What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-12 compared with 2024-08-09 · 158 added, 148 removed, 172 unchanged (64% of the section changed)

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agreed to work together regarding any existing Company inventory in the facility.

OES currently is focused on solar panel sales to other

distributors and large installation companies.

Energy Distribution System:

The Neo-Grid TM System comprises 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.

Company has acquired the license rights to the Neo-Grid TM System, a proprietary system (patent pending), for the capture

and distribution of electrical energy for the EV market.

The Neo-Grid TM System will serve both the private auto

and the commercial sectors.

Our Neo-Grid TM System offers (1) charging

locations that can be installed with reduced delays, restricted areas or load limits and (2) EV charger electricity that is produced

from renewable sources claiming little to no carbon footprint.

Company has developed a business plan for the Neo-Grid TM System for the distribution of electrical energy providing

a solution to the inevitable stress to the existing grid infrastructure.

The Company has completed its’ research and development

of the Neo-Grid TM System as well as completed the first set of engineered

technical drawings.

This first stage of the engineered technical drawings allows us to move forward with stage two, as well as to begin

to construct the first prototype or proof of concept, (“PoC”).

Our PoC design is partially reliant on auto manufacturers

establishing standardizations of the actual charging/discharging protocols of the batteries such as on-board inverters as well as bi-directional

capabilities in electric vehicles, which have only recently been established.

The NeoVolt ™ System comprises 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.

Our NeoVolt TM System offers (1) charging locations that can be installed

with reduced delays, restricted areas or load limits and (2) EV charger electricity that is produced from renewable sources claiming

little to no carbon footprint.

The Company has developed

a business plan for NeoVolt™, a scalable battery storage solution that aims to relieve the stress on existing grid infrastructure

by providing distributed energy storage.

With the first stage of engineered technical drawings completed, we are advancing to stage two

and preparing to construct the initial prototype or proof of concept (PoC).

NeoVolt™ is designed with advanced features, including

automatic adoption of connected devices and dynamic load balancing through a master-slave configuration.

These capabilities enable NeoVolt™

to seamlessly integrate with and manage energy flows across multiple devices.

Furthermore, the PoC is contingent upon recent advancements

in EV charging and discharging standardizations, including on-board inverters and bi-directional capabilities, to ensure compatibility

and efficiency in both residential and commercial applications.

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

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by working with architects, engineers, facility managers, electrical contractors and engineers.

OED specializes in lighting commissioning

On September 27, 2024, OED signed an agreement with Leviton Manufacturing Co, Inc., to serve as a field service technician

for their advanced lighting control systems.

June 11, 2024, the Company formed Automated Room Controls, Inc.

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

consolidated financial statements for the three and six months ended June 30, 2024, and 2023.

of Operations for the three and six months ended June 30, 2024, and 2023:

the three and six months ended June 30, 2024, the Company generated revenue of $941,972 and $1,193,694, respectively, compared to $1,241,326

and $4,032,524 for the three and six months ended June 30, 2023.

consolidated financial statements for the three and nine months ended September 30, 2024, and 2023.

of Operations for the three and nine months ended September 30, 2024, and 2023:

the three and nine months ended September 30, 2024, the Company generated revenue of $74,286 and $1,267,980, respectively, compared to

$172,559 and $4,205,083 for the three and nine months ended September 30, 2023.

Revenues from Ozop Energy Systems, Inc.

(“OES”) are classified

as sourced and distributed products.

Revenues from Ozop Engineering and Design (“OED”) are classified as design and installation.

are classified as sourced and distributed products.

Revenues from Ozop Engineering and Design (“OED”) are classified as design

and installation.

Sales are summarized as follows:

Three months ended

Six months ended

September 30,

Nine months ended

September 30,

Sourced and distributed products

Design and installation

for the three and six months ended June 30, 2024, included $728,640, pursuant to the YHS Settlement.

Excluding this, sales of sourced

and distributed products (solar products) were significantly lower for the three and six months ended June 30, 2024, compared to the

three and six months ended June 30, 2023.

for the nine months ended September 30, 2024, included $728,640, pursuant to the YHS Settlement.

Excluding this, sales of sourced and

distributed products (solar products) were significantly lower for the three and nine months ended September 30, 2024, compared to the

three and nine months ended September 30, 2023.

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

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Design and installation revenues

increased for the three and six months ended June 30, 2024, as the Company received additional and larger installation jobs.

the three and six months ended June 30, 2024, the Company recognized $823,647 and $939,092, respectively, of cost of sales, compared

to $1,733,892 and $4,128,592, respectively, for the three and six months ended June 30, 2023.

increased for the three and nine months ended September 30, 2024, as the Company received additional and larger installation jobs.

the three and nine months ended September 30, 2024, the Company recognized $50,863 and $989,955, respectively, of cost of sales, compared

to $126,438 and $4,255,030, respectively, for the three and nine months ended September 30, 2023.

Three months ended

Six months ended

September 30,

Nine months ended

September 30,

Sourced and distributed products

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Inventory write down

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.

margin of sourced and distributed products was 7.9% and 8.5% for the three and six months ended June 30, 2024, respectively, compared

to 8.6% and 11.8% (prior to the Inventory Adjustment) for the three and six months ended June 30, 2023, respectively.

The downward trend

in gross profit margin is due to the continued decline in selling price because of market competition.

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.

margin of sourced and distributed products was 15% and 8.9% for the three and nine months ended September 30, 2024, respectively, compared

to 18.4% and 12.1% (prior to the Inventory Adjustment) for the three and nine months ended September 30, 2023, respectively.

trend in gross profit margin is due to the continued decline in selling price because of market competition.

and installation cost of sales is comprised of OED’s labor costs for each job.

operating expenses for the three and six months ended June 30, 2024, were $808,172 and $1,776,935, respectively, compared to $963,070

and $2,032,832, respectively, for the three and six months ended June 30, 2023.

operating expenses for the three and nine months ended September 30, 2024, were $963,460 and $2,740,395, respectively, compared to $2,637,795

and $4,670,627, respectively, for the three and nine months ended September 30, 2023.

The operating expenses were comprised of:

Three Months Ended

September 30,

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Nine Months Ended

September 30,

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

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Rent and office expenses

Termination costs

General and administrative, other

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Conway $20,000 per month.

For the three and six months

ended June 30, 2024, and 2023, the Company recorded expenses to Mr.

For the three and nine months

ended September 30, 2024, and 2023, the Company recorded expenses to Mr.

Conway of $240,000 and $720,000, respectively.

taxes, and benefits decreased for the three and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023.

Ozop Energy Systems currently has 2 employees with an aggregate annual salary of $204,000 and focused on information technology and general

and administrative functions.

The solar distribution of this vertical is being managed by our financial consultant and the Company’s

OED currently has five employees with an aggregate annual compensation of $498,000, a daily consultant when needed and 2 summer

OED has allocated $13,791 and $65,905, respectively, of salaries to cost of sales for the three and six months ended June 30,

Ozop Capital Partners has one employee with annual compensation of $125,000 (terminated in July 2024).

The expenses per subsidiary

included in operating expenses for the three and six months ended June 30, 2024, and 2023, are as follows:

taxes, and benefits increased for the three months and decreased for the nine months ended September 30, 2024, compared to the three

and nine months ended September 30, 2023.

Ozop Energy Systems currently has 2 employees with an aggregate annual salary of $204,000 and

focused on 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 five employees with an aggregate annual compensation of $498,000.

OED has allocated $7,423 and $73,328, respectively, of salaries to cost of sales for the three and nine months ended September 30, 2024,

and employees with an annual salary of $210,000 are being expensed effective July 1, 2024, to Automated Room Controls, Inc, (“ARC”).

Ozop Capital Partners has one employee with annual compensation of $125,000 (terminated in July 2024), and hired a new employee on September

3, 2024, with an annual salary of $144,000.

The expenses per subsidiary included in operating expenses for the three and nine months

ended September 30, 2024, and 2023, are as follows:

Three Months Ended

September 30,

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Nine Months Ended

September 30,

Ozop Energy Systems

Ozop Engineering and Design

Automated Room Controls, Inc.

Ozop Capital Partners/EV Insurance Company

and consulting fees decreased for the three and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023.

The decrease is due to the expiration of certain consulting contracts and legal fees related to the YHS litigation.

These decreases were

partially offset by increases in general legal expenses and auditing fees.

and marketing expenses decreased slightly for the three and six months ended June 30, 2024, compared to the three and six months ended

June 30, 2023.

and office expense (including storage, supplies, utilities, and internet costs) increased for the three and six months ended June 30,

2024, compared to the three and six months ended June 30, 2023.

The increase is the result of $15,318 and $71,208, for the three and

six months ended June 30, 2024, respectively, of expenses incurred by OES for storage fees, partially offset by decreased rent expense

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

Effective May 7, 2024, there is not any

additional storage charges.

expense decreased for the three and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023.

was the result of the Company not renewing the credit insurance policy for OES, which terminated April 30, 2024.

and consulting fees increased slightly for the three months ended September 30, 2024, compared to the three months ended September 30,

2023, and decreased for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.

is due to the expiration of certain consulting contracts and legal fees related to the YHS litigation.

These decreases were partially

offset by increases in general legal expenses and auditing fees.

and marketing expenses decreased for the three and nine months ended September 30, 2024, compared to the three and nine months ended

September 30, 2023.

and office expense (including storage, supplies, utilities, and internet costs) increased for the three and nine months ended September

30, 2024, compared to the three and nine months ended September 30, 2023.

The increase for the nine months ended September 30, 2024,

compared to the nine months ended September 30, 2023, is the result of $71,208, for the current nine months of expenses incurred by OES

for storage fees, partially offset by decreased rent expense that on March 1, 2023, OES has subleased the Carlsbad office and warehouse

to a third party.

Effective May 7, 2024, there is not any additional storage charges.

expense decreased for the three and nine months ended September 30, 2024, compared to the three and nine months ended September 30, 2023.

The decrease was the result of the Company not renewing the credit insurance policy for OES, which terminated April 30, 2024.

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.

(Income) Expenses

expense, net, for the three and six months ended June 30, 2024, was $601,944 and $1,196,826, respectively, compared to $1,982,463 and

$3,842,114, respectively, for the three and six months ended June 30, 2023, and were as follows.

(income) expense, net, for the three and nine months ended September 30, 2024, was $1,153,046 and $2,349,872, respectively, compared

to ($2,265,254) and $1,576,860, respectively, for the three and nine months ended September 30, 2023, and were as follows.

Three months ended

Six months ended

September 30,

Nine months ended

September 30,

Interest expense

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Total other (income) expense, net

decrease in other expense, net for the three and six months ended June 30, 2024, is primarily a result of the Company recognized gains

of $183,576 and $645,581, respectively, on the change in the fair value of derivatives compared to losses of $942,787 and $1,580,905,

respectively, for the three and six months ended June 30, 2023.

Additionally for the three and six months ended June 30, 2024, the Company

recognized a gain of $271,360 on the settlement with YHS.

loss attributable to the Company for the three and six months ended June 30, 2024, was $1,291,791 and $2,715,586, respectively, compared

to $3,432,736 and $5,960,288, respectively, for the three and six months ended June 30, 2023.

The change for the three months ended June

30, 2024, compared to the three months ended June 30, 2023, was a combination of an increase in gross profit of $610,891, reduced operating

expenses of $154,898 and reduced other expenses, net, of $1,380,519, as described above.

The change for the six months ended June 30,

2024, compared to the six months ended June 30, 2023, was a combination of an increase in gross profit of $350,670, reduced operating

expenses of $255,897 and reduced other expenses, net, of $2,645,288, as described above.

$ (2,265,254 )

increase in other expense, net for the three months ended September 30, 2024, compared to the three months ended September 30, 2023,

is primarily a result of the Company recognizing a gain of $3,304,989 in the three months ended September 30, 2023, on the change in

the fair value of derivatives compared to a loss of $96,180 in the three months ended September 30, 2024.

For the nine months ended September

30, 2024, the Company recognized a gain of $549,401 compared to a gain of $1,724,084 for the nine months ended September 30, 2023, respectively,

on the change in the fair value of derivatives.

Additionally for the nine months ended September 30, 2024, the Company recognized a gain

of $271,360 on the settlement with YHS.

loss attributable to the Company for the three and nine months ended September 30, 2024, was $2,093,083 and $4,808,669, respectively,

compared to $321,058 and $6,281,346, respectively, for the three and nine months ended September 30, 2023.

The change for the three months

ended September 30, 2024, compared to the three months ended September 30, 2023, was a combination of a decrease in gross profit of $22,698,

reduced operating expenses of $1,674,335 (mostly related to the loss associated with early termination of vendor agreement of $1,755,082

for the three months ended September 30, 2023), and increased other expenses, net, of $3,418,300, as described above.

The change for

the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, was a combination of an increase in gross

profit of $327,972, reduced operating expenses of $1,930,232 (mostly related to the loss associated with early termination of vendor

agreement of $1,755,082 for the nine months ended September 30, 2023), and increased other expenses, net, of $773,012, as described above.

and Capital Resources

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

As of June 30, 2024, the Company had an accumulated deficit

of $221,386,066 and a working capital deficit of $28,736,003 (including derivative liabilities of $570,497).

As of June 30, 2024, the

Company was in default of $3,315,000 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.

As of September 30, 2024, the Company had an accumulated

deficit of $223,479,149 and a working capital deficit of $30,760,584 (including derivative liabilities of $666,677).

As of September

30, 2024, the Company was in default of $3,315,000 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 in Note 2 to the unaudited consolidated financial statements filed herein.

the six months ended June 30, 2024, we primarily funded our business operations with the existing cash on hand as of January 1, 2024,

the nine months ended September 30, 2024, we primarily funded our business operations with the existing cash on hand as of January 1,

2024, cash received from accounts receivable, and $979,048 received from sales of common stock.

of June 30, 2024, we had cash of $2,166,504 as compared to $1,446,029 as of December 31, 2023.

As of June 30, 2024, we had current liabilities

of $31,245,124 (including $570,497 of derivative liabilities), compared to current assets of $2,509,121, which resulted in a working

capital deficit of $28,736,003.

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

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

the six months ended June 30, 2024, net cash used in operating activities was $204,284 compared to $120,370 for the six months ended

June 30, 2023.

the six months ended June 30, 2024, our net cash used in operating activities was primarily attributable to the net loss of $2,715,586,

of September 30, 2024, we had cash of $1,354,636 as compared to $1,446,029 as of December 31, 2023.

As of September 30, 2024, we had

current liabilities of $32,398,711 (including $666,677 of derivative liabilities), compared to current assets of $1,638,127, which resulted

in a working capital deficit of $30,760,584.

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

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

the nine months ended September 30, 2024, net cash used in operating activities was $1,059,327 compared to $901,293 for the nine months

ended September 30, 2023.

the nine months ended September 30, 2024, our net cash used in operating activities was primarily attributable to the net loss of $4,808,669,

the gain on the change in fair value of derivatives of $549,401, adjusted by non-cash items of interest expense of $998,970, and amortization

1 unchanged sentence

Net changes of $3,142,358 in operating assets and liabilities reduced the cash used in operating activities.

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, 2024, and 2023 the net cash used in investing activities was $7,518 and $2,162, respectively.

the six months ended June 30, 2024, the net cash provided by financing activities was $932,277, net of issuance costs, from the sales

of common stock to GHS.

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, 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 of $172,470.

Net changes of $3,429,606

in operating assets and liabilities reduced the cash used in operating activities.

the nine months ended September 30, 2024, and 2023 the net cash used in investing activities was $11,114 and $2,162, respectively, primarily

due to purchase of office and computer equipment.

the nine months ended September 30, 2024, the net cash provided by financing activities was $979,048, net of issuance costs, from the

sales of common stock to GHS.

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.

During the nine months ended September

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

Accounting Policies and Estimates

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Actual results could differ from those estimates.

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.

BALANCE SHEET ARRANGEMENTS

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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