What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-15 compared with 2022-11-14 · 252 added, 278 removed, 162 unchanged (77% of the section changed)

1 unchanged sentence

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.

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.

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We undertake no obligation to update these forward-looking statements.

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 believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future

31 unchanged sentences

August 19, 2021, the Company formed Ozop Capital Partners, Inc.

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

subsidiary of the Company.

Ozop Capital was formed as a holding company to seek to develop a captive insurance company.

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 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.

(“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.

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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

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 EV markets.

OES has acquired th rough

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

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

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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 of 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

Royal’s VSCs are now effective in 35 states and the others have various waiting times or approvals needed.

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

Florida (“ABIC” or the “Ceding Company”).

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.

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

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

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

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

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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

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.,

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

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 27, 2021.

of Operations for the three and nine months ended September 30, 2022 and 2021:

the three and nine months ended September 30, 2022, the Company generated revenue of $3,928,918 and $11,614,117, respectively, compared

to $4,716,607 and $5,971,589 for the three and nine months ended September 30, 2021, respectively.

Revenues from Ozop Energy Systems,

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 income (loss) from discontinued operations in the accompanying

consolidated financial statements for the three months ended March 31, 2023, and 2022.

of Operations for the three months ended March 31, 2023, and 2022:

the three months ended March 31, 2023, the Company generated revenue of $2,791,198 compared to $2,919,322 for the three months ended

March 31, 2022.

Revenues from Ozop Energy Systems, Inc.

(“OES”) 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.

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:

September 30,

Three months ended

Sourced and distributed products

Design and installation

it did for most of the industry;

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

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

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 there four Southeast

Asian nations for two years and invoked the Defense Production Act to spur domestic solar panel manufacturing at home.

The tariff exemption

will serve as a “bridge” while 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, 2022, that it would investigate claims by a 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.

on the above situation, the Company placed approximately $14,422,000 of purchase orders for solar panels and as of the date of the

filing of this report has fully paid and received approximately $7,265,000 of this product.

Additionally, the Company has made

approximately $1,499,000 of additional deposits to vendors, resulting in a remaining balance of $5,658,000 of open purchase orders

to vendors, to assure product delivery of approximately $7.2 million with a forecasted delivery of $3.9 million in Q4 2022 and $3.3

million in Q1 2023.

The Company was expecting to receive additional product in Q3 2022, that has been delayed until Q4 2022, which

impacted revenues for the three and nine months ended September 30, 2022.

Based on the above and the Company’s current on-hand

inventory, management anticipates the potential for a significant increase in fourth quarter sales over Q3 2022 sales.

the three and nine months ended September 30, 2022, the Company recognized $3,598,918 and $10,634,170, respectively of cost of sales,

compared to $4,370,680 and $5,575,557 for the three and nine months ended September 30, 2021, respectively.

September 30,

of March 31, 2023, the Company had inventory of approximately $1,648,000.

As of the date of this report the Company also has outstanding

purchase orders with its panel supplier of $12,626,000 and has paid deposits of approximately $3,172,000 towards these open purchase

In order to meet our current customers anticipated needs for 2023, the Company would need to purchase approximately an additional

$3,000,000 to be received in Q4/2023.

Based on the above, management anticipates revenues may approach $20 million for 2023 for solar

the three months ended March 31, 2023, and 2022, the Company recognized $2,394,700 and $2,749,349, respectively, of cost of sales.

Three months ended

Sourced and distributed products

on the above cost of sales, gross margin was 8.4% for the three and nine months ended September 30, 2022, compared to 7.3% and 6.6% for

the three and nine months ended September 30, 2021, respectively.

The increase of gross margin for the three and nine months is a result

of the mix of customer sales.

operating expenses for the three and nine months ended September 30, 2022, were $1,514,524 and $4,648,920, compared to $1,708,102 and

$11,309,256 for the three and none months ended September 30, 2021, respectively.

The operating expenses were comprised of:

Months Ended September 30, 2022

Months Ended September 30, 2021

Months Ended September 30, 2022

September 30, 2021

Wages and management fees, related

parties, including stock-based compensation

on the above cost of sales, gross margin was 13.2% and 5.8% for the three months ended March 31, 2023, and 2022, respectively.

margin for OES was higher in the current due to the mix of product sales.

The Company anticipates lower margins for the remainder of

2023 compared to the quarter ending March 31, 2023.

operating expenses for the three months ended March 31, 2023, and 2022, were $1,069,762 and $1,765,567, respectively.

The operating expenses

were comprised of:

Three months ended March 31,

Management fees, related parties

Stock-based compensation, other

2 unchanged sentences

Advertising and marketing

Rent and office expense

Rent and office expenses

General and administrative.

Total operating expenses

and management 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.

Management 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”).

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

Conway began to receive $10,000

per month from Ozop Capital.

Conway’s compensation as adjusted was

$20,000 per month.

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

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

Conway for services provided directly to any of the Company’s subsidiaries.

Pursuant to the agreement,

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 began compensating Mr.

Conway $20,000 in March 2022.

Below is a summary of wages and management

September 30,

CEO management fees

Stock-based compensation

Total other (income)

based compensation for the nine months ended September 30, 2022, of $136,429 is comprised of the following:

Conway’s compensation to $20,000 per month

in January 2022, OES began compensating Mr.

Conway $20,000 in March 2022, and OED began compensating Mr.

Conway $20,000 per month beginning

in April 2022.

was no stock-based compensation for the three months ended March 31, 2023.

Stock based compensation for the three months ended March 31,

2022, of $136, 249 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 nine months ended September 30, 2022, the Company included $135,000 in stock compensation

During the three months ended March 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 three and nine months ended September 30, 2021, of $668,711 and $5,784,656 is comprised of the following

stock issuances:

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.

For the three and nine months ended September 30, 2021, $250,000 and $583,562, respectively,

is included in stock-based compensation expense.

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 three and nine months ended September 30, 2021, the Company recorded

$21,211 and $55,595, respectively, as stock-based compensation expense.

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 nine months ended September 30,

shares issued for services.

The shares were valued at $0.0056 per share, the date the Company agreed to issue the shares.

nine months ended September 30, 2021, the Company included $56,000 in stock compensation expense.

shares issued pursuant to a consulting agreement dated February 24, 2021 (see Note 12).

The shares were valued at $0.2386 per share.

For the nine months ended September 30, 2021, the Company included $2,386,000 in stock compensation expense.

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

The shares were valued at $0.23 per share.

For the nine months ended September 30, 2021, the Company included $460,000 in stock

compensation expense for the 5,000,000 shares of common stock.

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 nine months ended September 30, 2021.

shares of common stock to be 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.

For the three and nine months ended September 30, 2021, the Company included $372,500

in stock compensation expense for the 5,000,000 shares of common stock.

shares of common stock issued for services (see Note 12).

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

three and nine months ended September 30, 2021.

taxes and benefits increased for the three and nine months ended September 30, 2022, compared to the same periods in 2021.

was a result of the current periods including $268,091 and $767,438, respectively, compared to $275,375 and $397,889 for the three and

nine months ended September 30, 2021, respectively, of expenses related to OES and $143,320 and $198,882 for the three and nine months

ended September 30, 2022, respectively, for OED.

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.

OED currently has five employees with an aggregate

annual compensation of $457,000.

and consulting fees increased for the three and nine months ended September 30, 2022, compared to September 30, 2021.

The increases are

due to increases in accounting expenses of Ozop and its’ subsidiaries in the current three- and nine-month periods and consultants

engaged in the second quarter of 2021 by Ozop Capital Partners that have been engaged for the entire nine months ended September 30,

2022, as Ozop Plus initiates its business plan regarding vehicle service contracts on electric vehicles.

and marketing expenses decreased for the three and nine months ended September 30, 2022, compared

to September 30, 2021.

The decreases were related to marketing programs during 2021, including brand awareness programs for Ozop.

and office expense (including supplies, utilities and internet costs) remained the same for the three months ended September 30, 2022,

compared to the three months ended September 30, 2021, and increased for the nine months ended September 30, 2022, compared to the none

months ended September 30, 2021.

The increase is the result of including in the current period, rent and office expense of approximately

$147.916 for the nine months ended September 30, 2022, compared to $69,221 for the nine months ended September 30, 2021, for OES.

Company estimates that the monthly OES rent and office expense for the California operation to be approximately $18,000 per month.

expense increased for the three and nine months ended September 30, 2022, compared to the three and nine months ended September 30, 2021.

The increase was the result of including in the current three- and nine-month periods, insurance expense of approximately $68,465 and

$201,413, respectively, for the three and nine months ended September 30, 2022, compared to $62,961 and $89,609 for the three and nine

months ended September 30, 2021, for OES.

OED’s insurance expense was $19,790 and $21,135 for the three and nine months ended September

The Company estimates that the monthly OES and OED insurance expense to be approximately $30,000 per month.

taxes, and benefits increased for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

was a result of in the quarter ending March 31, 2023 for Ozop Engineering and Design (“OED”) and EV Insurance Company (“Ozop

Plus”) having employees for the entire period, compared to OED beginning in April 2022, and Ozop Plus beginning in October 2022,

respectively.

These increases were significantly reduced by the termination for cause of all of the employees in the west coast location.

Three months ended March 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 decreased for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

is due to the expiration of certain consulting contracts and accounting fees.

These decreases were partially offset increases in legal

expenses and auditing fees.

and marketing expenses increased for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

The increases

were related to website development, and lead generation costs.

and office expense (including supplies, utilities, and internet costs) decreased for the three months ended March 31, 2023, compared

to the three months ended March 31, 2022.

The decrease is the result that on March 1, 2023, OES has subleased the Carlsbad office and

warehouse to a third party.

expense decreased for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

The decrease was the

result of the termination of the west coast employees in November 2022, resulting in no health insurance and workers compensation expenses

related thereto.

The Company estimates that the monthly insurance expense to be approximately $20,000 per month.

(Income) Expenses

income, net was $513,156 and $8,501,649 for the three and nine months ended September 30, 2022, respectively, compared to other income,

net of $13,314,765 for the three months ended September 30, 2021, and other expenses of $186,842,894 for the nine months ended September

30, 2021, and were comprised of as follows:

September 30,

expense, net, for the three months ended March 31, 2023, was $1,859,651 compared to other income, net, for the three months ended March

31, 2022, of $398,305 and were as follows.

Three months ended

Interest expense

(Gain) loss on change in fair value of derivatives

(17,483,300 )

(15,314,483 )

Loss on extinguishment of debt

Debt restructure expense

Total other (income)

$ (13,314,765 )

$ (8,501,649 )

$ 186,842,894

decrease in other income, net, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021,

is primarily a result of the reduced gain on the change in fair value of the derivatives and the reduced interest expense related to

the amortization of debt discounts associated with the maturity dates of certain of the company’s promissory notes.

Other expenses

for the nine months ended September 30, 2021 , includes 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.

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.

Also included in interest expense for the nine months ended

September 30, 2021, is the initial $38,907,939 of fair value related to the issuance of 300,000,000 warrants.

In addition, the amortization

of debt discounts of $8,810,332 and losses on changes in fair values of derivatives, related to convertible notes and warrants.

income (loss)

loss for the three months ended September 30, 2022, was $534,988 compared to net income of $11,714,722 for the three months ended September

The change was primarily a result of the reduced gain on the change in fair value of derivatives in the current period compared

to the three months ended September 30, 2021.

For the nine months ended September 30, 2022, the Company had net income $4,975,556 compares

to a net loss of $197,989,599 for the nine months ended September 30, 2021.

The loss for the nine months ended September 30, 2021, was

primarily a result of the other expenses descried above as well as $7,965,945 of stock- based compensation expenses included in the operating

expenses for the nine months ended September 30, 2021.

Total other (income) expense, net

decrease in interest expense for the three months ended March 31, 2023, is primarily a result of the amortization period of certain note

discounts were completed in 2022, resulting in $500,568 of interest related to the amortization of note discounts in the current period,

compared to $3,379,121 for the three months ended March 31, 2022.

Interest expense on the face value of the principal balances of the

notes payable increased due to the increased rate due to mote defaults and extended maturity dates.

For the three months ended March

31, 2023, the Company recognized a loss of $638,118 on the change in the fair value of derivatives compared to a gain of $4,365,203 for

the three months ended March 31, 2022.

loss attributable to the Company for the three months ended March 31, 2023, was $2,527,552 compared to a net loss of $1,193,761 for

the three months ended March 31, 2022.

The change was primarily a result of the loss on the change in fair value of derivatives of

$638,118 for the three months ended March 31, 2023, compared to the gain of $4,365,203 for the three months ended March 31, 2022.

This increase in the loss from the changes in the fair value of derivatives was partially offset by the increase in gross profit,

the decrease in operating expenses and interest expense for the three months ended March 31, 2023, compared to the three months

ended March 31, 2022.

and Capital Resources

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

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

As of September 30, 2022, the Company had an accumulated

deficit of $212,351,054 and a working capital deficit of $23,000,162 (including derivative liabilities of $5,652,218).

As of September

30, 2022, the Company was in default of $14,142,588 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.

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 March 31, 2023, the Company had an accumulated deficit of

$213,828,351 and a working capital deficit of $9,216,661 (including derivative liabilities of $4,952,388).

As of March 31, 2023, the

Company was in default of $3,690,000 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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This “going concern” could impair our ability to finance our operations through the sale of debt or equity securities.

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

of September 30, 2022, we had cash of $2,063,235 as compared to $6,767,167 at December 31, 2021.

As of September 30, 2022, we had current

liabilities of $29,794,842 (including $5,652,218 of non-cash derivative liabilities), compared to current assets of $6,794,680, which

resulted in a working capital deficit of $23,000,162.

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

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

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, 2023, we primarily funded our business operations with the existing cash on hand as of January 1, 2023, cash

received from sales of inventory, and $526,393 received from sales of common stock.

As of March 31, 2023, we had cash of $1,954,814 as

compared to $1,369,210 as of December 31, 2022.

As of March 31, 2023, we had current liabilities of $16,785,663 (including $4,952,388

of non-cash derivative liabilities), compared to current assets of $7,569,002, which resulted in a working capital deficit of $9,216,661.

The current liabilities are comprised of accounts payable, accrued expenses, convertible debt, derivative liabilities, customer deposits,

deferred liability, lease obligations, notes payable and liabilities of discontinued operations.

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

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for which it may have an impact cannot be determined at this time.

the nine months ended September 30, 2022, net cash used in operating activities was $5,185,222 compared to $6,350,242 for the nine months

ended September 30, 2021.

For the nine months ended September 30, 2022, our net cash used in operating activities was primarily attributable

to the net income of $4,445,884, adjusted by non- cash interest expense of $5,020,528, stock-based compensation of $136,249 and the non-cash

expenses of amortization and depreciation of $132,924.

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

warrants and convertible notes of $15,314,483.

Net changes of $246,943 in operating assets and liabilities decreased the cash used in

operating activities.

the nine months ended September 30, 2021, our net cash used in operating activities was primarily attributable to the net loss of $197,989,599,

adjusted by loss on debt extinguishment of $95,437,589, non- cash interest expense of $47,838,062 (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 $25,892,783, debt restructuring costs of $16,450,000, stock-based compensation of $8,634,656 and the non-cash expenses of interest

and amortization and depreciation of $62,438.

Net changes of $2,241,716 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.

the nine months ended September 30, 2022, the net cash used in investing activities was $198,632, compared to $109,769 for the nine months

ended September 30, 2021.

The amounts for both periods were a result of the Company purchasing office furniture and equipment.

the nine months ended September 30, 2022, the Company received shares proceeds of $814,625, net of issuance costs.

During the nine months

ended September 30, 2021, net cash provided by financing activities was $8,475,000.

We received $12,000,000 of proceeds from the issuances

of $13,310,000 face value of promissory notes, $13,100,000 (net of costs) from the Series D SPA.

During the nine months ended September

30, 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.

BALANCE SHEET ARRANGEMENTS

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.

the three months ended March 31, 2023, net cash provided by operating activities was $611,373 compared to net cash used in operating

activities of $3,060,456 for the three months ended March 31, 2022.

For the three months ended March 31, 2023, our net cash provided

by operating activities was primarily attributable to the net loss of $2,527,552, adjusted by non- cash items of the loss on the fair

value change of derivatives of $638,118, interest expense of $500,568, and amortization and depreciation of $55,912.

Net changes of $1,949,690

in operating assets and liabilities added to the cash provided by operating activities.

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 amortization and depreciation of $41,421.

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 $812,666 in operating assets and liabilities increased the cash used in operating activities.

the three months ended March 31, 2023, the net cash used in investing activities was $2,162, compared to $40,000 for the three months

ended March 31, 2022.

the three months ended March 31, 2023, the net cash used in financing activities was $23,607.

During the three months ended March 31,

2023, we received $526,393, net of issuance costs, from the sales of common stock to GHS.

During the three months ended March 31, 2023,

we made payments of $550,000 for notes payable.

There was no financing activity for the three months ended March 31, 2022.

Accounting Policies

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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 financial statements:

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.

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.

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:

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.

(Loss) Per Share

Company computes net income (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.

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.

BALANCE SHEET ARRANGEMENTS

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.

Quantitative and Qualitative Disclosures about Market Risk.

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-Q

Item 2. Management’s Discussion and Analysis