What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-20 compared with 2023-08-14 · 181 added, 183 removed, 262 unchanged (58% of the section changed)

124 unchanged sentences

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

On June 22, 2022, the Company

entered into an Agent Agreement with Royal Administration Services, Inc.

Under the agreement, the Company

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

Royal has 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.

Royal’s VSCs are now effective

in all 50 states.

On October 13, 2022, EVCO

entered a Reinsurance Contract (the “Contract”) with American Bankers Insurance Company of Florida (“ABIC”

or the “Ceding Company”).

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 all 50 states.

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.

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

15 unchanged sentences

Accordingly, the operating results of PCTI are reported as income (loss) from discontinued operations in the accompanying

consolidated financial statements for the three and six months ended June 30, 2023, and 2022.

of Operations for the three and six months ended June 30, 2023, and 2022:

the three and six months ended June 30, 2023, the Company generated revenue of $1,241,326 and 4,032,524, respectively, compared to $4,765,877

and $7,685,199 for the three and six months ended June 30, 2022, respectively.

consolidated financial statements for the three and nine months ended September 30, 2023, and 2022.

of Operations for the three and nine months ended September 30, 2023, and 2022:

the three and nine months ended September 30, 2023, the Company generated revenue of $172,559 and 4,205,083, respectively, compared to

$3,928,918 and $11,614,117 for the three and nine months ended September 30, 2022, respectively.

Revenues from Ozop Energy Systems, Inc.

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.

(“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.

Sales are summarized as follows:

Sourced and distributed

and installation

of sourced and distributed products (solar product) were lower for the three and six months ended June 30, 2023, compared to the same

periods in 2022.

The Company believes the lower revenues were due to higher interest rates affecting homeowners’ ability and desire

for residential rooftop solar installations as well as competitors lowering their selling prices to try to capture a part of the lower

This also resulted in our customers having excess inventory on hand.

of June 30, 2023, the Company had inventory of approximately $2,328,000.

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

purchase orders with its panel supplier of approximately $10,345,000 and has paid deposits of approximately $2,525,000 towards these

open purchase orders.

If the Company sells their current inventory and open purchase orders, sales of solar products can approach $15

million for 2023.

the three and six months ended June 30, 2023, the Company recognized $1,733,892 and $4,128,592, respectively, of cost of sales, compared

to $4,286,687 and $7,036,036 for the three and six months ended June 30, 2022, respectively.

Sourced and distributed

the quarter ended June 30, 2023, the Company reviewed its inventory valuation to determine if the historical cost of its solar panels

was less than their net realizable value.

Management also considers, if applicable, other factors, including known trends, market conditions,

and other such issues.

Based on current market conditions related to solar panels including but not limited to reduced selling prices

in the industry and the abundance of inventory supply in the market, management determined that the net realizable value of certain of

the Company’s inventory required a lower of cost or market adjustment of $625,000 (the “Inventory Adjustment”) to the

historical cost of inventory purchased.

Prior to the Inventory Adjustment, gross margin was 10.7% and 13.1% for the three and six months

ended June 30, 2023, respectively, compared to 10.1% and 8.4% for the three and six months ended June 30, 2022, respectively.

margin prior to Inventory Adjustment

margin after Inventory Adjustment

the three months ended June 30, 2023, the increase in gross margin prior to the Inventory Adjustment compared to the three months ended

June 30, 2022, is a result of the higher gross margins on design and installation sales related to OED, offset by lower gross margin

on solar panel sales related to the product mix sold of solar panels.

For the six months ended June 30, 2023, the increase in gross margin

prior to the Inventory Adjustment compared to the six months ended June 30, 2022, is a result of the higher gross margins on design and

installation sales related to OED, and by higher gross margin on solar panel sales related to the product mix sold of solar panels.

operating expenses for the three and six months ended June 30, 2023, were $963,070 and $2,032,832, respectively, compared to $1,368,829

and $3,134,396 for the three and six months ended June 30, 2022, respectively.

The operating expenses were comprised of:

Three months ended

June 30, 2023

September 30,

Nine months ended

September 30,

Sourced and distributed products

Design and installation

of sourced and distributed products (solar product) were lower for the three and nine months ended September 30, 2023, compared to the

same periods in 2022.

The Company believes the lower revenues were due to higher interest rates affecting homeowners’ ability and

desire for residential rooftop solar installations as well as competitors lowering their selling prices to try to capture a part of the

lower demand.

These factors also resulted in our customers having excess inventory on hand and the cancellation of orders.

the three and nine months ended September 30, 2023, the Company recognized $126,438 and $4,255,030, respectively, of cost of sales, compared

to $3,598,134 and $10,634,170 for the three and nine months ended September 30, 2022, respectively.

Three months ended

June 30, 2022

Six Months Ended

June 30, 2023

Six Months Ended

June 30, 2022

and management fees, related parties, including stock-based compensation

compensation, other

taxes, and benefits

and consulting fees

and marketing

and office expenses

and administrative

operating expenses

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.

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

September 30,

Nine months ended

September 30,

Sourced and distributed products

Inventory write down

the nine months ended September 30, 2023, the Company reviewed its inventory valuation to determine if the historical cost of its solar

panels was less than their net realizable value.

Management also considers, if applicable, other factors, including known trends, market

conditions, and other such issues.

Based on current market conditions related to solar panels including but not limited to reduced selling

prices in the industry and the abundance of inventory supply in the market, management determined that the net realizable value of certain

of the Company’s inventory required a lower of cost or market adjustment of $625,000 (the “Inventory Adjustment”) to

the historical cost of inventory purchased.

Three months ended

September 30,

Nine months ended

September 30,

the three months ended September 30, 2023, the increase in gross margin compared to the three months ended September 30, 2022, is a result

of sales in current quarter of products that were part of the inventory write down of $625,000 as of June 30, 2023.

For the nine months

ended September 30, 2023, the decrease in gross margin compared to the nine months ended September 30, 2022, is a result of the $625,000

inventory write down..

operating expenses for the three and nine months ended September 30, 2023, were $2,637,795 and $4,670,627, respectively, compared to

$1,514,524 and $4,648,920 for the three and nine months ended September 30, 2022, respectively.

The operating expenses were comprised

September 30,

Wages and management fees, related parties, including stock-based compensation

Stock-based compensation, other

Salaries, taxes, and benefits

Professional and consulting fees

Advertising and marketing

Rent and office expenses

Termination costs

General and administrative

Total operating expenses

January 1, 2022, the Company entered into an employment agreement with Mr.

Pursuant to the agreement, Mr.

Conway received a $250,000 contract renewal bonus (included in the six months ended June 30, 2022)

and receives annual compensation of $240,000 from the Company and will also be eligible to receive bonuses and equity grants at the discretion

Conway received a $250,000

contract renewal bonus (included in the nine months ended September 30, 2022) and receives 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.

1 unchanged sentence

Ozop Capital increased Mr.

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 and six months ended June 30, 2023.

Stock based compensation for the six months ended June

30, 2022, of $136,249 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.

$20,000 per month beginning in April 2022.

was no stock-based compensation for the three and nine months ended September 30, 2023.

Stock based compensation for the nine months

ended September 30, 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 six months ended June 30, 2022, the Company included $135,000 in stock compensation

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

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

taxes, and benefits decreased for the three and six months ended June 30, 2023, compared to the three and six months ended June 30, 2022.

The decrease was a result of the termination for cause of all of the employees in the west coast location related to Ozop Energy Systems.

This decrease was reduced by the increases in Ozop Engineering and Design (“OED”) and EV Insurance Company (“Ozop Plus”)

having employees for the entire three and six months ended June 30, 2023, compared to OED beginning in April 2022, and Ozop Plus not

having any employees in the three and six months ended June 30, 2022.

For the three and six months ended June 30, 2023, and 2022, salaries,

taxes and benefits were comprised of the following:

Three Months Ended

June 30, 2023

Three Months Ended

June 30, 2022

Six Months Ended

June 30, 2023

Six Months Ended

June 30, 2022

taxes, and benefits decreased for the three and nine months ended September 30, 2023, compared to the three and nine months ended September

The decrease was a result of the termination for cause of all of the employees in the west coast location related to Ozop Energy

This decrease was reduced by the increases in Ozop Engineering and Design (“OED”) and EV Insurance Company (“Ozop

Plus”) having employees for the entire three and nine months ended September 30, 2023, compared to OED beginning in April 2022,

and Ozop Plus not having any employees in the three and nine months ended September 30, 2022.

For the three and nine months ended September

30, 2023, and 2022, salaries, taxes and benefits were comprised of the following:

September 30,

Ozop Energy Systems

Ozop Engineering and Design

Insurance Company

EV Insurance Company

Energy Systems currently has 2 employees with an aggregate annual salary of $204,000 and focused on the battery storage system, information

5 unchanged sentences

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

and consulting fees decreased for the three and six months ended June 30, 2023, compared to the three and six months ended June 30, 2022.

and consulting fees decreased for the three and nine months ended September 30, 2023, compared to the three and nine months ended September

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

These decreases were partially offset by increases

in legal expenses and auditing fees.

and marketing expenses increased for the three and six months ended June 30, 2023, compared to the three and six months ended June 30,

These decreases were partially offset

by increases in legal expenses and auditing fees.

and marketing expenses increased for the three and nine months ended September 30, 2023, compared to the three and nine months ended

September 30, 2022.

The increases were related to website development, lead generation costs, and trade show participation.

and office expenses (including supplies, utilities, and internet costs) decreased for the three and six months ended June 30, 2023, compared

to the three and six months ended June 30, 2022.

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

and warehouse to a third party.

expenses increased for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, and decreased for the

six months ended June 30, 2023, compared to the six months ended June 30, 2022.

The increase for the three-month period was a result

of health insurance for OED for the full three months ended June 30, 2023, compared to the three months ended June 30, 2022.

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

related thereto.

The decrease for the six-month period 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 decrease was reduced by the health insurance

costs for OED for the full six months ended June 30, 2023, compared to the six months ended June 30, 2022.

The Company estimates that

the monthly insurance expense to be approximately $20,000 per month.

and office expenses (including supplies, utilities, and internet costs) decreased for the three and nine months ended September 30, 2023,

compared to the three and nine months ended September 30, 2022.

The decrease was a result that effective March 1, 2023, OES subleased

the Carlsbad office and warehouse to a third party.

costs of $1,755,082 for the three and nine months ended September 30, 2023, was a result of storage fees for goods that remained at a

third-party warehouse and purchase order termination fees charged by the Company’s solar panel supplier, all of which was in connection

with an early termination of vendor agreement.

expenses decreased for the three and nine months ended September 30, 2023, compared to the three and nine months ended September 30,

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 decrease was reduced by the health insurance costs for OED for the full three and

nine months ended September 30, 2023, compared to the three and nine months ended September 30, 2022.

The Company estimates that the

monthly insurance expense to be approximately $20,000 per month.

(Income) Expenses

expense, net, for the three and six months ended June 30, 2023, was $1,982,463 and $3,842,114, respectively, compared to other income,

net, for the three and six months ended June 30, 2022, of $7,590,187 and $7,988,492, respectively, and were as follows:

(income) expense, net, for the three and nine months ended September 30, 2023, was ($2,265,254) and $1,576,860, respectively, compared

to other income, net, for the three and nine months ended September 30, 2022, of ($513,157) and ($8,501,649), respectively, and were

Three months ended

September 30,

Nine months ended

September 30,

Interest expense

loss on change in fair value of derivatives

Gain on change in fair value of derivatives

(15,314,483 )

other (income) expense

Total other (income) expense

$ (2,265,254 )

$ (8,501,649 )

decrease in interest expense for the three and six months ended June 30, 2023, is primarily a result of the amortization period of certain

note discounts were completed in 2022, resulting in $318,750 and $819,318 of interest related to the amortization of note discounts for

the three and six months ended June 30, 2023, compared to $820,704 and $4,199,825 for the three and six months ended June 30, 2022.

the three and six months ended June 30, 2023, the Company recognized losses on the change in the fair value of derivatives compared to

gains for the three and six months ended June 30, 2022.

losses attributable to the Company for the three and six months ended June 30, 2023, were $3,432,736 and $5,960,288, respectively, compared

to net income of $6,704,305 and $5,510,544 for the three and six months ended June 30, 2022.

The change was primarily a result of the

loss on the change in fair value of derivatives for the three and six months ended June 30, 2023, compared to the gains for the three

and six months ended June 30, 2022.

The increase in the loss was also a result of lower gross profits for the three and six months ended

June 30, 2023, compared to the three and six months ended June 30, 2022, as a result of the Inventory Adjustment increasing the cost

of goods sold by $625,000 for the three and six months ended June 30, 2023.

These increases on losses were partially offset by the decreases

in operating expenses and interest expense for the three and six months ended June 30, 2023, compared to the three and six months ended

June 30, 2022.

decrease in interest expense for the three and nine months ended September 30, 2023, is primarily a result of the amortization period

of certain note discounts that were completed in 2022.

For the three months ended September 30, 2023, the Company recognized increased

gains on the change in the fair value of derivatives compared to the gains for the three months ended September 30, 2022.

months ended September 30, 2023, the Company recognized gains on the change in the fair value of derivatives less than the gains for

the nine months ended September 30, 2022.

income (loss) attributable to the Company

loss attributable to the Company for the three months ended September 30, 2023, was $321,058 compared to net loss of $534,988 for the

three months ended September 30, 2022.

The change was primarily a result of the termination expense described above, which were offset

by the gain on the change in fair value of derivatives for the three months ended September 30, 2023, compared to the gain for the three

months ended September 30, 2022.

The decrease in net loss attributable to the Company was also a result of lower interest expense, partially

offset by the lower gross profit recognized in the current quarter compared to the quarter ending September 30, 2022.

The net loss attributable

to the Company for the nine months ended September 30, 2023, was $6,281,346 compared to net income of $4,975,556 for the nine months

ended September 30, 2022.

The change was a result of the termination expense and less gain on change in fair value of derivatives for

the nine months ended September 30, 2023, compared to the gain for the nine months ended September 30, 2022, also a result of lower gross

profits for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, as a result of lower sales

and the Inventory Adjustment increasing the cost of goods sold by $625,000 for the nine months ended September 30, 2023.

These increases

on losses were partially offset by the decrease in interest expense for the nine months ended September 30, 2023, compared to the nine

months ended September 30, 2022.

and Capital Resources

1 unchanged sentence

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

As of June 30, 2023, the Company had an accumulated deficit of

$217,261,087 and a working capital deficit of $12,238,723 (including derivative liabilities of $5,895,175).

As of June 30, 2023, the

Company was in default of $3,715,000 plus accrued interest on debt instruments due to non-payment upon maturity dates.

As of September 30, 2023, the Company had an accumulated deficit

of $217,582,145 and a working capital deficit of $11,616,395 (including derivative liabilities of $2,590,186).

As of September 30, 2023,

the Company was in default of $3,565,000 plus accrued interest on debt instruments due to non-payment upon maturity dates.

These factors,

14 unchanged sentences

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

the six months ended June 30, 2023, we primarily funded our business operations with the existing cash on hand as of January 1, 2023,

the nine months ended September 30, 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 $1,200,537 received from sales of common stock.

of June 30, 2023, we had cash of $1,294,898 as compared to $1,369,210 as of December 31, 2022.

As of June 30, 2023, we had current liabilities

of $18,551,196 (including $5,895,175 of non-cash derivative liabilities), compared to current assets of $6,312,473, which resulted in

a working capital deficit of $12,238,723.

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.

of September 30, 2023, we had cash of $966,292 as compared to $1,369,210 as of December 31, 2022.

As of September 30, 2023, we had current

liabilities of $15,714,672 (including $2,590,186 of non-cash derivative liabilities), compared to current assets of $4,098,277, which

resulted in a working capital deficit of $11,616,395.

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

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

12 unchanged sentences

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

the six months ended June 30, 2023, net cash used in operating activities was $120,370 compared to $4,676,160 for the six months ended

June 30, 2022.

For the six months ended June 30, 2023, our net cash used in operating activities was primarily attributable to the net

loss of $5,960,288, adjusted by non- cash items of the loss on the fair value change of derivatives of $1,580,905, interest expense of

$819,318, the inventory write-down of $625,000 and amortization and depreciation of $112,397.

Net changes of $2,713,024 in operating

assets and liabilities reduced the cash used in operating activities.

the six months ended June 30, 2022, our net cash used in operating activities was primarily attributable to the net income of $5,150,437,

adjusted by non- cash interest expense of $4,199,825, stock-based compensation of $136,249 and the non-cash expenses of amortization

and depreciation of $86,984.

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

notes of $13,376,773.

Net changes of $985,645 in operating assets and liabilities increased the cash used in operating activities.

the six months ended June 30, 2023, the net cash used in investing activities was $2,162, compared to $43,226 for the six months ended

June 30, 2022.

the six months ended June 30, 2023, the net cash provided by financing activities was $48,220.

During the six months ended June 30, 2023,

the nine months ended September 30, 2023, net cash used in operating activities was $901,293 compared to $5,185,222 for the nine months

ended September 30, 2022.

For the nine months ended September 30, 2023, our net cash used in operating activities was primarily attributable

to the net loss of $6,281,346, and the gain on the change in fair value of derivatives of $1,724,084, adjusted by non-cash items of the

termination expense of $1,755,082, interest expense of $1,138,067, the inventory write-down of $625,000 and amortization and depreciation

Net changes of $3,429,606 in operating assets and liabilities reduced the cash used in operating activities.

the nine months ended September 30, 2022, net cash used in operating activities was $5,185,222, which 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, 2023, the net cash used in investing activities was $2,162, compared to $198,362 for the nine months

ended September 30, 2022.

the nine months ended September 30, 2023, the net cash provided by financing activities was $500,537.

During the nine months ended September

30, 2023, we received $1,200,537, net of issuance costs, from the sales of common stock to GHS.

During the six months ended June 30, 2023, we made

payments of $550,000 for notes payable.

There was no financing activity for the six months ended June 30, 2022.

During the nine months ended September

30, 2023, we made payments of $700,000 for notes payable.

For the nine months ended September 30, 2022, the Company received shares proceeds

of $814,625, net of issuance costs.

Accounting Policies

56 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-Q

Item 2. Management’s Discussion and Analysis