SCHEDULE OF NOTES PAYABLE
| | |
March 31, 2022 | | |
December 31, 2021 | |
| | |
| | |
| |
| |
$ | 134,681 | | |
$ | 134,681 | |
| Note payable bank, interest at 7.75%, matured December 5, 2021, currently in default | |
$ | 134,681 | | |
$ | 134,681 | |
| Note payable bank, interest at 6.5%, matured December 26, 2021, in default | |
| 344,166 | | |
| 344,166 | |
| Economic Injury Disaster Loan | |
| 10,000 | | |
| 10,000 | |
| Paycheck Protection Program loan | |
| 100,400 | | |
| 100,400 | |
| Notes payable, interest at 8%, matured January 5, 2020, in default | |
| 45,000 | | |
| 45,000 | |
| Other, due on demand, interest at 6%, currently in default | |
| 50,000 | | |
| 50,000 | |
| Note payable $750,000 face value, interest at 12%, matured August 24, 2021, in default | |
| 375,000 | | |
| 375,000 | |
| Note payable $389,423 face value, interest at 18%, matures November 6, 2023 | |
| 389,423 | | |
| 389,423 | |
| Note payable $1,000,000 face value, interest at 12%, matured November 13, 2021, in default | |
| 1,000,000 | | |
| 1,000,000 | |
| Note payable $2,200,000 face value, interest at 12%, matured February 9, 2022, net of discount of $243,833 (2021), in default | |
| 2,200,000 | | |
| 1,956,167 | |
| Note payable $11,110,000 face value, interest at 12%, matured March 17, 2022, net of discount of $2,314,583 (2021), in default | |
| 11,110,000 | | |
| 8,795,417 | |
| Note payable $3,300,000 face value, interest at 12%, matures December 7, 2022, net of discount of $2,278,820 (2022) and $3,099,524 (2021) | |
| 1,021,180 | | |
| 200,476 | |
| Sub- total notes payable | |
| 16,779,851 | | |
| 13,400,730 | |
| Less long-term portion | |
| 389,423 | | |
| 389,423 | |
| Current portion of notes payable, net of discount | |
$ | 16,390,428 | | |
$ | 13,011,307 | |
On
December 7, 2021, the Company entered into a 12%, $3,300,000 face value promissory note with a third- party lender with a maturity date
of December 7, 2022. In exchange for the issuance of the $3,300,000 note, inclusive of an original issue discount of $300,000, the Company
received proceeds of $3,000,000 on December 13, 2021, from the lender. In conjunction with the note, the Company issued a warrant to
purchase 75,000,000 shares of common stock at $0.039 per share (subject to adjustments) with an expiry date on the three- year anniversary
of the note. For the three months ended Mach 31, 2022, amortization of the costs of $75,000 was charged to interest expense. The fair
value of the warrant calculated by the Black- Scholes option pricing method of $2,982,815 has been recorded as an initial debt and an
initial derivative liability of $2,982,815. For the three months ended March 31, 2022, amortization of the warrant discount of $745,704
was charged to interest expense. As of March 31, 2022, and December 31, 2021, the outstanding principal balance of this note was $3,300,000
with a carrying value of $1,021,180 and $200,476, respectively, net of unamortized discounts of $2,278,820 and $3,099,524, respectively.
On
March 17, 2021, the Company entered into a 12%, $11,110,000 face value promissory note with a third- party lender with a maturity date
of March 17, 2022. This note is now in default. In exchange for the issuance of the $11,110,000 note, inclusive of an original issue
discount of $1,000,000 and lender costs of $110,000 the Company received proceeds of $10,000,000 on March 23, 2021, from the lender.
In conjunction with the note, the Company issued a warrant to purchase 250,000,000 shares of common stock at $0.13 per share (subject
to adjustments) with an expiry date on the three- year anniversary of the note. For the three months ended March 31, 2022, amortization
of the costs of $231,250 was charged to interest expense. The fair value of the warrant calculated by the Black- Scholes option pricing
method of $33,248,433 has been recorded as an initial debt discount of $10,000,000, interest expense of $23,248,433 and initial derivative
liability of $32,248,433. For the three months ended March 31, 2022, amortization of the warrant discount of $2,083,333 was charged to
interest expense. As of March 31, 2022, and December 31, 2021, the outstanding principal balance of this note was $11,110,000 with a
carrying value of $11,100,000 and $8,795,417, respectively, net of unamortized discounts of $2,314,583 as of December 31, 2021. As of
March 31, 2022, and December 31, 2021, the accrued interest is $1,362,421 and $1,033,687, respectively. The Company is in discussions
with the lender regarding the extension of the maturity date of this note.
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. This note is now in default. In exchange for the issuance of the $2,200,000 note, inclusive of an original issue
discount of $200,000 the Company received proceeds of $2,000,000 on February 16, 2021, from the lender. In conjunction with the note,
the Company issued a warrant to purchase 50,000,000 shares of common stock at $0.15 per share (subject to adjustments) with an expiry
date on the three- year anniversary of the note. For the three months ended March 31, 2022, amortization of the costs of $22,167 was
charged to interest expense. The fair value of the warrant calculated by the Black- Scholes option pricing method of $17,659,506 has
been recorded as an initial debt discount of $2,000,000, interest expense of $15,659,506 and initial derivative liability of $17,659,506.
For the three months ended March 31, 2022, amortization of the warrant discount of $221,667 was charged to interest expense. As of March
31, 2022, and December 31, 2021, the outstanding principal balance of this note was $2,200,000 with a carrying value as of December 31,
2021, of $1,956,167, net of unamortized discounts of $243,833. As of March 31, 2022, and December 31, 2021, the accrued interest is $295,825
and $230,729, respectively. The Company is in discussions with the lender regarding the extension of the maturity date of this note.
On
November 13, 2020, the Company entered into a 12%, $1,000,000 face value promissory note with a third-party due November 13, 2021. Principal
payments shall be made in six instalments of $166,667 commencing 180 days from the issue date and continuing each 30 days thereafter
for 5 months and the final payment of principal and interest due on the maturity date. The Company received proceeds of $890,000 on November
20, 2020, and the Company reimbursed the investor for expenses for legal fees and due diligence of $110,000.. In conjunction with this
note, the Company issued 2 common stock purchase warrants; each warrant entitles the Holder to purchase 125,000,000 shares of common
stock at an exercise price of $0.008, subject to adjustments and expires on the five-year anniversary of the issue date. As of March
31, 2022 and December 31, 2021, the outstanding principal balance of this note was $1,000,000. This note is in default and the interest
rate from the date of default is the lesser of 24% or the highest amount permitted by law. As of March 31, 2022, and December 31, 2021,
the accrued interest is $194,630 and $135,452, respectively. The Company is in discussions with the lender regarding the extension of
the maturity date of this note.
On
November 6, 2020, the Company entered into a Settlement Agreement with the holder of $120,000 of convertible notes with accrued and unpaid
interest of $8,716 and a $210,000 Promissory Noted dated June 23, 2020 with accrued and unpaid interest of $15,707. The Company issued
a new 12% Promissory Note with a face value of $389,423 and a maturity date of November 6, 2023. In conjunction with this settlement,
the Company issued a warrant to purchase 60,000,000 shares of common stock at an exercise price of $0.0075, subject to adjustments and
expires on the five-year anniversary of the issue date. The Company analyzed the transaction and concluded that this was a modification
to the existing debt. The investor exercised the warrant on January 14, 2021.
On
October 26, 2016, PCTI entered into a $210,000 note payable with a bank. On March 15, 2021, due to defaults with the terms of the note,
the note was amended with the outstanding balance due December 5, 2021, and the interest rate changed to 7.75%. Borrowings are collateralized
by substantially all of the assets of PCTI and the personal guarantee of PCTI’s former President. As of December 31, 2021, and
December 31, 2020, $134,681 and $151,469, respectively, was outstanding on the note payable. This note is in default. On April 19, 2022,
PCTI received a Notice of Default, Demand and Reservation of Rights (the “Notice”) from the bank’s legal counsel. The
Notice is also addressed to Catherine Chis (former President of PCTI and a guarantor on the note. The Company has engaged legal counsel
and they are in discussions with bank’s counsel regarding a potential workout.
On
March 15, 2021, PCTI renewed their $350,000 promissory note with a bank that provides for borrowings of up to $350,000. Interest is due
monthly and the principal is due on December 26, 2021, interest rate changed to the prime rate plus 3.25% (6.5% at March 15, 2021). Borrowings
are collateralized by substantially all of the assets of PCTI and the personal guarantee of PCTI’s former President. As of December
31, 2021, and December 31, 2020, $344,166 and $345,211, respectively, was outstanding on the promissory note. This note is in default.
On April 19, 2022, PCTI received a Notice of Default, Demand and Reservation of Rights (the “Notice”) from the bank’s
legal counsel. The Notice is also addressed to Catherine Chis (former President of PCTI and a guarantor on the note. The Company has
engaged legal counsel and they are in discussions with bank’s counsel regarding a potential workout.
On
August 24, 2020 (the “Issue Date”), the Company entered into a 12%, $750,000 face value promissory note with a third-party
(the “Holder”) due August 24, 2021 (the “Maturity Date”). Principal payments shall be made in six instalments
of $125,000 commencing 180 days from the Issue Date and continuing each 30 days thereafter for 5 months and the final payment of principal
and interest due on the Maturity Date. The Holder shall have the right from time to time, and at any time following an event of default,
as defined on the agreement, to convert all or any part of the outstanding and unpaid principal, interest and any other amounts due into
fully paid and non-assessable shares of common stock of the Company, at the lower of i) the Trading Price (as defined in the agreement)
during the previous five trading days prior to the Issuance Date or ii) the volume weighted average price during the five trading days
ending on the day preceding the conversion date. The Company received proceeds of $663,000 on August 25, 2020, and the Company reimbursed
the investor for expenses for legal fees and due diligence of $87,000. For the year ended December 31, 2021, amortization of the costs
of $56,188 was charged to interest expense. In conjunction with this Note, the Company issued 2 common stock purchase warrants; each
warrant entitles the Holder to purchase 122,950,819 shares of common stock at an exercise price of $0.0061, subject to adjustments and
expires on the five-year anniversary of the Issue Date. The warrants issued resulted in a debt discount of $750,000. During the year
ended December 31, 2021, the Company paid $375,000 to the Holder. On May 3, 2021, the Company issued 75,000,000 shares of common stock
to the Holder, upon the cashless exercise of a portion of the warrants. As of March 31, 2022, and December 31, 2021, the outstanding
principal balance of this note was $375,000. This note is in default and the interest rate from the date of default is the lesser of
24% or the highest amount permitted by law. As of March 31, 2022, and December 31, 2021, the accrued interest is $112,747 and $90,247,
respectively. The Company is in discussions with the lender regarding the extension of the maturity date of this note.
On
April 20, 2020, PCTI was granted a loan from Huntington Bank in the amount of $100,400, pursuant to the Paycheck Protection Program (“PPP”)
under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The loan matures on April 20, 2022 and bears interest at
a rate of 1.0% per annum, payable monthly beginning on November 20, 2020. The loan may be prepaid at any time prior to maturity with
no prepayment penalties. Payments are deferred until the SBA determines the amount to be forgiven. The Company utilized the proceeds
of the PPP loan in a manner which will enable qualification as a forgivable loan. On March 26, 2021, the Company received notice from
Huntington Bank the they have determined that PCTI’s loan forgiveness application has been approved and has been submitted to the
SBA. On December 2, 2021, PCTI received a notice from Huntington Bank that the SBA has denied PCTI’s application for loan forgiveness,
due to inaccurate statements in the loan application as submitted by the former CEO of PCTI. The balance on this PPP loan was $100,400
as of March 31, 2022, and December 31, 2021, and has been classified in notes payable.
On
July 14, 2020, PCTI received $10,000 grant under the Economic Injury Disaster Loan (“EIDL”) program. Up to $10,000 of the
EIDL can be forgiven as long as such funds were utilized to provide working capital. The first payment due is deferred one year. The
loan balance of March 31, 2022, and December 31, 2021 was $10,000 and has been classified in notes payable.
NOTE
8 – DEFERRED LIABILITY
On
September 2, 2020, PCTI entered into an agreement with a third- party. Pursuant to the terms of the agreement, in exchange for $750,000,
PCTI agreed to pay the third-party a perpetual three percent (3%) payment of revenues, as defined in the agreement. Payments are due
ninety (90) days after each calendar quarter, with the first payment due on or before March 31, 2021, for revenues for the quarter ending
December 31, 2020. The Company has recorded the $750,000 as deferred liability on the March 31, 2022, and December 31, 2021, condensed
consolidated balance sheet. No payments have been made and the Company is in default of the agreement. On February 26, 2021, the agreement
was assigned to Ozop and on March 4, 2021, the note was amended, whereby in exchange for 175,000,000 shares of common stock, the royalty
percentage was amended to 1.8%. The Company valued the shares at $0.094 per share (the market value of the common stock on the date of
the agreement) and recorded $16,450,000 as debt restructure expense on the condensed consolidated statement of operations for
the three months ended March 31, 2021.
NOTE
9 – DEFERRED REVENUE
During
the year ended December 31, 2020, the Company received $64,353 form a customer for a payment of a three- year extended warranty. The
extended warranty period is from, March 2021 through February 2024, and accordingly the Company will recognize the revenue over such
period. For the three months ended March 31, 2022, and 2021, the Company recognized $5,363 and $xxxx, respectively, of revenue. Of the
remaining deferred revenue of $41,115, $21,451 is recognized as the current portion of deferred revenue and $19,664 is classified as
a long- term liability on the condensed consolidated financial statements. As of December 31, 2021, $21,451 is classified as the current
portion and $25,026 is classified as a long- term liability on the condensed consolidated financial statements.
NOTE
10 – RELATED PARTY TRANSACTIONS
Employment
Agreement
On
July 10, 2020, pursuant to the PCTI transaction, the Company assumed an employment contract entered into on February 28, 2020, between
the Company and Mr. Conway (the “Employment Agreement”). Mr. Conway’s compensation as adjusted was $20,000 per month,
and effective September 1, 2021, Mr. Conway receives $10,000 per month from Ozop Capital.
Effective
January 1, 2022, the Company entered into a new employment agreement with Mr. Conway. Pursuant to the agreement, Mr. Conway received
a $250,000 contract renewal bonus and will receive an annual compensation of $240,000 from the Company and will also be eligible to receive
bonuses and equity grants at the discretion of the BOD. The Company also agreed to compensate Mr. Conway for services provided directly
to any of the Company’s subsidiaries. Ozop Capital increased Mr. Conway’s compensation to $20,000 per month in January 2022
and OES began compensating Mr. Conway $20,000 in March 2022.
Series
E Preferred Stock
On
March 21, 2021, the Company issued 2,000 shares of Series E Preferred Stock (see Note 12), 1,800 of the shares were issued to Mr. Conway.
Pursuant to the terms and conditions of the Certificate of Designation of the Series E Preferred Stock, including the redemption value
of $1,000 per share, the Company recorded $1,800,000 as stock compensation expense for the Series E shares issued to Mr. Conway. During
the three months ended March 31, 2021, the Company redeemed the 1,800 shares issued to Mr. Conway and recorded $1,800,000 of expense
related to the shares issued to Mr. Conway. On April 16, 2021, the Board of Directors (the “BOD”) of the Company authorized
the issuance 2,000 shares of Series E Preferred stock, of which 1,050 were issued to Mr. Conway.
Management
Fees and related party payables
For
the three months ended March 31, 2022, and 2021, the Company recorded expenses to its officers in the following amounts:
SCHEDULE
OF EXPENSES TO OFFICERS
| | |
|
2021 | | |
|
2020 | |
| | |
Three months ended
March 31, | |
| | |
2022 | | |
2021 | |
| CEO, parent | |
$ | 390,000 | | |
$ | 279,999 | |
| CEO, parent- Series E Preferred Stock | |
| - | | |
| 1,800,000 | |
| President, subsidiary (resigned July 2021) | |
| - | | |
| 35,009 | |
| Total | |
$ | 125,583 | | |
$ | 2,115,008 | |
Redemption
of Series C and Series D Preferred Stock
On
July 13, 2021, the Company entered into a Definitive Agreement (the “Agreement”) with Chis to purchase the 47,500 shares
of the Company’s Series C Preferred Stock held by Chis and the 18,667 shares of the Company’s Series D Preferred Stock held
by Chis for the total purchase price of $11,250,000. In conjunction with the Agreement, Chis resigned from any and all positions held
in the Company’s wholly owned subsidiary, PCTI. Further, Chis agreed that upon her resignation and for a period of five years thereafter
(the “Restriction Period”), she shall not, directly or indirectly, solicit the employment of, assist in the soliciting of
the employment of, or hire any employee or officer of the Company, including those of any of its present or future subsidiaries, or induce
any person who is an employee, officer, agent, consultant or contractor of the Company to terminate such relationship with the Company.
Additionally, Chis agreed that during the Restriction Period, she shall not compete with the Company or PCTI anywhere worldwide or be
employed by any competitor of the Company.
NOTE
11 – COMMITMENTS AND CONTINGENCIES
Leases
On
January 2, 2021, the Company entered into a ten (10) year lease for a 6-bay garage storage facility of approximately 2,500 square feet.
Pursuant to the lease the Company agreed to issue 100,000,000 shares of restricted common stock. The shares were certificated on March
8, 2021, with an effective date of January 2, 2021. The Company valued the shares $0.0063, (the market value of the common stock on the
date of the agreement) and has recorded $630,000 as a prepaid expense. The Company has not yet taken occupancy of the space, and is in
discussions with the landlord to lease a different property and applying the market value of the shares issued to the lease on the new
property.
Agreements
On
September 1, 2021, Ozop Capital entered into an advisory agreement (the “RMA Agreement”) with Risk Management Advisors, Inc.
(“RMA”). Pursuant to the terms of the RMA Agreement, RMA will assist Ozop Capital in analyzing, structuring, and coordinating
Ozop Capital’s participation in a captive insurance company. RMA will coordinate legal, accounting, tax, actuarial and other services
necessary to implement the Company’s participation in a captive insurance company, including, but not limited to, the preparation
of an actuarial feasibility study, filing of all required regulatory applications, domicile selection, structural selection, and coordination
of the preparation of legal documentation. In connection with the services listed above, Ozop Capital agreed to pay $50,000 and to issue
$50,000 of shares of restricted common stock. One-half of the cash and stock were due upon the signing of the RMA Agreement. Accordingly,
RMA received $25,000 and 452,080 shares of restricted common stock of the Company in September 2021. The balance of the cash and stock
became due on October 29, 2021, upon the issuance of the captive insurance company’s certificate of authority from the state of
Delaware. The Company has paid the $25,000 balance and recorded 637,755 shares of common stock to be issued.
On
April 13, 2021, the Company agreed to engage PJN Strategies, LLC (“PJN”) as a consultant. Pursuant to the agreement, the
Company agreed to compensate PJN $20,000 per month. Effective September 1, 2021, a new agreement was entered into between PJN and Ozop
Capital. Pursuant to the terms of the new one- year agreement Ozop Capital agreed to compensate PJN $84,000 per month. For the three
months ended March 31, 2022, the Company recorded $252,000,of consulting expenses.
On
April 16, 2021, the Company signed a letter of agreement with Rubenstein Public Relations, Inc. (“RPR”). Pursuant to the
letter of agreement, the Company agreed to engage RPR, effective May 1, 2021, on a month-to-month basis for $17,000 per month.. The Company
terminated the agreement in October 2021.
On
March 30, 2021, OES hired 2 individuals as Co-Directors of Sales. Pursuant to their respective offers of employment, the Company agreed
to an annual salary of $130,000 with a signing bonus of $20,000 for each and to issue each 2,500,000 shares of restricted common stock
upon the execution of the agreements and every 90 days thereafter for the first year as long as the employee is still employed. The Company
valued the initial shares at $0.092 per share (the market price of the common stock on the date of the agreement), and $460,000 is included
in stock-based compensation expense for the three months ended March 31, 2021. On January 14, 2022, the Company issued each of the Co-Directors
their final 2,500,000 shares due. The shares were valued at $0.027 per share (the market price of the common stock on the date of the
issuance), and $135,000 is included in stock-based compensation expense for the year ended March 31, 2022. One of the individuals resigned
on January 24, 2022.
On
March 15, 2021, the Company entered into a consulting agreement with Aurora Enterprises (“Aurora”). Mr. Steven Martello is
a principal of Aurora. Pursuant to the agreement Mr. Martello will provide strategic analysis regarding existing markets and revenue
streams as well as the development of new lines of revenue. The Company agreed to a monthly retainer fee of $10,000 and to issue to Aurora
or their designee 5,000,000 shares of restricted common stock. The shares were issued in April 2021. Aurora designated the shares to
be issued to Pegasus Partners, Inc. For the three months ended March 31, 2022, the Company has recorded $30,000 of consulting expenses.
On
February 24, 2021, the Company entered into a consulting agreement with Christopher Ruppel. Pursuant to the agreement Mr. Ruppel was
to join the Ozop Advisory Board. During the year ended December 31, 2021, the Company issued 10,000,000 shares of restricted common stock
to Mr. Ruppel and agreed to a monthly fee of $2,500. The Company valued the shares at $0.2386 per share (the market price of the common
stock on the date of the agreement), and $2,386,000 is included in stock-based compensation expense for the three months ended March
31, 2021. Effective April 1, 2021, the agreement was amended to $10,000 per month. Effective May 1, 2021, the Company was no longer using
the services of Mr. Ruppel. For the three months ended March 31, 2021, the Company recorded $2,500 of consulting expenses.
On
February 19, 2021, the Company entered into a Joint Business Alliance agreement with Grid and Energy Master Planning, LLC (“GEMM”).
GEMM will provide advisory, financing and implementation solutions for behind-the-meter customers in the areas of energy efficiency,
solar, EV charging, and battery storage for OES. The GEMM services allows OES to provide one-stop-shopping in these emerging and maturing
sectors. As of March 31, 2022, there has not been any transactions related to this agreement and the Company is continuing to evaluate
the accounting treatment of any future transactions.
On
January 22, 2021, the Company issued 10,000,000 shares of restricted common stock for legal services performed in 2020 and approved by
the BOD of the Company on December 1, 2020. The Company valued the shares at $0.0056 per share (the market price of the common stock
on the date of the agreement), and $56,000 is included in stock-based compensation expense for the three months ended March 31, 2021.
On
January 14, 2021, the Company entered into a Consulting Agreement with Mr. Allen Sosis. Pursuant to the agreement, Mr. Sosis will provide
services as the Director of Business Development for the Company’s wholly owned subsidiary. Pursuant to the agreement, as amended,
the Company will pay Mr. Sosis a monthly fee of $15,000 and an additional $1,000 in benefits. The Company also agreed to issue Mr. Sosis
5,000,000 shares of restricted common stock. The shares were issued in April 2021. The Company valued the shares at $0.20 per share (the
market price of the common stock on the date of the agreement), and $1,000,000 was recorded as deferred stock compensation, to be amortized
over the one-year term of the agreement. The Company terminated Mr. Sosis’s employment in October 2021, and accordingly, for the
year ended December 31, 2021, $1,000,000 is included in stock-based compensation expense. For the three months ended March 31, 2021,
the Company recorded $45,000 of consulting expenses, and effective June 1, 2021, Mr. Sosis became an employee of the Company through
his termination with a $15,000 per month salary.
On
January 6, 2021, the Company entered into a consulting agreement with Ezra Green to begin on February 8, 2021. The Company agreed to
issue 10,000,000 shares of restricted common stock to Mr. Green and to a monthly fee of $2,500. The Company valued the shares at $0.0076
per share (the market price of the common stock on the date of the agreement), and $76,000 was recorded as deferred stock-based compensation,
to be amortized over the one-year term of the agreement. Effective April 1, 2021, the agreement was amended to $10,000 per month. For
the three months ended March 31, 2022, and 2021, the Company recorded $30,000 and $4,500, respectively, of consulting expenses.
On
March 4, 2019, the Company entered into a Separation Agreement (the “Separation Agreement”) with Salman J. Chaudhry, pursuant
to which the Company agreed to pay Mr. Chaudry $227,200 (the “Outstanding Fees”) in certain increments as set forth in the
Separation Agreement. As of March 31, 2022 and December 31, 2021, the balance owed Mr. Chaudhry is $162,085.
On
September 2, 2020, PCTI entered into an Agreement with a third- party. Pursuant to the terms of the agreement, in exchange for $750,000,
PCTI agreed to pay the third-party a perpetual three percent (3%) payment of revenues, as defined in the agreement. On February 26, 2021,
the agreement was assigned to Ozop and on March 4, 2021, the agreement was amended, whereby in exchange for 175,000,000 shares of common
stock, the royalty percentage was amended to 1.8% (see Note 8). The Company valued the shares at $0.094 per share (the market value of
the common stock on the date of the agreement) and recorded $16,450,000 as debt restructure expense on the condensed consolidated statement
of operations for the three months ended March 31, 2021.
Legal
matters
We
know of no material, existing or pending legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding
or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial
shareholder, is an adverse party or has a material interest adverse to our interest.
NOTE
12– STOCKHOLDERS’ EQUITY
Common
stock
During
the three months ended March 31, 2022, the Company issued 5,000,000 shares of restricted common stock in the aggregate for services.
During
the three months ended March 31, 2021, holders of an aggregate of $760,500 in principal and $116,594 of accrued interest and fees of
convertible and promissory notes, converted their debt into 428,747,654 shares of our common stock at an average conversion price of
$0.002 per share.
During
the three months ended March 31 2021, the Company also issued the following shares of restricted common stock:
| |
● |
100,000,000
shares of restricted common stock pursuant to a lease agreement (see Note 11). |
| |
● |
175,000000
shares of restricted common stock pursuant to restructuring agreement related to a deferred liability (see Note 9). |
| |
● |
20,000,000
shares of restricted common stock in the aggregate for services and consulting agreements. |
During
the three months ended March 31, 2021, the Company also issued 330,797,987 shares of common stock upon the cashless exercise of common
stock purchase warrants.
As
of March 31, 2022, the Company has 4,990,000,000
shares of $0.001
par value common stock authorized and there are
4,622,362,977 shares
of common stock issued and outstanding.
Preferred
stock
As
of March 31, 2022, and December 31, 2021, 10,000,000 shares have been authorized as preferred stock, par value $0.001 (the “Preferred
Stock”), which such Preferred Stock shall be issuable in such series, and with such designations, rights and preferences as the
Board of Directors may determine from time to time.
Series
C Preferred Stock
On
July 7, 2020, the Company filed an Amended and Restated Certificate of Designation with the State of Nevada of the Company’s Series
C Preferred Stock. Under the terms of the Amendment to Certificate of Designation of Series C Preferred Stock, 50,000 shares of the Company’s
preferred remain designated as Series C Preferred Stock. The holders of Series C Preferred Stock have no conversion rights and no dividend
rights. For so long as any shares of the Series C Preferred Stock remain issued and outstanding, the Holder thereof, voting separately
as a class, shall have the right to vote on all shareholder matters equal to sixty-seven (67%) percent of the total vote. On July 10,
2020, pursuant to the SPA with PCTI, the Company issued 47,500 shares of Series C preferred Stock to Chis. On July 13, 2021, the Company
purchased 47,500 shares of the Company’s Series C Preferred Stock held by Chis (see Note 11). As of December 31, 2021, and 2020,
there were 2,500 and 50,000 shares, respectively, of Series C Preferred Stock issued and outstanding, of which 2,500 shares are held
by Mr. Conway.
Series
D Preferred Stock
On
July 7, 2020, the Company filed a Certificate of Designation with the State of Nevada of the Company’s Series D Preferred Stock.
Under the terms of the Certificate of Designation of Series D Preferred Stock, 20,000 shares of the Company’s preferred stock have
been designated as Series D Convertible Preferred Stock. The holders of the Series D Convertible Preferred Stock shall not be entitled
to receive dividends. The holders as a group may, at any time convert all of the shares of Series D Convertible Preferred Stock into
a number of fully paid and nonassessable shares of common stock determined by multiplying the number of issued and outstanding shares
of common stock of the Company on the date of conversion, by 3. Except as provided in the Certificate of Designation or as otherwise
required by law, no holder of the Series D Convertible Preferred Stock shall be entitled to vote on any matter submitted to the shareholders
of the Company for their vote, waiver, release or other action. The Series D Convertible Preferred Stock shall not bear any liquidation
rights. On July 10, 2020, pursuant to the SPA with PCTI, the Company issued 18,667 shares of Series D preferred Stock to Chis, and on
August 28, 2020, pursuant to Mr. Conway’s employment agreement, the Company issued 1,333 shares of Series D Preferred Stock to
Mr. Conway. On July 13, 2021, the Company purchased 18,667 shares of the Company’s Series D Preferred Stock held by Chis (see Note
10).
On
July 27, 2021, the Company filed with the Secretary of State of the State of Nevada an Amended and Restated Certificate of Designation
of Series D Preferred Stock (the “Series D Amendment”). Under the terms of the Series D Amendment, 4,570 shares of the Company’s
preferred stock will be designated as Series D Convertible Preferred Stock. The holders of the Series D Convertible Preferred Stock shall
not be entitled to receive dividends. Any holder may, at any time convert any number of shares of Series D Convertible Preferred Stock
held by such holder into a number of fully paid and nonassessable shares of common stock determined by multiplying the number of issued
and outstanding shares of common stock of the Company on the date of conversion, by 1.5 and dividing that number by the number of authorized
shares of Series D Convertible Preferred Stock multiplied by the number of shares of Series D Convertible Preferred Stock being converted.
Except as provided in the Series D Amendment or as otherwise required by law, no holder of the Series D Convertible Preferred Stock shall
be entitled to vote on any matter submitted to the shareholders of the Company for their vote, waiver, release or other action. The Series
D Convertible Preferred Stock shall not bear any liquidation rights. On July 28, 2021, the Company closed on a Stock and Warrant Purchase
Agreement (the “Series D SPA”). Pursuant to the terms of Series D SPA, an investor in exchange for $13,200,000 purchased
one share of Series D Preferred Stock, and a warrant to acquire 3,236 shares of Series D Preferred Stock. As of March 31, 2022, and December
31, 2021, there were 1,334, respectively, of Series D Preferred Stock issued and outstanding and warrants to purchase 3,236 shares of
Series D Preferred Stock are outstanding as of March 31, 2022, and December 31, 2021.
The
warrant has a 15- year term and Partial Warrant Lock Up and Leak-Out Period. The Holder may only exercise the Warrant and purchase Warrant
Shares as follows:
| |
i. |
Up
to 162 (one hundred and sixty-two) Warrant Shares, at any time or times on or after five (5) business days from the closing of the
Series D SPA (“the Initial Exercise Date”) subject to up to a maximum number of Warrant Shares that, if converted, would
be equal to no more than a maximum of 4.99% of the total number of outstanding shares of Common Stock of the Company and no later
than on or before the 15th year anniversary of the Initial Exercise Date (“the Termination Date”); and |
| |
|
|
| |
ii. |
The
Remainder of the Warrant representing up to 3,074 (three thousand and seventy-four) Warrant Shares (“Remaining Warrant Shares”)
shall be locked up for a period of 36 (thirty-six) months from the Initial Exercise Date (“Lock Up Period”) and shall
become exercisable at any time or times from the date that is the 36 (thirty-six) month anniversary of the Initial Exercise Date
(“Lock Up Period Termination Date”) and no later than on or before the Termination Date, as follows: |
| |
a. |
During
every 1(one) year period, starting on the day that is the Lock Up Period Termination Date, the Holder shall have the right to exercise
the Remainder of the Warrant up to a maximum number of Remaining Warrant Shares that, if converted, would be equal to no more than
a maximum of 4.99% of the total number of outstanding shares of Common Stock of the Company during such given year (“Leak-Out
Period”). The Leak-Out Period shall come into effect on the day that is the Lock Up Period Termination Date and remain effective
on a yearly basis, for a period of 10 (ten) years thereafter, after which the Leak-Out Period will automatically terminate and become
null and void. For clarity purposes the Remainder of the Warrant shall become freely exercisable at any time or times beginning on
June 29, 2034 and until the Termination Date. |
Series
E Preferred Stock
On
July 7, 2020, the Company filed a Certificate of Designation with the State of Nevada of the Company’s Series E Preferred Stock.
Under the terms of the Certificate of Designation of Series E Preferred Stock, 3,000 shares of the Company’s preferred stock have
been designated as Series E Preferred Stock. The holders of the Series E Convertible Preferred Stock shall not be entitled to receive
dividends. No holder of the Series E Preferred Stock shall be entitled to vote on any matter submitted to the shareholders of the Corporation
for their vote, waiver, release or other action, except as may be otherwise expressly required by law. At any time, the Corporation may
redeem for cash out of funds legally available therefor, any or all of the outstanding Preferred Stock (“Optional Redemption”)
at $1,000 (one thousand dollars) per share. The shares of Series E Preferred Stock have not been registered under the Securities Act
of 1933 or the laws of any state of the United States and may not be transferred without such registration or an exemption from registration.
On July 10, 2020, pursuant to the SPA with PCTI, the Company issued 500 shares of Series E preferred Stock to Chis, and on August 28,
2020. Pursuant to Mr. Conway’s employment agreement, the Company issued 500 shares of Series E Preferred Stock to Mr. Conway. On
March 2, 2021, the BOD authorized the issuance of 1,800 shares of Series E Preferred Stock to Mr. Conway and 200 shares of Series E Preferred
Stock to a third-party service provider. The issuances were for services performed. Pursuant to the terms and conditions of the Certificate
of Designation of the Series E Preferred Stock, including the redemption value of $1,000 per share, the Company recorded $2,000,000 as
stock-based compensation expense for three months ended March 31, 2021. On March 24, 2021, the Company redeemed the 3,000 shares of Series
E Preferred Stock outstanding on that date. As of March 31, 2022, and December 31, 2021, there were -0- shares of Series E Preferred
Stock issued and outstanding, respectively.
NOTE
13 – NONCONTROLLING INTEREST
On
August 19, 2021, the Company formed Ozop Capital. Upon formation, the Company owned 51% with PJN owning 49%. Brian Conway was appointed
as the sole officer and director of Ozop Capital and has voting control of Ozop Capital. The Company presents interest held by noncontrolling
interest holders within noncontrolling interest in the condensed consolidated financial statements. During the three months ended March
31, 2022, there was no change in the ownership percentages. For the three months ended March 31, 2022, Ozop Capital incurred a loss of
$383,077, of which $187,708 is the loss attributed to the noncontrolling interest. As of March 31, 2022, the accumulative noncontrolling
interest is $422,813.
NOTE
14 - OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES
On
October 25, 2019, PCTI executed a non-cancellable lease for office and industrial space which began December 1, 2019 and expires on November
30, 2022. Operating lease right-of-use assets and liabilities are recognized at the present value of the future lease payments at the
lease commencement date. The interest rate used to determine the present value is our incremental borrowing rate, estimated to be 7.5%,
as the interest rate implicit in most of our leases is not readily determinable. Prior to July 10, 2020, PCTI recorded monthly lease
expense pursuant to the lease agreement and effective July 10, 2020, pursuant to the PCTI transaction, operating lease expense is recognized
pursuant to ASC Topic 842. Leases (Topic 842) over the lease term. During the years ended December 31, 2020, the Company recorded $84,278
for rent expense. During the year ended December 31, 2020, upon adoption of ASC Topic 842, the Company recorded right-of-use assets and
lease liabilities of $185,139 for this lease.
On
April 14, 2021, the Company entered into a five-year lease which began on June 1, 2021, for approximately 8,100 square feet of office
and warehouse space in Carlsbad, California, expiring May 31, 2026. Initial lease payments of $13,148 begin on June 1, 2021, and increase
by approximately 2.4% annually thereafter. The interest rate used to determine the present value is our incremental borrowing rate, estimated
to be 7.5%, as the interest rate implicit in most of our leases is not readily determinable. During the year ended December 31, 2021,
upon adoption of ASC Topic 842, the Company recorded right-of-use assets and lease liabilities of $702,888 for this lease.
In
adopting Topic 842, the Company has elected the ‘package of practical expedients’, which permit it not to reassess under
the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company did not
elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter is not applicable to the Company. In addition,
the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 months or less.
Right-of-
use assets are summarized below:
SCHEDULE OF RIGHT-OF-USE ASSETS
| | |
March 31, 2022 | |
| Office and warehouse lease | |
$ | 888,026 | |
| Less: Accumulated Amortization | |
| (230,687 | ) |
| Right-of-use asset, net | |
$ | 657,339 | |
SCHEDULE OF OPERATING LEASE LIABILITIES
| | |
| March 31, 2022 | |
| Lease liability | |
$ | 663,866 | |
| Less current portion | |
| (177,858 | ) |
| Long term portion | |
$ | 486,008 | |
Maturity
of lease liabilities are as follows:
SCHEDULE OF MATURITY OF LEASE LIABILITIES
| | |
Amount | |
| For the year ended December 31, 2022 | |
$ | 179,548 | |
| For the year ended December 31, 2023 | |
| 167,858 | |
| For the year ended December 31, 2024 | |
| 171,840 | |
| For the year ended December 31, 2025 | |
| 175,942 | |
| For the year ended December 31, 2026 | |
| 74,030 | |
| Total | |
$ | 769,218 | |
| Less present value discount | |
| (105,352 | ) |
| Lease liability | |
$ | 663,866 | |
NOTE
15 – SUBSEQUENT EVENTS
On
April 4th, 2022, the Company and GHS Investments LLC (“GHS”). signed a Securities Purchase Agreement (the “GHS Purchase
Agreement”) for the sale of up to Two Hundred Million (200,000,000) 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. 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.
The
Company has evaluated subsequent events through the date the financial statements were issued. The Company has determined that there
are no other such events that warrant disclosure or recognition in the financial statements, except as stated herein.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The
following is management’s discussion and analysis of certain significant factors that have affected our financial position and
operating results during the periods included in the accompanying condensed consolidated financial statements, as well as information
relating to the plans of our current management. This report includes forward-looking statements. Generally, the words “believes,”
“anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,”
“continue,” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports
or documents we file with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ
materially from those projected. Undue reliance should not be placed on these forward-looking statements which speak only as of the date
hereof. We undertake no obligation to update these forward-looking statements.
Although
the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the
United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
Our
financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).
These accounting principles require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments,
and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments,
and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of
the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial
statements would be affected to the extent there are material differences between these estimates.
The
following discussion should be read in conjunction with our unaudited financial statements and the related notes that appear elsewhere
in this Quarterly Report on Form 10-Q.
THE
COMPANY
Ozop
Energy Solutions, Inc. (the “Company,” “we,” “us” or “our”) was originally incorporated
as Newmarkt Corp. on July 17, 2015, under the laws of the State of Nevada.
On
December 11, 2020, the Company formed Ozop Energy Systems, Inc. (“OES”), a Nevada corporation and a wholly owned subsidiary
of the Company. OES was formed to be a manufacturer and distributor of renewable energy products.
On
October 29, 2020, the Company formed a new wholly owned subsidiary, Ozop Surgical Name Change Subsidiary, Inc., a Nevada corporation
(“Merger Sub”). The Merger Sub was formed under the Nevada Revised Statutes for the sole purpose and effect of changing the
Company’s name to “Ozop Energy Solutions, Inc.” That same day the Company entered into an Agreement and Plan of Merger
(the “Merger Agreement”) with the Merger Sub and filed Articles of Merger (the “Articles of Merger”) with the
Nevada Secretary of State, merging the Merger Sub into the Company, which were stamped effective as of November 3, 2020. As permitted
by the Section 92.A.180 of the Nevada Revised Statutes, the sole purpose and effect of the filing of Articles of Merger was to change
the name of the Company from Ozop Surgical Corp. to “Ozop Energy Solutions, Inc.”
On
August 19, 2021, the Company formed Ozop Capital Partners, Inc. (“Ozop Capital”), a Delaware corporation. The Company is
the majority shareholder of Ozop Capital with PJN Holdings LLC, a New York limited liability company, being the minority shareholder.
Ozop Capital was formed as a holding company and seeks to develop a captive insurance company. Brian Conway was appointed as the sole
officer and director of Ozop Capital and has voting control of Ozop Capital.
On
October 29, 2021, EV Insurance Company, Inc. (“EVCO”) was formed as a captive insurer that reinsures 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.
OES
is actively engaged in the renewable, electric vehicle (“EV”), energy storage and energy resiliency sectors. We are engaged
in multiple business lines that include project development as well as equipment distribution. Our solar and energy storage projects
involve large-scale battery and solar photovoltaics (PV) installations. Our utility-scale storage business model is based on an arbitrage
business model in which we install multiple 1+ megawatt batteries, charge them with off-peak grid electricity under contract with the
utility, then sell the power back during peak load hours at a premium, as dictated by prevailing electricity tariffs.
Equipment
Distributor: OES has entered the component supply/distribution side of the renewable, resiliency and energy storage industries
distributing the core components associated with residential and commercial solar PV systems as well as onsite battery storage and power
generation. In April 2021, the Company signed a five- year lease (beginning June 1, 2021) of approximately 8,100 SF in California, for
office and warehouse space to support the sales and distribution of our west coast operations. The components we are distributing include
PV panels, solar inverters, solar mounting systems, stationary batteries, onsite generators and other associated electrical equipment
and components that are all manufactured by multiple companies, both domestic and international. These core products are sourced from
management-developed relationships and are distributed through our existing network and our in-house sales team.
Solar
PV: Our PV business model involves the design and construction of electrical generating PV systems that can sell power to the
utilities or be used for off grid use as part of our developing Neo-Grids solution. The Neo-Grids proprietary program, patent pending,
was developed for the off-grid distribution of electricity to remove or reduce the dependency on utilities that currently burdens the
EV Charging sectors. It will also reduce or eliminate the lengthy permitting processes and streamline the installations of those EV chargers.
Modular
Energy Distribution System: The Neo-Grids, patent pending, is comprised of the design engineering, installation, and operational
methodologies as well as the financial arbitrage of how we produce, capture and distribute electrical energy for the EV markets. :
OES has acquired the license rights to a proprietary system, the Neo-GridsTM System (patent pending), for the capture
and distribution of electrical energy for the EV market. The Neo-GridsTM System will serve both the private
auto and the commercial sectors. The exponential growth of the EV industry has been accelerated by the recent major commitments of most
of the major car manufacturers. Our Neo-GridsTM System leverages this
accelerated growth by offering (1) charging locations that can be installed with reduced delays, restricted areas or load limits and
(2) EV charger electricity that is produced from renewable sources claiming little to no carbon footprint.
OES
has developed a business plan for the Neo Grids distribution, a solution to the stress forthcoming to the existing grid infrastructure.
The Company has completed its’ Neo Grid research and development as well as the first set of engineered technical drawings. This
first stage of engineered technical drawings allows us to move forward with stage two, as well as to begin to construct the first prototype
or proof of concept, (“PoC”). Our PoC design is partially reliant on auto manufacturers establishing standardizations of
the actual charging/discharging protocols of the batteries such as on-board inverters as well as bi-directional capabilities in electric
vehicles, which have only recently been established. As the market growth rate of EV’s continues to rise, the stress on the existing
grid-tied infrastructure shows the need for the continued development of our Neo-Grid solution.
OES
management has decades of experience in the renewable, storage and resilient energy businesses and associated markets, which include
but are not limited to project finance, project development, equipment finance, construction, utility protocol, regulatory policy and
technology assessment.
Ozop
Plus plans on producing vehicle service contracts (“VSC’s”) for electric vehicles (EV’s) that will offer to consumers
to be able to purchase additional months and or 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 VSC will give “peace of mind”
to the EV buyer. The Company is currently in negotiations to complete the necessary agreements to launch the product in Q2 2022. Additionally,
the Company is also in discussions with entities whereby Ozop Plus can reinsure the battery portion of another entity’s VSC.
On
February 25, 2022, the Company formed Ozop Engineering and Design, Inc. (“OED”) a Nevada corporation, as a wholly owned subsidiary
of the Company. OED was formed to become a premier engineering and lighting control design firm. OED offers product and design support
for lighting and solar projects with a focus on fast lead times and technical support. OED and our partners are able to offer the resources
needed for lighting, solar and electrical design projects. OED will provide its’ customers systems to coordinate the understanding
of electrical usage with the relationship between lighting design and lighting controls, by developing more efficient ecofriendly designs
by working with architects, engineers, facility managers, electrical contractors and engineers.
Stock
Purchase Agreement
On
July 10, 2020, the Company entered into a Stock Purchase Agreement (the “SPA”) with Power Conversion Technologies, Inc.,
a Pennsylvania corporation (“PCTI”), and Catherine Chis (“Chis”), PCTI’s Chief Executive Officer (“CEO”)
and its sole shareholder. Under the terms of the SPA, the Company acquired one thousand (1,000) shares of PCTI, which represents all
of the outstanding shares of PCTI, from Chis in exchange for the issuance of 47,500 shares of the Company’s Series C Preferred
Stock, 18,667 shares of the Company’s Series D Preferred Stock, and 500 shares of the Company’s Series E Preferred Stock
to Chis. The Acquisition is being accounted for as a business combination and was treated as a reverse acquisition for accounting purposes
with PCTI as the accounting acquirer in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic
805, Business Combinations (“ASC 805”). In accordance with the accounting treatment for a reverse acquisition, the Company’s
historical financial statements prior to the reverse merger were and will be replaced with the historical financial statements of PCTI
prior to the reverse merger, in all future filings with the U.S. Securities and Exchange Commission (the “SEC”). The consolidated
financial statements after completion of the reverse merger have and will include the assets, liabilities and results of operations of
the combined company from and after the closing date of the reverse merger.
PCTI
designs, develops, manufactures and distributes standard and custom power electronic solutions. All of its products are manufactured
in the United States.
The
results of operations below include PCTI activity for the three months ended March 31, 2022, and 2021. Due to supply chain issues and
other factors, management is currently reviewing the current business model of PCTI, in determining the best course of action going forward.
Stock
Redemption Agreement
On
July 13, 2021, the Company entered into a Definitive Agreement (the “Agreement”) with Chis to purchase the 47,500 shares
of the Company’s Series C Preferred Stock held by Chis and the 18,667 shares of the Company’s Series D Preferred Stock held
by Chis for the total purchase price of $11,250,000.The Agreement was closed on July XX, 2022.
Results
of Operations for the three months ended March 31, 2022 and 2021:
Revenue
For
the three months ended March 31, 2022, the Company generated revenue of $3,082,238 compared to $795,554 for the three months ended March
31, 2021. The increase in revenues is a result of revenues of $2,912,322 from Ozop Energy Systems, Inc. (“OES”) and are classified
as sourced and distributed products. PCTI sales decreased to $162,916 for the three months ended March 31, 2022 compared to $795,554
for the three months ended March 31, 2021. Sales are summarized as follows:
| | |
Three months ended
March 31, | |
| | |
2022 | | |
2021 | |
| Sourced and distributed products | |
$ | 2,912,322 | | |
$ | - | |
| Manufactured products | |
| 162,916 | | |
| 795,554 | |
| Total | |
$ | 3,082,238 | | |
$ | 795,554 | |
As
it did for most of the industry; OES’s importing of solar panels issues that began in the 4th quarter of 2021, continued
into the first quarter of 2022. Covid issues continued to be distributive to a continual source of product from foreign manufacturers
as well as ocean freight backlogs and covid issues that plagued the port of arrivals related to the unloading of containers and the eventual
customs clearance of the imported goods. An announcement by the U.S. Department in March 2022 stated it would investigate allegations
that solar panel manufacturers in Southeast Asia are using Chinese-made parts and evading U.S. tariffs has raised alarms concerning both
trade and environmental policy The department announced March 28 that it would investigate claims by California-based solar panel manufacturer
that solar energy equipment manufacturers in Cambodia, Malaysia, Thailand and Vietnam have close business ties to companies in China
that produce the raw materials and some components of solar panel assemblies. Based on the current situation, management has placed approximately
$10,900,000 of purchase orders and as of the date of the filing of this report has made approximately $1.7 million of down payments to
vendors to assure product delivery of approximately $5.9 million with a forecasted delivery by August 2022 and $5 million with a forecasted
delivery in November 2022. Based on the above and the Company’s current on-hand inventory, management anticipates similar to slightly
higher quarterly sales results for the second and third quarter of 2022 as experienced in the first quarter, and a significant increase
in the fourth quarter of 2022.
Due
to supply chain issues and other factors, management is currently reviewing the current business model of PCTI, in determining the best
course of action going forward.
Cost
of sales
For
the three months ended March 31, 2022, and 2021, the Company recognized $2,875,832 and $226,909, respectively, of cost of sales.
| | |
Three months ended
March 31, | |
| | |
2022 | | |
2021 | |
| Sourced and distributed products | |
$ | 2,749,349 | | |
$ | - | |
| Manufactured products | |
| 126,483 | | |
| 226,909 | |
| Total | |
$ | 2,875,832 | | |
$ | 226,909 | |
Based
on the above cost of sales, gross margin was 6.7% and 71.5% for the three months ended March 31, 2022, and 2021, respectively. The decrease
of gross margin for the current year is a result of the manufactured orders shipped in 2021 were at a higher margin than the manufactured
orders were in 2022. While PCTS’s margin and gross profit decreased in the current year, the Company realized an additional $169,972
of gross profit dollars recognized on OES’s sourced and distributed products. Due to product availability, increased buy prices
and delivery issues that the solar industry experienced at the end of the 4th quarter 2021, and into the first quarter of
2022, the Company expects that margins on sourced products may be temporarily reduced at the beginning of 2022. However, the Company
anticipates that margins of sourced products will rise during the remainder of 2022. While the overall margin will be reduced, the higher
gross profit dollars generated from the higher sourced and distributed products revenues will benefit the Company.
Operating
expenses
Total
operating expenses for the three months ended March 31, 2022, and 2021, were $1,977,857 and $5,789,470, respectively. The operating expenses
were comprised of:
| | |
Three Months Ended March 31, | |
| | |
2022 | | |
2021 | |
| Wages and management fees, related parties | |
$ | 390,000 | | |
$ | 315,008 | |
| Stock-based compensation | |
| 136,249 | | |
| 4,902,000 | |
| Salaries, taxes and benefits | |
| 360,281 | | |
| 186,575 | |
| Professional and consulting fees | |
| 634,997 | | |
| 203,425 | |
| Advertising and marketing | |
| 3,263 | | |
| 22,590 | |
| Rent and office expenses | |
| 90,573 | | |
| 41,394 | |
| Insurance | |
| 94,155 | | |
| 12,075 | |
| General and administrative, other | |
| 268,339 | | |
| 106,403 | |
| Total | |
$ | 1,977,857 | | |
$ | 5,789,470 | |
Wages
and management fees- related parties, include amounts paid to our CEO and to the President (resigned July 2021) of PCTI. On July 10,
2020, pursuant to the PCTI transaction, the Company assumed an employment contract entered into on February 28, 2020, between the Company
and Mr. Conway (the “Employment Agreement”). Mr. Conway’s compensation as adjusted was $20,000 per month, and effective
September 1, 2021, Mr. Conway receives $10,000 per month from Ozop Capital. Effective January 1, 2022, the Company entered into a new
employment agreement with Mr. Conway. Pursuant to the agreement, Mr. Conway received a $250,000 contract renewal bonus and will receive
an annual compensation of $240,000 from the Company and will also be eligible to receive bonuses and equity grants at the discretion
of the BOD. The Company also agreed to compensate Mr. Conway for services provided directly to any of the Company’s subsidiaries.
Ozop Capital increased Mr. Conway’s compensation to $20,000 per month in January 2022 and OES began compensating Mr. Conway $20,000
in March 2022. Below is a summary of wages and management fees:
| | |
Three months ended March 31, | |
| | |
2022 | | |
2021 | |
| CEO, parent | |
$ | 390,000 | | |
$ | 279,999 | |
| President, subsidiary (resigned July 2021) | |
| - | | |
| 35,008 | |
| Total | |
$ | 390,000 | | |
$ | 315,008 | |
Stock
based compensation for the three months ended March 31, 2022, of $136,429 is comprised of the following:
| |
● |
5,000,000
shares of common stock issued in the aggregate to two employees pursuant to their offers of employment dated March 31, 2021. The
shares were valued at $0.027 per share. During the three months ended March 31, 2022, the Company included $135,000 in stock compensation
expense. |
| |
● |
$1,249
of amortization of stock compensation for shares issued in April 2021. |
Stock
based compensation for the three months ended March 31, 2021, of $4,902,000 is comprised of the following stock issuances:
| |
● |
10,000,000
shares issued for services. The shares were valued at $0.0056 per share, the date the Company agreed to issue the shares. During
the three months ended March 31, 2021, the Company included $56,000 in stock compensation expense. |
| |
● |
10,000,000
shares issued pursuant to a consulting agreement dated February 24, 2021 (see Note 11). The shares were valued at $0.2386 per share.
During the three months ended March 31, 2021, the Company included $2,386,000 in stock compensation expense. |
| |
● |
5,000,000
shares of common stock to be issued in the aggregate to two new employees pursuant to their offers of employment dated March 31,
2021. The shares were valued at $0.23 per share. During the three months ended March 31, 2021, the Company included $460,000 in stock
compensation expense for the 5,000,000 shares of common stock to be issued. The shares were issued in April 2021. |
| |
● |
Issuance
of 2,000 shares (1,800 were issued to the Company’s CEO) of Series E Preferred Stock, with a redemption value of $1,000 per
share, resulting in stock compensation expense of $2,000,000 ($1,800,000 related party) for the three months ended March 31, 2021.
|
Salaries,
taxes and benefits increased for the three months ended March 31, 2022, compared to the same period in 2021. The increase was a result
of the current period including $246,435 of expenses related to OES. These additional costs were offset by a reduction in PCTI’’s
expenses of $73,734. OES now has annual gross payroll of approximately $512,000 and an additional $351,000 on an annual basis of personnel
focused on the Company’s battery storage vertical. Ozop Engineering and Design (“OED”) has hired three employees effective
April 1, 2022, with an aggregate annual compensation of $302,000.
Professional
and consulting fees increased for the three months ended March 31, 2022, compared to March 31, 2021. The increase was due to increases
in accounting and auditing expenses of Ozop in the current period, consultants engaged on the second quarter of 2021 by both Ozop Capital
Partners and OES as we initiate each of their business plans regarding electric vehicles and distribution
of renewable energy products, respectively.
Advertising
and marketing expenses decreased for the three months ended March 31, 2022, compared to March 31,
2021. The decrease was related to marketing programs during 2021, including brand awareness programs for both PCTI and Ozop.
Rent
and office expense (including supplies, utilities and internet costs) increased for the three months ended March 31, 2022, compared to
the three months ended March 31, 2021. The increase was the result of including in the current period, rent and office expense of approximately
$45,734 for OES. The Company estimates that the monthly OES rent and office expense for the California operation to be approximately
$18,000 per month.
Insurance
expense increased for the three months ended March 31, 2022, compared to the three months ended March 31, 2021. The increase was the
result of including in the current period, insurance expense of approximately $80,834 for OES. The Company estimates that the monthly
OES insurance expense for the California operation to be approximately $24,000 per month.
Other
Income (Expenses)
Other
income, net was $389,982 for the three months ended March 31, 2022, compared to other expenses, net, for the three months ended March
31, 2021, of $204,271,543, respectively, and were as follows:
| | |
Three months ended March 31, | |
| | |
2022 | | |
2021 | |
| Interest expense | |
$ | 3,975,221 | | |
$ | 40,654,750 | |
| (Gain) loss on change in fair value of derivatives | |
| (4,365,203 | ) | |
| 52,197,902 | |
| Debt restructure expense | |
| - | | |
| 16,450,000 | |
| Loss on extinguishment of debt | |
| - | | |
| 94,968,892 | |
| Total other (income) expense, net | |
$ | (389,982 | ) | |
$ | 204,271,543 | |
The
decrease in other expense for the three months ended March 31, 2022, is primarily a result expenses for the three months ended March
31, 2021, including the loss on extinguishment of debt related to the market value of shares of common stock issued in excess of the
debt and accrued interest extinguished and 175,000,000 shares of restricted common stock issued related to the restructure of the deferred
liability (see Note 9). The shares were valued at $0.094 per share and the Company recognized $16,450,000 of restructuring costs. Included
in interest expense for the three months ended March 31, 2021, is the initial expense of $38,907,939 of fair value related to the issuance
of 300,000,000 warrants. For the three months ended March 31, 2022, the Company recognized a gain on the change in the fair value of
derivatives compared to a loss of $52,197,902 for the three months ended March 31, 2021.
Net
loss
The
net loss for the three months ended March 31, 2022, was $1,381,469 compared to $209,492,368 for the three months ended March 31, 2021.
The decrease in the loss was primarily a result of a decrease in other expenses of $204,661,525, a decrease of $4,765,751 in stock-based
compensation expenses as well as the operating results discussed above.
Liquidity
and Capital Resources
Currently,
our current capital and our other existing resources will be sufficient to provide the working capital needed for our current business,
however, additional capital will be required to meet our debt obligations, and to further expand our business. We may be unable to obtain
the additional capital required. If we are unable to generate capital or raise additional funds when required it will have a negative
impact on our business development and financial results. These conditions raise substantial doubt about our ability to continue as a
going concern as well as our recurring losses from operations, deficit in equity, and the need to raise additional capital to fund operations.
This “going concern” could impair our ability to finance our operations through the sale of debt or equity securities. Management’s
plans in regard to these factors are discussed below and also in Note 2 to the condensed consolidated financial statements filed herein.
As
of March 31, 2022, we had cash of $3,636,662 as compared to $6,767,167 at December 31, 2021. As of March 31, 2022, we had current liabilities
of $38,384,123 (including $16,601,498 of non-cash derivative liabilities), compared to current assets of $8,898,282, which resulted in
a working capital deficit of $29,485,841. The current liabilities are comprised of accounts payable, accrued expenses, convertible debt,
derivative liabilities, customer deposits, lease obligations and notes payable.
In
December 2019, a novel strain of coronavirus (COVID-19) emerged. Because COVID-19 infections have been reported throughout the
United States, certain federal, state and local governmental authorities have issued stay-at-home orders, proclamations and/or directives
aimed at minimizing the spread of COVID-19. The ultimate impact of the COVID-19 pandemic on the Company’s operations is
unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration
of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional
preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued
business disruption, and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but it may have
a material adverse impact on our business, financial condition and results of operations. Management expects that its business will be
impacted to some degree, but the significance of the impact of the COVID-19 outbreak on the Company’s business and the duration
for which it may have an impact cannot be determined at this time.
Operating
Activities
For
the three months ended March 31, 2022, net cash used in operating activities was $3,090,505 compared to $966,126 for the three months
ended March 31, 2021. For the three months ended March 31, 2022, our net cash used in operating activities was primarily attributable
to the net loss of $1,381.469, adjusted by non- cash interest expense of $3,379,121, stock-based compensation of $136,249 and the non-cash
expenses of interest and amortization and depreciation of $62,532. This was offset by the gain on the fair value changes in derivatives
related to warrants and convertible notes of $4,365,203. Net changes of $921,735 in operating assets and liabilities increased the cash
used in operating activities.
For
the three months ended March 31, 2021, our net cash used in operating activities was primarily attributable to the net loss of $209,492,368,
adjusted by loss on debt extinguishment of $94,968,892, non- cash interest expense of $40,414,627 (including $38,907,939 for the initial
fair value of the 300,000,000 warrants issued), losses on the fair value changes in derivatives related to warrants and convertible notes
of $52,197,902, debt restructuring costs of $16,450,000, stock-based compensation of $4,902,000 and the non-cash expenses of interest
and amortization and depreciation of $8,327. Net changes of $415,506 in operating assets and liabilities reduced the cash used in operating
activities.
Investing
Activities
For
the three months ended March 31, 2022, the net cash used in investing activities was $40,000, compared to $35,306 for the three months
ended March 31, 2021. The amounts for both periods were a result of the Company purchasing office furniture and equipment.
Financing
Activities
For
the three months ended March 31, 2022, there were no financing activities. For the three months ended March 31, 2021, the net cash provided
by financing activities was $8,985,320. During the three months ended March 31, 2021, we received $12,000,000 of proceeds from the issuances
of $13,30,000 face value of promissory notes. During the three months ended March 31, 2021, the Company redeemed 3,000 shares of the
Series E Preferred Stock for $3,000,000, repaid $3,089 of notes payable and $11,591 to shareholders.
OFF
BALANCE SHEET ARRANGEMENTS
We
have no off-balance sheet arrangements including arrangements that would affect our liquidity, capital resources, market risk support
and credit risk support or other benefits.
Critical
Accounting Policies
Our
significant accounting policies are described in more details in the notes to our financial statements appearing elsewhere in this Quarterly
Report on Form 10-Q. We believe the following accounting policies to be most critical to the judgement and estimates used in the preparation
of our unaudited condensed consolidated financial statements:
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 March 31, 2022, and the results of operations and cash flows for the periods presented. The
results of operations for the three months ended March 31, 2022, 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
Annual Report on Form 10-K/A filed on April 26, 2022. The unaudited condensed consolidated financial statements of the Company include
the consolidated accounts of the Company and its’ wholly owned subsidiaries; PCTI, Ozop LLC, Ozop HK and Spinus. All intercompany
accounts and transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period.
Actual results could differ from those estimates.
Revenue
Recognition
Effective
January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue
from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1)
identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price;
(4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation
is satisfied. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue Recognition.
Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the performance
of service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and determinable;
and (4) the collectability of the fee is reasonably assured. There was no impact on the Company’s financial statements as a result
of adopting Topic 606 for the three months ended March 31, 2022, and 2021.
Earnings
(Loss) Per Share
The
Company computes net loss per share in accordance with FASB ASC 260, “Earnings per Share.” ASC 260 requires presentation
of both basic and diluted earnings per share (EPS) on the face of the statement of operations. Basic EPS is computed by dividing net
income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted
EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using the treasury stock
method, and convertible notes and stock warrants, using the if-converted method. In computing diluted EPS, the average stock price for
the period is used in determining the number of shares assumed to be purchased from the exercise of stock options, warrants and conversion
of convertible notes. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive.