OZOP ENERGY SOLUTIONS, INC. 10-K/A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management’s discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying consolidated financial statements, as well as information relating to the plans of our current management. This report includes forward-looking statements. Generally, the words “believes,” “anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,” “continue,” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements. While our financial statements are presented on the basis that we are a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time, our auditors have raised a substantial doubt about our ability to continue as a going concern. THE COMPANY Ozop Energy Solutions, Inc. (the “Company,” “we,” “us” or “our”) was originally incorporated as Newmarkt Corp. on July 17, 2015, under the laws of the State of Nevada. On December 11, 2020, the Company formed Ozop Energy Systems, Inc. (“OES”), a Nevada corporation and a wholly owned subsidiary of the Company. OES was formed to be a manufacturer and distributor of renewable energy products. On October 29, 2020, the Company formed a new wholly owned subsidiary, Ozop Surgical Name Change Subsidiary, Inc., a Nevada corporation (“Merger Sub”). The Merger Sub was formed under the Nevada Revised Statutes for the sole purpose and effect of changing the Company’s name to “Ozop Energy Solutions, Inc.” That same day the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with the Merger Sub and filed Articles of Merger (the “Articles of Merger”) with the Nevada Secretary of State, merging the Merger Sub into the Company, which were stamped effective as of November 3, 2020. As permitted by the Section 92.A.180 of the Nevada Revised Statutes, the sole purpose and effect of the filing of Articles of Merger was to change the name of the Company from Ozop Surgical Corp. to “Ozop Energy Solutions, Inc.” On August 19, 2021, the Company formed Ozop Capital Partners, Inc. (“Ozop Capital”), a Delaware corporation. The Company is the majority shareholder of Ozop Capital with PJN Holdings LLC, a New York limited liability company, being the minority shareholder. Ozop Capital was formed as a holding company and seeks to develop a captive insurance company. Brian Conway was appointed as the sole officer and director of Ozop Capital and has voting control of Ozop Capital. On October 29, 2021, EV Insurance Company, Inc. (“EVCO”) was formed as a captive insurance company in the State of Delaware. EVCO is a wholly owned subsidiary of Ozop Capital. On January 7, 2022, EVCO filed with New Castle County, Delaware DBA OZOP Plus. 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. 11 The Company utilized the Option Pricing Method (the “OPM”) to value the transaction. The OPM method treats all equity linked instruments as call options on the enterprise value, with exercise prices and liquidation preferences based on the terms of the various common, preferred, options, warrants, and convertible debt. Under this method, the common stock only has value if the funds available for distribution to the shareholders exceed the liquidation preferences of the preferred stock and face value of the convertible debt. The timing of a liquidity event is required to utilize this method. The OPM considers the various terms of the stockholder agreements—including the level of seniority among the securities, dividend policy, conversion ratios, and cash allocations—upon liquidation of the enterprise. In addition, the method implicitly considers the effect of the liquidation preference as of the future liquidation date, not as of the valuation date. A feature of the OPM is that it explicitly recognizes the option-like payoffs of the various share classes utilizing information in the underlying asset (that is, estimated volatility) and the risk-free rate to adjust for risk by adjusting the probabilities of future payoffs. The following table summarizes the preliminary value of the consideration issued and the preliminary purchase price allocation of the fair value of assets acquired and liabilities assumed in the transaction. Purchase Price Allocation Fair value of OZOP equity consideration issued $ 818,444 Assets acquired $ 1,229,917 Goodwill 11,201,145 Liabilities assumed (11,612,618 ) $ 818,444 The Company reviews the goodwill allocated to each of our reporting units for possible impairment annually and whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Pursuant to that review, management has determined that the goodwill arising from the above transaction has been impaired and accordingly $11,201,145 has been recorded as an impairment expense for the year ended December 31, 2020. Included in the audited Consolidated Statements of Comprehensive Loss for the years ended December 31, 2020, are the results of Ozop, the accounting acquiree, of revenues of $-0- and a loss before income taxes of $7,782,364. The following table provides unaudited pro forma results of operations for the year ended December 31, 2020, as if the acquisition had been consummated as of the beginning of that period. The pro forma results include the effect of certain purchase accounting adjustments, such as the estimated changes in depreciation and amortization expense on the acquired intangible assets. However, pro forma results do not include any anticipated cost savings (if any) of the combined companies. Accordingly, such amounts are not necessarily indicative of the results if the acquisition has occurred on the date indicated, or which may occur in the future. Unaudited pro forma results year ended December 31, 2020 Revenues $ 1,411,432 Loss before income taxes (51,779,499 ) Basic and fully diluted loss per share $ (0.02 ) 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. 12 Results of Operations for the years ended December 31, 2021 and 2020: The following discussion relates to the historical financial statements of PCTI, and beginning on July 11, 2020 the consolidated financial statements include the assets, liabilities and results of operations of PCTI and Ozop, (the combined company from and after the closing date of the reverse merger). Revenue For the year ended December 31, 2021, the Company generated revenue of $11,928,605 compared to $1,411,432 for the year ended December 31, 2020. The increase in revenues is a result of revenues of $10,595,799 from Ozop Energy Systems, beginning May 2021, and are classified as sourced and distributed products. Sales are summarized as follows: Year ended December 31, 2021 2020 Sourced and distributed products $ 10,595,799 $ - Manufactured products 1,332,806 1,411,432 Total $ 11,928,605 $ 1,411,432 Cost of sales For the years ended December 31, 2021, and 2020, the Company recognized $10,342,413 and $1,404,348, respectively, of cost of sales. Year ended December 31, 2021 2020 Sourced and distributed products $ 9,763,943 $ - Manufactured products 578,470 1,404,358 Total $ 10,342,413 $ 1,404,358 Based on the above cost of sales, gross margin was 13.3% and 0.5% for the years ended December 31, 2021, and 2020, respectively. The increase 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 2020. While the improved margin was partially offset by the lower margins recognized on the sourced and distributed products, gross profit dollars increased from the sale of the sourced and distributed products. The sourced and distributed margins were approximately 7.9% for 2021. Due to product availability, increased buy prices and delivery issues that the solar industry experienced at the end of the 4 th 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. 13 Operating expenses Total operating expenses for the years ended December 31, 2021, and 2020, were $14,387,941 and $17,585,427, respectively. The operating expenses were comprised of: Year ended December 31, 2021 2020 Management fees, related parties including stock-based compensation of $2,850,000 and $4,286,648, respectively $ 3,803,765 $ 4,747,952 Stock-based compensation, other 6,472,751 - Salaries, taxes and benefits 1,227,192 436,198 Professional and consulting fees 1,284,364 459,340 Advertising and marketing 41,712 55,249 Rent and office expenses 251,646 122,277 Insurance 262,682 58,461 Impairment - 11,526,303 General and administrative. Other 1,043,829 179,647 Total $ 14,387,941 $ 17,585,427 For the year ended December 31, 2020, the above amounts include expenses incurred by PCTI for the year ended December 31, 2020, and expenses incurred by Ozop for the period July 11, 2020 through December 31, 2020. Wages and management fees- related parties, include amounts paid to our CEO and to the President (resigned July 2021) of PCTI. The CEO is eligible for additional bonuses as approved by the Board of Directors of the Company. Beginning January 1, 2021, the CEO was compensated $20,000 per month and effective September 1, 2021, an additional $10,000 per month for the management of Ozop Capital. The following table summarizes management fees: Year ended December 31, 2021 2020 CEO, parent $ 812,099 $ 377,804 CEO, parent- Series E Preferred Stock 2,850,000 - CEO, parent- Series D Preferred Stock - 4,286,648 President, subsidiary (resigned July 2021) 141,666 83,500 Total $ 3,803,765 $ 4,747,952 The Series E Preferred Stock based compensation for the year ended December 31, 2021 is a result of on March 2, 2021, the BOD authorized the issuance of 1,800 shares of Series E Preferred Stock to Mr. Conway and on April 16, 2021, the BOD authorized the issuance of 1,050 to Mr. Conway. The issuances were for services performed. Pursuant to the terms and conditions of the Certificate of Designation of the Series E Preferred Stock, including the redemption value of $1,000 per share, the Company recorded $2,850,000 as stock-based compensation expense for year ended December 31, 2021. The Series D Preferred Stock based compensation for the year ended December 31, 2020, of $4,286,648, is related to 1,333 shares of Series D Preferred Stock issued to Mr. Conway on August 28, 2020, pursuant to his employment agreement. The Series D Preferred Stock was convertible in the aggregate into three times the number of shares of common stock outstanding at the time of conversion. Mr. Conway owns 6.67% of the issued and outstanding Series D Preferred Stock, and based on the 3,107,037,634 shares outstanding on August 28, 2020, Mr. Conway’s Preferred Stock was convertible into 621,253,401 shares of common stock. Based on the share price of the common stock on that date of $0.0065, the shares were valued at $4,286,648. Stock based compensation, other for the year ended December 31, 2021, of $6,472,751 is comprised of the following stock issuances: ● 5,000,000 shares issued in April 2021 pursuant to a one-year consulting agreement. The Company valued the shares at $0.20 per share (the market price of the common stock on the date of the agreement), and $1,000,000 was recorded as deferred stock compensation, to be amortized over the one-year term of the agreement. The consultant was terminated in October 2021, and accordingly, for the year ended December 31, 2021, $1,000,000 is included in stock-based compensation expense. ● 10,000,000 shares issued in April 2021 pursuant to a one-year consulting agreement. The Company valued the shares at $0.0076 per share (the market price of the common stock on the date of the agreement), and $76,000 was recorded as deferred stock-based compensation, to be amortized over the one-year term of the agreement. For the year ended December 31, 2021, the Company recorded $74,751 as stock-based compensation expense. 14 ● 5,000,000 shares issued in April 2021 for services. The Company valued the shares at $0.1392 per share (the market price of the common stock on the date of the agreement), and $696,000 is included in stock-based compensation expense for the year ended December 31, 2021. ● 10,000,000 shares issued for services. The shares were valued at $0.0056 per share, the date the Company agreed to issue the shares. For the year ended December 31, 2021, the Company included $56,000 in stock compensation expense. ● 10,000,000 shares issued pursuant to a consulting agreement dated February 24, 2021. The shares were valued at $0.2386 per share. For the year ended December 31, 2021, the Company included $2,386,000 in stock compensation expense. ● 5,000,000 shares of common stock issued in the aggregate to two new employees pursuant to their offers of employment dated March 31, 2021. The shares were valued at $0.23 per share (the market price of the common stock on the date of the issuance). For the year ended December 31, 2021, the Company included $460,000 in stock compensation expense for the 5,000,000 shares of common stock. ● Issuance of 200 shares and 950 shares of Series E Preferred Stock, with a redemption value of $1,000 per share, resulting in stock compensation expense of $1,150,000 for the year ended December 31, 2021. ● 5,000,000 shares of common stock issued in the aggregate to two employees pursuant to their offers of employment dated March 31, 2021. The shares were valued at $0.0745 per share (the market price of the common stock on the date of the issuance). For the year ended December 31, 2021, the Company included $372,500 in stock compensation expense for the 5,000,000 shares of common stock. ● 452,080 shares of common stock issued for services. The shares were valued at $0.0553 per share (the market price of the common stock on the date of the agreement), and $25,000 is included in stock-based compensation expense for the year ended December 31, 2021. ● 637,755 shares of common stock to be issued for services. The shares were valued at $0.0392 per share (the market price of the common stock on the date of the issuance), and $25,000 is included in stock-based compensation expense for the year ended December 31, 2021. ● 5,000,000 shares of common stock issued in the aggregate to two employees pursuant to their offers of employment dated March 31, 2021. The shares were valued at $0.0455 per share (the market price of the common stock on the date of the issuance). For the year ended December 31, 2021, the Company included $227,500 in stock compensation expense for the 5,000,000 shares of common stock. Salaries, taxes and benefits increased for the year ended December 31, 2021, compared to the year ended December 31, 2020. Included in the increase are the cost of OES employees in 2021. The California operation of OES had expenses of $378,232 for the year ended December 31, 2021. In addition to the California employees, OES had payroll expenses of $284,525 covering business development, sales, administration and IT. Professional and consulting fees increased to $1,284,364 for the year ended December 31, 2021, compared to $459,340 for the year ended December 31, 2020. The increase was due to accounting and auditing expenses of Ozop included in the current year, the engagement of various consultants by OES as we initiated the Company’s business plan regarding distribution of renewable energy products, the inclusion of Ozop Capital’s consultants as well as an increase in legal fees in 2021. The Company’s consolidated current monthly professional and consulting fees is approximately $140,000. Advertising and marketing expenses decreased for the year ended December 31, 2021, compared to the year ended December 31, 2020. The decrease was related to additional marketing programs during the year ended December 31, 2020, including brand awareness programs for both PCTI and Ozop. 15 Rent and office expense (including supplies, utilities and internet costs) increased for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was the result of including in 2021, rent and office expense of approximately $41,983 for Ozop and $121,343 for OES. The Company estimates that the monthly OES rent and office expense for the California operation to be approximately $18,000 per month. During the year ended December 31, 2020, the Company had the following expenses charged to impairment: ● $11,201,145 for the impairment of goodwill related to the transaction between PCTI and Ozop. The impairment was calculated based on the balance of the assets acquired and the liabilities assumed as of December 31, 2020. ● $130,207 for the impairment of license rights as management has decided not to go forward with the use of the license rights of Spinus. ● $194,951 for the impairment of goodwill related to the transaction between Ozop and Spinus. Other Income (Expenses) Other expenses, net, for the years ended December 31, 2021, and 2020, was $182,501,302 and $3,389,890, respectively, and were as follows. Year ended December 31, 2021 2020 Interest expense $ 53,252,232 $ 3,409,393 Loss on change in fair value of derivatives 17,349,076 176,050 Debt restructure expense 16,450,000 - Loss (gain) on extinguishment of debt 95,449,994 (195,553 ) Total other expense, net $ 182,501,302 $ 3,389,890 The increase in other expense for the year ended December 31, 2021, is primarily a result of 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. The Company also issued 175,000,000 shares of restricted common stock related to the restructure of the deferred liability. The shares were valued at $0.094 per share and the Company recognized $16,450,000 of restructuring costs. Included in interest expense for the year ended December 31, 2021, is the initial $38,907,939 of fair value related to the issuance of 375,000,000 warrants. In addition, the increases were the result of the amortization of debt discounts and losses on changes in fair values of derivatives, related to convertible notes and warrants. Net loss The net loss for the year ended December 31, 2021, was $195,303,051 compared to $20,968,243 for the year ended December 31, 2020. The increase in the loss was primarily a result of the increase in other expenses of $179,111,412 described above partially offset by lower operating expenses and the increase in gross profit. 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 3 to the consolidated financial statements filed herein. 16 For the year ended December 31, 2021, we primarily funded our business operations with $15,000,000 of proceeds received pursuant to the issuances of promissory notes and $13,100,000 received from the Series D SPA (see Note 13 to the financial statements filed herein). Of the proceeds, $5,000,000 was used for the redemption of 5,000 shares of Series E Preferred Stock and $11,250,000 was used for the redemption of Chis’s Series C and Series D Preferred Stock (see Note 11 to the financial statements filed herein). As of December 31, 2021, we had cash of $6,767,167 as compared to $1,808,476 at December 31, 2020. As of December 31, 2021, we had current liabilities of $38,385,016 (including $20,966,701 of non-cash derivative liabilities), compared to current assets of $10,159,108, which resulted in a working capital deficit of $28,225,908. 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 year ended December 31, 2021, net cash used in operating activities was $6,368,006 compared to $1,811,816 for the year ended December 31, 2020. For the year ended December 31, 2021, our net cash used in operating activities was primarily attributable to the net loss of $195,303,051, adjusted by loss on debt extinguishment of $95,499,996, non- cash interest expense of $51,492,115 (including $38,907,939 for the initial fair value of the 375,000,000 warrants issued), losses on the fair value changes in derivatives related to warrants and convertible notes of $17,349,075, debt restructuring costs of $16,450,000, stock-based compensation of $9,322,751 and the non-cash expenses of interest and amortization and depreciation of $189,348. Net changes of $1,318,240 in operating assets and liabilities increased the cash used in operating activities, primarily as a result of the start-up of the Company’s California operations in the support of inventory and accounts receivable. For the year ended December 31, 2020, our net cash used in operating activities was primarily attributable to the net loss of $20,968.243, adjusted by impairment charges of $11,526,303, stock-based compensation of $4,286,647, the non-cash expenses of interest and amortization and depreciation of $2,984,251 and losses on the fair value changes in derivatives of $176,050. Net changes of $378,729 in operating assets and liabilities and a gain on extinguishment of debt of $195,553 reduced the cash used in operating activities. Investing Activities For the year ended December 31, 2021, the net cash used in investing activities was $116,836, compared to net cash provided by investing activities of $424.431 for the year ended December 31, 2020. For the year ended December 31, 2020, the Company acquired $470,849 cash in an acquisition and purchased $46,418 of office furniture and equipment. 17 Financing Activities For the year ended December 31, 2021, the net cash provided by financing activities was $11,443,533, compared to $3,168,487 for the year ended December 31, 2020. During the year ended December 31, 2021, we received $15,000,000 of proceeds from the issuances of $16,610,000 face value of promissory notes and $13,100,000 (net of costs) from the Series D SPA. During the year ended December 31, 2021, the Company acquired 47,500 shares of Series C Preferred Stock and 18,667 shares of Series D Preferred Stock from Chis for $11,250,000, redeemed 5,000 shares of the Series E Preferred Stock for $5,000,000, and repaid $392,833 of notes payable and $13,634 to shareholders. During the year ended December 31, 2020, the Company received proceeds of $750,000 pursuant to an obligation to pay a perpetual 1.8% (as amended) fee of revenues, $489,000 of proceeds from the issuances of convertible note financings, $1,553,000 from the issuances of promissory notes, $400,000 advance from affiliate, $100,400 from the Payroll Protection Program and $42,420 from shareholders. During the year ended December 31, 2020, the Company repaid $101,864 of principal of convertible notes and notes payable and $74,470 to shareholders. Critical Accounting Policies Our significant accounting policies are described in more details in the notes to our financial statements appearing elsewhere in this Annual Report on Form 10-K. We believe the following accounting policies to be most critical to the judgement and estimates used in the preparation of our financial statements: Basis of Presentation The accompanying consolidated financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“US GAAP”). The consolidated financial statements include the accounts of the Company and PCTI and the Company’s other wholly owned subsidiaries Ozop Energy Systems, Inc., Ozop LLC, Ozop HK and Spinus, LLC (“Spinus”), and the Company’s majority owned subsidiary Ozop Capital Partners, Inc. All intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimates. Intangible Assets Intangible assets primarily represent purchased patent and license rights. 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. Revenue Recognition Effective January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue Recognition. Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured. There was no impact on the Company’s financial statements as a result of adopting Topic 606 for the years ended December 31, 2021, and 2020. 18 Earnings (Loss) Per Share The Company computes net loss per share in accordance with FASB ASC 260, “Earnings per Share.” ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the statement of operations. Basic EPS is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using the treasury stock method, and convertible notes and stock warrants, using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options, warrants and conversion of convertible notes. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. OFF BALANCE SHEET ARRANGEMENTS We have no off-balance sheet arrangements including arrangements that would affect our liquidity, capital resources, market risk support and credit risk support or other benefits. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required for smaller reporting companies. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Financial Statements and Financial Statement Schedules appearing on pages F1-F30 of this annual report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.