OZOP ENERGY SOLUTIONS, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following is management’s discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying unaudited consolidated financial statements, as well as information relating to the plans of our current management. This report includes forward-looking statements. Generally, the words “believes,” “anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,” “continue,” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements. While our financial statements are presented on the basis that we are a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time, our auditors have raised a substantial doubt about our ability to continue as a going concern. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results. Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates. The following discussion should be read in conjunction with our unaudited consolidated financial statements and the related notes that appear elsewhere in this Quarterly Report on Form 10-Q. THE COMPANY Ozop Energy Solutions, Inc. (the “Company,” “we,” “us” or “our”) was originally incorporated as Newmarkt Corp. on July 17, 2015, under the laws of the State of Nevada. On October 29, 2020, the Company formed a new wholly owned subsidiary, Ozop Surgical Name Change Subsidiary, Inc., a Nevada corporation (“Merger Sub”). The Merger Sub was formed under the Nevada Revised Statutes for the sole purpose and effect of changing the Company’s name to “Ozop Energy Solutions, Inc.” That same day the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with the Merger Sub and filed Articles of Merger (the “Articles of Merger”) with the Nevada Secretary of State, merging the Merger Sub into the Company, which were stamped effective as of November 3, 2020. As permitted by the Section 92.A.180 of the Nevada Revised Statutes, the sole purpose and effect of the filing of Articles of Merger was to change the name of the Company from Ozop Surgical Corp to “Ozop Energy Solutions, Inc.” On December 11, 2020, the Company formed Ozop Energy Systems, Inc. (“OES”), a Nevada corporation and a wholly owned subsidiary of the Company. OES was formed to be a manufacturer and distributor of renewable energy products. On August 19, 2021, the Company formed Ozop Capital Partners, Inc. (“Ozop Capital”), a Delaware corporation and a wholly owned subsidiary of the Company. Brian Conway was appointed as the sole officer and director of Ozop Capital and has voting control of Ozop Capital. 3 On October 29, 2021, EV Insurance Company, Inc. (“EVCO”) was formed as a captive insurance company in the State of Delaware. EVCO is a wholly owned subsidiary of Ozop Capital. On January 7, 2022, EVCO filed with New Castle County, Delaware DBA OZOP Plus. On February 25, 2022, the Company formed Ozop Engineering and Design, Inc. (“OED”) a Nevada corporation, as a wholly owned subsidiary of the Company. OED was formed to become a premier engineering and lighting control design firm. OED offers product and design support for lighting and solar projects with a focus on fast lead times and technical support. OED and our partners are able to offer the resources needed for lighting, solar and electrical design projects. OED will provide customers systems to coordinate the understanding of electrical usage with the relationship between lighting design and lighting controls, by developing more efficient ecofriendly designs. We work with architects, engineers, facility managers, electrical contractors and engineers. On June 11, 2024, the Company formed Automated Room Controls, Inc. (“ARC”) a Nevada corporation, as a wholly owned subsidiary of the Company. ARC was created to address a significant need in the lighting controls industry. We believe that easy deployment and creative applications can transform lighting controls into essential tools for enhancing the utility and ambiance of any space. The Company’s mission is to deliver cutting-edge technology that simplifies complex control needs, ensuring seamless integration and exceptional performance. OES operates in the renewable, electric vehicle (“EV”), energy storage and energy resiliency sectors. We are engaged in multiple business lines that include project development as well as equipment distribution. Equipment Distributor: In April 2021, the Company signed a five-year lease (beginning June 1, 2021) of approximately 8,100 SF in California, for office and warehouse space to support the sales and distribution of our west coast operations. On February 22, 2023, with an effective date of March 1, 2023, the Company entered into a Sublease for a Single Subleasee Agreement (the “Sublease”) with the landlord and a third party for the office and warehouse in Carlsbad California. Pursuant to the Sublease agreement, the third party will be responsible for all of the Company’s lease obligations through May 31, 2026, the lease termination date. The Company and the subleasee have agreed to work together regarding any existing Company inventory in the facility. Modular Energy Distribution System: 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. OED specializes in lighting commissioning services. 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. Ozop Plus markets vehicle service contracts (VSC’s”) for electric vehicles (EV’s) that offer consumers to be able to purchase additional months and miles above the manufacturer’s warranty and to also bring added value to EV owners by utilizing our partnerships and strengths in the energy market to offer unique and innovative services. Among EV owners’ concerns are the EV battery repair and replacement costs, range anxiety, environmental responsibilities, roadside assistance, and the accelerated wear on additional components that EV vehicles experience. Management believes that the Ozop Plus marketed VSC’s will give “peace of mind” to the EV buyer. On October 23, 2024, Ozop Capital Partners, Inc. entered into an agreement with Empire Auto Protect (“Empire”). Under the agreement, Empire will white label Royal Administration’s Fully Charged VSC, to be marketed as Empire Plus. OZOP Plus will be ceded the battery premium portion of all of the Empire Plus VSC’s contracted. 4 ARC has developed products to be an advanced lighting controls system, intricately engineered to integrate sophisticated wired and wireless technologies. At its core, it employs a hybrid network topology that facilitates both resilient wired connections and flexible wireless communications, making it suitable for complex infrastructural environments. The system is equipped with an array of sensors and control nodes, enabling precise light management and energy usage monitoring. With support for protocols such as DALI and Zigbee, alongside the capability for seamless integration with IoT platforms, ARC offers a comprehensive solution for intricate lighting networks. This system is designed not just for control and efficiency, but also for adaptability to diverse architectural and electrical layouts, embodying a technical solution for advanced, energy-conscious lighting management. Discontinued Operations On September 1, 2022, the BOD of the Company authorized the filing of a Chapter 7 proceedings which meets the definition of a discontinued operation. Accordingly, the operating results of PCTI are reported as income from discontinued operations in the accompanying unaudited consolidated financial statements for the three and nine months ended September 30, 2025, and 2024. Results of Operations for the three and nine months ended September 30, 2025, and 2024: Revenue For the three and nine months ended September 30, 2025, the Company generated revenue of $142,840 and $248,828 compared to $74,286 and $1,267,980 for the three and nine months ended September 30, 2024. Revenues from Ozop Energy Systems, Inc. (“OES”) and Automated Room Controls, Inc (“ARC”) 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 September 30, Nine months ended September 30, 2025 2024 2025 2024 Sourced and distributed products $ 75,986 $ 51,104 $ 98,464 $ 1,005,878 Design and installation 66,854 23,182 150,364 262,102 Total $ 142,840 $ 74,286 $ 248,828 $ 1,267,980 Sales for OES (included in sourced and distributed products) for the nine months ended September 30, 2024, included $728,640, pursuant to the YHS Settlement. Excluding this, sales of sourced and distributed products were significantly lower for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024. 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 our decision to not currently place additional orders for solar products. Sales of sourced and distributed products for the three and nine months ended September 30, 2025, also includes $75,986 and $86,368 of revenues from ARC. Design and installation revenues increased for three months ended September 30, 2025, compared to the three months ended September 30, 2024, as a result of new customers, and decreased for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024, as the nine months ended September 30, 2024, included $162,000 for a one-time large installation job. Cost of sales and Gross profit For the three and nine months ended September 30, 2025, the Company recognized $91,575 and $170,211, respectively, of cost of sales, compared to $50,863 and $989,955, respectively, for the three and nine months ended September 30, 2024. 5 Three months ended September 30, Nine months ended September 30, 2025 2024 2025 2024 Sourced and distributed products $ 51,194 $ 43,440 $ 70,223 $ 916,627 Design and installation 40,381 7,423 99,988 73,328 Total $ 91,575 $ 50,863 $ 170,211 $ 989,955 The Company recognized a gross margin on solar products (OES) of -0- and 11.8% for the three and nine months ended September 30, 2025, compared to 15% and 8.9% for the three and nine months ended September 30, 2024. ARC products had a gross margin of 32.6% and 31.1%, respectively, for the three and nine months ended September 30, 2025. Design and installation cost of sales is comprised of OED’s labor costs for each job. The Company recognized a gross margin on design and installation of 39.6% and 33.5% for the three and nine months ended September 30, 2025, compared to 68% and 72% for the three and nine months ended September 30, 2024. The decrease in gross margin percentage is primarily a result of a new customer in the current three and nine month periods who compensates the Company based on hourly rate for actual hours worked as compared to a higher daily rate the Company received from other customers on the prior year periods. Operating expenses Total operating expenses for the three and nine months ended September 30, 2025, were $635,840 and $2,419,484, respectively, compared to $963,460 and $2,740,395, respectively, for the three and nine months ended September 30, 2024. The operating expenses were comprised of: Three Months Ended September 30, 2025 Three Months Ended September 30, 2024 Nine Months Ended September 30, 2025 Nine Months Ended September 30, 2024 Management fees, related parties $ 240,000 $ 240,000 $ 720,000 $ 720,000 Salaries, taxes, and benefits 63,505 220,094 439,009 618,271 Stock compensation consultants - - 40,000 - Travel expenses 2,431 13,950 36,688 77,307 Professional and consulting fees 170,125 219,144 627,400 596,381 Advertising and marketing 5,787 6,805 31,155 35,354 Rent and office expenses 20,545 18,969 46,750 131,395 Research and development costs - 87,778 44,872 115,262 Insurance 46,828 43,536 158,845 151,526 General and administrative, other 86,619 113,184 274,765 294,899 Total operating expenses $ 635,840 $ 963,460 $ 2,419,484 $ 2,740,395 Effective January 1, 2022, the Company entered into an employment agreement with Mr. Conway. Pursuant to the agreement, Mr. Conway 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. Conway for services provided directly to any of the Company’s subsidiaries. Currently, the subsidiaries of Ozop Capital, OES and OED, each compensates Mr. Conway $20,000 per month. 6 Salaries, taxes, and benefits decreased for the three and nine months ended September 30, 2025, compared to the three and nine months ended September 30, 2024. As of September 30, 2025, Ozop Energy Systems had 1 employee with an annual salary of $78,000 and focused on general and administrative functions. The solar distribution of this vertical is being managed by our financial consultant and the Company’s CEO. OED has two part-time employees paid on an hourly basis. OED has allocated $40,381 and $99,988 of salaries to cost of sales for the three and nine months ended September 30, 2025, and $7,423 and $73,328 of salaries to cost of sales for the three and nine months ended September 30, 2024. ARC is currently being managed by the Company’s CEO and financial consultant. Ozop Capital Partners had 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 Company allocates salaries and related expenses to the appropriate subsidiary for where their services are being performed. The expenses per subsidiary included in operating expenses for the three and nine months ended September 30, 2025, and 2024, are as follows: Three Months Ended September 30, 2025 Three Months Ended September 30, 2024 Nine Months Ended September 30, 2025 Nine Months Ended September 30, 2024 Ozop Energy Systems $ 22,606 $ 51,787 $ 111,627 $ 162,325 Ozop Engineering and Design 2,662 81,679 70,977 301,326 Automated Room Controls 6,198 58,917 157,760 58,917 Ozop Capital Partners/EV Insurance Company 32,039 27,711 98,645 95,703 Total $ 63,505 $ 220,094 $ 439,009 $ 618,271 Travel expenses decreased for the three and nine months ended September 30, 2025, compared to the three and nine months ended September 30, 2024, as the Company had lower travel expenses related to Systems and OED. Professional and consulting fees decreased for the three months ended September 30, 2025, compared to the three months ended September 30, 2024, and increased for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024. During the nine months ended September 30, 2024, the Company received $125,000 pursuant to the YHS settlement, that was credited to legal fees for the nine months ended September 30, 2024. Rent and office expense (including storage, supplies, utilities, and internet costs) increased for the three months ended September 30, 2025, compared to the three months ended September 30, 2024, because of the Company selling their building and entering into a new lease agreement effective September 1, 2025. Rent and office expense decreased for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024, because of $71,208 expenses incurred by OES for storage fees in the nine months ended September 30, 2024 (no such storage fees in the nine months ended September 30, 2025). Research and development costs decreased for the three and nine months ended September 30, 2025, compared to the three and nine months ended September 30, 2024, due to the development and testing of the ARC products in 2024. Other (Income) Expenses Other expense, net, for the three and nine months ended September 30, 2025, was $1,211,600 and $3,218,477, respectively, compared to $1,153,046 and $2,349,872, respectively, for the three and nine months ended September 30, 2024, and were as follows. Three months ended September 30, Nine months ended September 30, 2025 2024 2025 2024 Interest expense $ 1,138,538 $ 1,056,866 $ 2,627,912 $ 3,170,633 Loss (gain) on change in fair value of derivatives 159,312 96,180 676,815 (549,401 ) Gain on sale of building to a related party (86,250 ) - (86,250 ) - Gain on litigation settlement - - - (271,360 ) Total other (income) expense, net $ 1,211,600 $ 1,153,046 $ 3,218,477 $ 2,349,872 The increase in interest expense for the three months ended September 30, 2025, was as a result of new amortization related to the debt discount for the convertible notes issued in the Exchange Agreement, partially offset by certain note discounts that were completed in 2024. The decrease in interest expense for the nine months ended September 30, 2025, is primarily a result of the amortization period of certain note discounts that were completed in 2024. For the three and nine months ended September 30, 2025, the Company recognized a loss of $159,312 and $676,815, respectively, on the change in the fair value of derivatives compared to a loss of $96,180 and a gain of $549,401, respectively, for the three and nine months ended September 30, 2024. Additionally for the three and nine months ended September 30, 2025, the Company recognized a gain of $86,250 for the sale of a building to a related party and a gain of $271,360 for the nine months ended September 30, 2024, on the settlement with YHS. 7 Net loss Net loss attributable to the Company for the three and nine months ended September 30, 2025, was $1,796,175 and $5,559,344, respectively, compared to $2,093,083 and $4,808,669, respectively, for the three and nine months ended September 30, 2024. Liquidity and Capital Resources The accompanying unaudited 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, 2025, the Company had an accumulated deficit of $230,427,985 and a working capital deficit of $36,273,834. As of September 30, 2025, the Company was in default of $17,725,000 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. Currently, our current capital and our other existing resources will not be sufficient to provide the working capital needed for our current business, and, additional capital will be required to meet our debt obligations, and to further expand our business. We may be unable to obtain the additional capital required. If we are unable to generate capital or raise additional funds when required, it will have a negative impact on our business development and financial results. These conditions raise substantial doubt about our ability to continue as a going concern as well as our recurring losses from operations, deficit in equity, and the need to raise additional capital to fund operations. This “going concern” could impair our ability to finance our operations through the sale of debt or equity securities. Management’s plans in regard to these factors are discussed in Note 2 to the unaudited consolidated financial statements filed herein. For the nine months ended September 30, 2025, we primarily funded our business operations with the existing cash on hand as of January 1, 2025, cash received from collection of accounts receivable, $573,000 from the issuances of convertible notes payable, $381,762 received from sales of common stock, $100,000 received in the sale of building to a related party, and $150,000 from the issuance of a note payable. As of September 30, 2025, we had cash of $341,164 as compared to $797,139 as of December 31, 2024. As of September 30, 2025, we had current liabilities of $36,844,296, compared to current assets of $570,462, which resulted in a working capital deficit of $36,273,834. The current liabilities are comprised of accounts payable and accrued expenses, related party liabilities, convertible debt, derivative liabilities, lease obligations, deferred liability, notes payable, and liabilities of discontinued operations. Operating Activities For the nine months ended September 30, 2025, net cash used in operating activities was $1,657,247 compared to $1,059,327 for the nine months ended September 30, 2024. For the nine months ended September 30, 2025, our net cash used in operating activities was primarily attributable to the net loss of $5,559,344 , the gain on the sale of building to a related party of $86,250 , adjusted by the loss on the change in fair value of derivatives of $676,815, interest expense of $340,522, stock based compensation of $40,000, and amortization and depreciation of $156,685. Net changes of $2,774,325 in operating assets and liabilities reduced the cash used in operating activities. 8 For 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 and depreciation of $160,988. Net changes of $3,142,358 in operating assets and liabilities reduced the cash used in operating activities. Investing Activities For the nine months ended September 30, 2025, the net cash provided by investing activities was $96,510, resulting from the sale of the building to a related party, less the purchase of office and computer equipment. For the nine months ended September 30, 2024, the net cash used in investing activities was $11,114 primarily due to purchase of office and computer equipment. Financing Activities For the nine months ended September 30, 2025, the net cash provided by financing activities was $1,104,762 of which $573,000 was net proceeds received from issuance of convertible notes, $381,762 from the sales of common stock to GHS, net of issuance costs, and $150,000 from the issuance of a note payable. For 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. Critical Accounting Policies and Estimates The Company’s unaudited consolidated financial statements are prepared in accordance with GAAP in the United States. The preparation of its consolidated financial statements and related disclosures requires it to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in the Company’s unaudited consolidated financial statements. The Company bases its estimates on historical experience, known trends and events and various other factors that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The Company evaluates its estimates and assumptions on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions. Our senior management has reviewed the critical accounting policies and estimates with our Board of Directors. For a description of the Company’s critical accounting policies and estimates, refer to “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our most recent Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on April 15, 2025. Critical accounting policies are those that are most important to the portrayal of our financial condition, results of operations and cash flows and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. If actual results were to differ significantly from estimates made, the reported results could be materially affected. There were no significant changes to our critical accounting policies and estimates during the three and nine months ended September 30, 2025. OFF BALANCE SHEET ARRANGEMENTS We have no off-balance sheet arrangements, including arrangements that would affect our liquidity, capital resources, market risk support and credit risk support or other benefits. Item 3. Quantitative and Qualitative Disclosures about Market Risk. Not Applicable.