Preferred Stock to the
Company’s CEO.
Stock subscription
receivable
On February 9,
2018, the Company recorded a stock subscription receivable from its officers and directors of $7,600 related to the issuance of
7,600,000 shares of common stock.
NOTE 11 –
SEGMENT REPORTING, GEOGRAPHICAL INFORMATION
For
the three and six months ended June 30, 2019, the Company operated only in the United States. For the three and six months ended
June 30, 2018, the Company operated in two geographic segments, the United States and Hong Kong. Set out below are the revenues,
gross profits and total assets for each segment.
|
|
|
Three
months ended
June
30, 2018
|
|
Six
months ended
June
30, 2018
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
34,660
|
|
|
$
|
41,387
|
|
|
Hong
Kong
|
|
$
|
44,853
|
|
|
$
|
44,853
|
|
|
|
|
$
|
79,513
|
|
|
$
|
86,240
|
|
|
Gross
Profit
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
34,660
|
|
|
$
|
41,387
|
|
|
Hong
Kong
|
|
$
|
7,475
|
|
|
$
|
7,475
|
|
|
|
|
$
|
42,135
|
|
|
$
|
48,862
|
|
|
|
|
June
30, 2019
|
|
December
31, 2018
|
|
Total
Assets:
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
409,949
|
|
|
$
|
658,350
|
|
|
Hong
Kong
|
|
|
372
|
|
|
|
869
|
|
|
Total
Assets
|
|
$
|
410,321
|
|
|
$
|
659,219
|
|