What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-04-17 compared with 2022-04-15 · 287 added, 193 removed, 196 unchanged (71% of the section changed)

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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.

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.

Purchase Agreement

(“Ozop Capital”), a Delaware corporation and a wholly owned

subsidiary of the Company, and was formed as a holding company.

On October 29, 2021, EV Insurance Company, Inc.

was formed as a captive insurer that reinsures in the State of Delaware.

EVCO (DBA “OZOP Plus”) is a wholly owned subsidiary

of Ozop Capital.

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.

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

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.

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-Grid TM System, 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.

Energy Distribution System:

The Neo-Grid TM System patent pending, consists 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

OES has acquired through a license the rights to a proprietary system, the Neo-Grids TM System (patent pending),

for the capture and distribution of electrical energy for the EV market.

The Neo-Grids TM 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-Grids TM System leverages this accelerated growth by offering (1) charging

locations that can be rapidly installed in restricted areas or load limits and (2) EV charger electricity that is produced from renewable

sources having little to no carbon footprint.

has developed a business plan for the Neo Grid TM distribution system, a solution to alleviate the stress on the existing grid-tied

infrastructure.

The Company has completed its’ Neo Grid TM research and development as well as the first stage that includes

the specifications and engineered technical drawings.

This completion of the first stage of 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 TM System as a viable solution.

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.

Plus markets vehicle service contracts (“VSC’s”) for electric vehicles (EV’s) that offer consumers to be able

to purchase additional months and miles above the manufacturer’s warranty and to also bring added value to EV owners by utilizing

our partnerships and strengths in the energy market to offer unique and innovative services.

Among EV owners’ concerns are the

EV battery repair and replacement costs, range anxiety, environmental responsibilities, roadside assistance, and the accelerated wear

on additional components that EV vehicles experience.

Management believes that the Ozop Plus marketed VSC’s will give “peace

of mind” to the EV buyer.

May 2022, the Company entered into an agreement with GS Administrators, Inc., a member of Houston-based GSFSGroup.

Under the agreement,

the Company will market GSFSGroup’s EV VSC’s in all states (except, California, Florida, Massachusetts and Washington)

to Ozop’s network of new and used franchised dealerships and other eligible entities.

In addition to acting as an agent for

the marketing, Ozop also has the right to white label the product under its’ Ozop Plus brand.

Ozop’s role won’t

be limited to marketing the product.

GSFSGroup plans to tap into Ozop’s experience relative to battery collection and disposal

and has agreed to insurance risk sharing in connection with the insurance policies that back the VSC’s.

GSFSGroup is working

on getting the approvals needed for the above four (4) states.

June 22, 2022, the Company entered into an Agent Agreement with Royal Administration Services, Inc.

the agreement, the Company will market Royal’s EV VSC’s and has the right to white label it under Ozop Plus.

agreed to allow Ozop Plus on all VSC’s, marketed by Royal and the Company, to assume all the risk related to the electric battery

at an agreed upon premium.

The battery premium is dependent on the consumer’s selection of the duration of the VSC, the miles

selected for coverage and the type of vehicle that the consumer has purchased, with a key component being the kWh size of the battery.

These VSC’s have a maximum of 10 years and 150,000 miles and cover new and used cars from model year 2017 and newer.

VSCs are now effective in 46 states and the others have various waiting times or approvals needed.

October 13, 2022, EVCO entered a Reinsurance Contract (the “Contract”) with American Bankers Insurance Company of Florida

(“ABIC” or the “Ceding Company”).

Royal is the Administrator of the Contract.

Pursuant to the terms of the

Contract, ABIC will cede 100% of the battery coverage portion of all electric vehicle service contracts to EVCO.

On the same date

ABIC and EVCO also entered into a Trust Agreement, whereas EVCO as the reinsurer agrees to deposit an amount equal to unearned premium

reserves, plus losses reported but unpaid, plus the estimated amount of losses incurred but not reported to the trust account.

investments (with a maturity of no more than five (5) years) of the assets of the Trust account include:

Treasury Securities

or cash instruments

agency issues

investments as Ceding Company approves

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 can 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.

Purchase Agreement and Stock Redemption Agreement

July 10, 2020, the Company entered into a Stock Purchase Agreement (the “SPA”) with Power Conversion Technologies, Inc.,

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Stock, 18,667 shares of the Company’s Series D Preferred Stock, and 500 shares of the Company’s Series E Preferred Stock

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.

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

Assets acquired

Liabilities assumed

(11,612,618 )

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.

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.

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

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

Loss before income taxes

(51,779,499 )

Basic and fully diluted loss per share

Redemption Agreement

July 13, 2021, the Company entered into a Definitive Agreement (the “Agreement”) with Chis to purchase the 47,500 shares

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by Chis for the total purchase price of $11,250,000.

The Agreement was closed on July 27, 2021.

September 1, 2022, the BOD of the Company authorized the filing of a Chapter 7 proceeding which meets the definition of a discontinued

Accordingly, the operating results of PCTI are reported as a loss from discontinued operations in the accompanying consolidated

financial statements for the years ended December 31, 2022, and 2021.

of Operations for the years ended December 31, 2022, and 2021:

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).

the year ended December 31, 2022, the Company generated revenue of $16,629,450 compared to $10,595,799 for the year ended December 31,

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.

Revenues from Ozop Energy Systems, Inc.

(“OES”) began in May 2021 and are classified as sourced and distributed products.

Ozop Engineering and Design (“OED”) operations began in the quarter ended June 30, 2022, and are classified as design and

installation.

Sales are summarized as follows:

Sourced and distributed products

Manufactured products

Design and installation

it did for most of the solar industry;

OES’s importing of solar panels issues that began in the 4 th quarter of 2021,

continued during 2022.

Covid issues continued to be disruptive 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.

On June 6, 2022, President Biden waived tariffs on solar

panels from four Southeast Asian nations for two years and invoked the Defense Production Act to spur domestic solar panel manufacturing

The tariff exemption will serve as a “bridge” while U.S.

manufacturing ramps up.

of December 31, 2022, the Company had inventory of approximately $3,601,000 of which approximately $3,092,000 are solar panels.

the date of this report the Company also has outstanding purchase orders with its panel supplier of $14,393,000 and has paid deposits

of approximately $3,908,000 towards these open purchase orders.

In order to meet our current customers anticipated needs for 2023, the

Company would need to purchase approximately an additional $5,000,000 to be received in Q4/2023.

Based on the above, management anticipates

revenues may approach $20 million for 2023 for solar products.

the years ended December 31, 2022, and 2021, the Company recognized $15,281,791 and $9,763,943, respectively, of cost of sales.

Sourced and distributed products

Manufactured products

on the above cost of sales, gross margin was 8.1% and 7.85% for the years ended December 31, 2022, and 2021, respectively.

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

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.

for OES was consistent on a year-to-year comparison.

While the Company expects margins to remain similar for 2023, the expected increase

in revenues should create additional gross profit dollars in 2023 compared to 2022.

operating expenses for the years ended December 31, 2022, and 2021, were $5,959,344 and $13,443,400, respectively.

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General and administrative.

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.

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:

fees- related parties, are amounts paid to our CEO.

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”).

compensation as adjusted was $20,000 per month, and effective September 1, 2021, Mr.

Conway began to receive $10,000 per month from Ozop

Effective January 1, 2022, the Company entered into a new employment agreement with Mr.

Pursuant to the agreement, Mr.

Conway received a $250,000 contract renewal bonus and receives 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 and OED began compensating Mr.

Conway $20,000 in April 2022.

Below is a summary of wages and management fees:

CEO, parent- Series E Preferred Stock

CEO, parent- Series D Preferred Stock

President, subsidiary (resigned July 2021)

Series E Preferred Stock based compensation for the year ended December 31, 2021, is a result of on March 2, 2021, the BOD authorized

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expense for year ended December 31, 2021.

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.

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.

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.

based compensation, other, for the year ended December 31, 2022, of $136,429 is comprised of the following:

shares of common stock issued in the aggregate to two employees pursuant to their offers of employment dated March 31, 2021.

shares were valued at $0.027 per share.

During the year ended December 31, 2022, the Company included $135,000 in stock compensation

of amortization of stock compensation for shares issued in April 2021.

based compensation, other, for the year ended December 31, 2021, of $6,472,751 is comprised of the following stock issuances:

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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.

ended December 31, 2021, the Company included $2,386,000 in stock compensation expense.

shares of common stock issued in the aggregate to two new employees pursuant to their offers of employment dated March 31, 2021.

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31, 2021, the Company included $227,500 in stock compensation expense for the 5,000,000 shares of common stock.

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

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,

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.

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

taxes, and benefits increased for the year ended December 31, 2022, compared to December 31, 2021.

The increase was a result of 2022

having a full year for Ozop Energy Systems and Ozop Engineering and Design and EV Insurance company having employees beginning in April

2022, and October 2022, respectively.

Year ended December 31,

Ozop Energy Systems

Ozop Engineering and Design

EV Insurance Company

Energy Systems currently has 3 employees with an aggregate annual salary of $276,000 and focused on the battery storage system, information

technology and general and administrative functions.

The solar distribution of this vertical is being managed by our financial consultant

and the Company’s CEO.

OED currently has six employees with an aggregate annual compensation of $588,000.

EV Insurance Company

has one employee with annual compensation of $125,000.

and consulting fees increased for the year ended December 31, 2022, compared to December 31, 2021.

The increase is due to increases in

accounting expenses of Ozop and its’ subsidiaries in 2022 and consultants engaged in the second quarter of 2021 by Ozop Capital

Partners that have been engaged for nine months during the year ended December 31, 2022.

and marketing expenses increased for the year ended December 31, 2022, compared to December 31, 2021.

The increases were related to website

development, and lead generation costs.

and office expense (including supplies, utilities, and internet costs) increased for the year ended December 31, 2022, compared to the

year ended December 31, 2021.

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.

the year ended December 31, 2020, the Company had the following expenses charged to impairment:

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.

for the impairment of license rights as management has decided not to go forward with the use of the license rights of Spinus.

for the impairment of goodwill related to the transaction between Ozop and Spinus.

The increase is the result of including in the current period, rent and office expense for the full year

of approximately $222,334 for the year ended December 31, 2022, compared to from June 1, 2021, of $121,343 for the year ended December

31, 2021, for OES.

Effective March 1, 2023, OES has subleased the Carlsbad office and warehouse to a third party.

expense increased for the year ended December 31, 2022, compared to the year ended December 31, 2021.

The increase was the result of

including in the current period insurance expense of approximately $232,664 for the year ended December 31, 2022, compared to $205,970

for the year ended December 31, 2021, for OES.

OED’s insurance expense was $44,471 for the year ended December 31, 2022.

estimates that the monthly OES and OED insurance expense to be approximately $20,000 per month.

Income (Expenses)

expenses, net, for the years ended December 31, 2021, and 2020, was $182,501,302 and $3,389,890, respectively, and were as follows.

income, net, for the year ended December 31, 2022, was $10,763,570 compared to other expenses, net, for the year ended December 31, 2021,

of $182,457,670 and were as follows.

Interest expense

Loss on change in fair value of derivatives

(Gain) loss on change in fair value of derivatives

(19,202,431 )

Debt restructure expense

Loss (gain) on extinguishment of debt

Loss on extinguishment of debt

Total other expense, net

$ (10,763,570 )

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 for the year ended December 31, 2021, was $195,303,051 compared to $20,968,243 for the year ended December 31, 2020.

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.

$ 182,457,670

decrease in interest expense for the year ended December 31, 2022, is primarily a result of the initial $38,907,939 of interest expense

related to the fair value of the issuance of 375,000,000 warrants during the year ended December 31, 2021.

Included in other expenses

for the year ended December 31, 2021, is 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 $16,450,000 for the issuance of 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.

income (loss)

income attributable to the Company for the year ended December 31, 2022, was $6,025,812 compared to a net loss of $195,047,946 for the

year ended December 31, 2021.

The change was primarily a result of the gain on the change in fair value of derivatives of $19,202,431

for the year ended December 31, 2022, compared to the expense of $17,349,075 year ended December 31, 2021.

The loss for the year ended

December 31, 2021, also included loss on debt settlements of $95,449,996 and $16,450,000 of debt restructure expenses, as well as $9,322,751

of stock- based compensation expenses included in the operating expenses for the year ended December 31, 2021.

and Capital Resources

accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets

and the satisfaction of liabilities in the normal course of business.

As of December 31, 2022, the Company had an accumulated deficit

of $211,300,799 and a working capital deficit of $7,552,616 (including derivative liabilities of $4,314,270).

As of December 31, 2022,

the Company was in default of $1,470,000 plus accrued interest on debt instruments due to non-payment upon maturity dates.

These factors,

among others, raise substantial doubt about the ability of the Company to continue as a going concern for one year from the date of the

issuance of these financial statements.

The accompanying financial statements do not include any adjustments to reflect the possible

future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from

the possible inability of the Company to continue as a going concern.

our current capital and our other existing resources will be sufficient to provide the working capital needed for our current business,

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plans in regard to these factors are discussed below and also in Note 2 to the consolidated financial statements filed herein.

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).

of December 31, 2021, we had cash of $6,767,167 as compared to $1,808,476 at December 31, 2020.

the year ended December 31, 2022, we primarily funded our business operations with the existing cash on hand as of January 1, 2022, and

$2,510,000 of proceeds received pursuant to the issuance of a promissory note and $1,141,514 received from sales of common stock.

of December 31, 2022, we had cash of $1,369,210 as compared to $6,632,194 as of December 31, 2021.

As of December 31, 2022, we had current

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The current liabilities are comprised of accounts payable, accrued expenses, convertible

debt, derivative liabilities, customer deposits, lease obligations and notes payable.

debt, derivative liabilities, customer deposits, lease obligations, notes payable and liabilities of discontinued operations.

December 2019, a novel strain of coronavirus (COVID-19) emerged.

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the year ended December 31, 2022, net cash used in operating activities was $8,599,296 compared to $6,354,717 for the year ended December

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, 2022, our net cash used in operating activities was primarily attributable to the net income

of $6,151,885, adjusted by non- cash interest expense of $5,938,622, stock-based compensation of $136,249 and the non-cash expenses of

amortization and depreciation of $191,818.

This was offset by the gain on the fair value changes in derivatives related to warrants and

convertible notes of $19,202,431.

Net changes of $1,551,000 in operating assets and liabilities increased the cash used in operating

the year ended December 31, 2021, our net cash used in operating activities was primarily attributable to the net loss of $195,069,214,

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.

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.

the year ended December 31, 2020, the Company acquired $470,849 cash in an acquisition and purchased $46,418 of office

furniture and equipment.

adjusted by loss on debt extinguishment of $95,449,996, non- cash interest expense of $51,487,601 (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 $103,000.

Net changes of $779,989 in operating assets and liabilities increased the cash used in

operating activities, primarily because of the start-up of the Company’s California operations in the support of inventory and

accounts receivable.

the year ended December 31, 2022, the net cash used in investing activities was $65,202, compared to net cash provided by investing activities

of $116,836 for the year ended December 31, 2021.

the year ended December 31, 2022, the net cash provided by financing activities was $3,401,514, compared to $11,475,000 for the year

ended December 31, 2021.

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.

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.

During the year ended December 31, 2022, we received $2,510,000 of proceeds from the issuance of $3,020,000

promissory note and $1,141,514, net of issuance costs, from the sales of common stock to GHS.

During the year ended December 31, 2022,

we made payments of $250,000 for notes payable.

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 $375,000 of notes payable.

Accounting Policies

3 unchanged sentences

of our financial statements:

of Presentation

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.

preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires

2 unchanged sentences

Actual results could differ from those estimates.

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

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.

are valued at the lower of cost or net realizable value, with cost determined on the first-in, first-out basis.

Inventory costs consist of

finished goods.

In evaluating the net realizable value of inventory, management also considers,

if applicable, other factors, including known trends, market conditions, currency exchange rates and other such issues.

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

Hedging Activities.

GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative

financial instruments according to certain criteria.

The criteria include circumstances in which (a) the economic characteristics and

risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host

contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at

fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same

terms as the embedded derivative instrument would be considered a derivative instrument.

Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated

from their host instruments) as follows:

The Company records, when necessary, discounts to convertible notes for the intrinsic value

of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at

the commitment date of this note transaction and the effective conversion price embedded in this note.

Debt discounts under these arrangements

are amortized over the term of the related debt to their stated date of redemption.

Company accounts for the conversion of convertible debt when a conversion option has been bifurcated using the general extinguishment

The debt and equity linked derivatives are removed at their carrying amounts and the shares issued are measured at their then-current

fair value, with any difference recorded as a gain or loss on extinguishment of the two separate accounting liabilities.

January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers.

36 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis