# Ozop Energy Solutions, Inc.: Form 10-K for the period ended Dec 31, 2021

- Company: [Ozop Energy Solutions, Inc.](/companies/ozsc.md) (CIK 1679817)
- Form: 10-K
- Filed: 2022-04-15
- Accepted by EDGAR: Apr 15, 2022, 16:40 ET
- Period: 2021-12-31
- Accession: 0001493152-22-010106
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1679817/000149315222010106/form10-k.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1679817/000149315222010106/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2021-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 12 months, 2021-01-01 to 2021-12-31 | $11.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 12 months, 2021-01-01 to 2021-12-31 | $10.3m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 12 months, 2021-01-01 to 2021-12-31 | $1.6m | us-gaap:GrossProfit |
| Research and development | 12 months, 2021-01-01 to 2021-12-31 | $7.5k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 12 months, 2021-01-01 to 2021-12-31 | −$12.8m | us-gaap:OperatingIncomeLoss |
| Net income | 12 months, 2021-01-01 to 2021-12-31 | −$195.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 12 months, 2021-01-01 to 2021-12-31 | −$0.04 | us-gaap:EarningsPerShareBasicAndDiluted |
| Operating cash flow | 12 months, 2021-01-01 to 2021-12-31 | −$6.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 12 months, 2021-01-01 to 2021-12-31 | $116.8k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2021-12-31 | $6.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2021-12-31 | $10.2m | us-gaap:AssetsCurrent |
| Total assets | at 2021-12-31 | $11.6m | us-gaap:Assets |
| Current liabilities | at 2021-12-31 | $38.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2021-12-31 | $39.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2021-12-31 | −$27.5m | us-gaap:StockholdersEquity |

## Business

As filed, 23,155 characters.

### ORGANIZATION

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.

Our corporate website is located at http://ozopenergy.com/, and the contents of our website are expressly not incorporated herein.

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 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. The Company is the majority shareholder of Ozop Capital with PJN Holdings LLC (“PJN”), a New York limited liability company, being the minority shareholder. Brian Conway was appointed as the sole officer and director of Ozop Capital and has voting control of Ozop Capital.

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.

### Stock Purchase Agreement

On 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 to Chis. The Acquisition is being accounted for as a business combination and was treated as a reverse acquisition for accounting purposes with PCTI as the accounting acquirer in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”). In accordance with the accounting treatment for a reverse acquisition, the Company’s historical financial statements prior to the reverse merger were and will be replaced with the historical financial statements of PCTI prior to the reverse merger, in all future filings with the U.S. Securities and Exchange Commission (the “SEC”). The consolidated financial statements after completion of the reverse merger have and will include the assets, liabilities and results of operations of the combined company from and after the closing date of the reverse merger.

PCTI designs, develops, manufactures and distributes standard and custom power electronic solutions. PCTI serves clients in several industries including energy storage, shore power, DEWs, microgrid, telecommunications, military, transportation, renewable energy, aerospace and mission critical defense systems. Customers have included the United States military, other global military organizations and many of the world’s largest industrial manufacturers. All of its products are manufactured in the United States.

### Corporate Matters

On July 7, 2020, the Company filed an Amended and Restated Certificate of Designation with the State of Nevada of the Company’s Series C Preferred Stock. Under the terms of the Amendment to Certificate of Designation of Series C Preferred Stock, 50,000 shares of the Company’s preferred remain designated as Series C Preferred Stock. The holders of Series C Preferred Stock have no conversion rights and no dividend rights. For so long as any shares of the Series C Preferred Stock remain issued and outstanding, the Holder thereof, voting separately as a class, shall have the right to vote on all shareholder matters equal to sixty-seven (67%) percent of the total vote. On July 10, 2020, pursuant to the SPA with PCTI, the Company issued 47,500 shares of Series C preferred Stock to Chis. On July 13, 2021, the Company purchased 47,500 shares of the Company’s Series C Preferred Stock held by Chis (see below). As of December 31, 2021, and 2020, there were 2,500 and 50,000 shares, respectively, of Series C Preferred Stock issued and outstanding. Mr. Conway owns 2,500 shares as of December 31, 2021.

On July 7, 2020, the Company filed a Certificate of Designation with the State of Nevada of the Company’s Series D Preferred Stock. Under the terms of the Certificate of Designation of Series D Preferred Stock, 20,000 shares of the Company’s preferred stock have been designated as Series D Convertible Preferred Stock. The holders of the Series D Convertible Preferred Stock shall not be entitled to receive dividends. The holders as a group may, at any time convert all of the shares of Series D Convertible Preferred Stock into a number of fully paid and nonassessable shares of common stock determined by multiplying the number of issued and outstanding shares of common stock of the Company on the date of conversion, by 3. Except as provided in the Certificate of Designation or as otherwise required by law, no holder of the Series D Convertible Preferred Stock shall be entitled to vote on any matter submitted to the shareholders of the Company for their vote, waiver, release or other action. The Series D Convertible Preferred Stock shall not bear any liquidation rights. On July 10, 2020, pursuant to the SPA with PCTI, the Company issued 18,667 shares of Series D preferred Stock to Chis, and on August 28, 2020. Pursuant to Mr. Conway’s employment agreement, the Company issued 1,333 shares of Series D Preferred Stock to Mr. Conway. On July 13, 2021, the Company purchased 18,667 shares of the Company’s Series D Preferred Stock held by Chis (see below).

On 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. In conjunction with the Agreement, Chis resigned from any and all positions held in the Company’s wholly owned subsidiary, PCTI. Further, Chis agreed that upon her resignation and for a period of five years thereafter (the “Restriction Period”), she shall not, directly or indirectly, solicit the employment of, assist in the soliciting of the employment of, or hire any employee or officer of the Company, including those of any of its present or future subsidiaries, or induce any person who is an employee, officer, agent, consultant or contractor of the Company to terminate such relationship with the Company. Additionally, Chis agrees that during the Restriction Period, she shall not compete with the Company or PCTI anywhere worldwide or be employed by any competitor of the Company.

On July 27, 2021, the Company filed with the Secretary of State of the State of Nevada an Amended and Restated Certificate of Designation of Series D Preferred Stock (the “Series D Amendment”). Under the terms of the Series D Amendment, 4,570 shares of the Company’s preferred stock will be designated as Series D Convertible Preferred Stock. The holders of the Series D Convertible Preferred Stock shall not be entitled to receive dividends. Any holder may, at any time convert any number of shares of Series D Convertible Preferred Stock held by such holder into a number of fully paid and nonassessable shares of common stock determined by multiplying the number of issued and outstanding shares of common stock of the Company on the date of conversion, by 1.5 and dividing that number by the number of shares of Series D Convertible Preferred Stock being converted. Except as provided in the Series D Amendment or as otherwise required by law, no holder of the Series D Convertible Preferred Stock shall be entitled to vote on any matter submitted to the shareholders of the Company for their vote, waiver, release or other action. The Series D Convertible Preferred Stock shall not bear any liquidation rights. On July 28, 2021, the Company closed on a Stock and Warrant Purchase Agreement (the “Series D SPA”). Pursuant to the terms of Series D SPA, an investor in exchange for $13,200,000 purchased one share of Series D Preferred Stock, and a warrant to acquire 3,236 shares of Series D Preferred Stock. As of December 31, 2021, and 2020, there were 1,334 and 20,000 shares, respectively, of Series D Preferred Stock issued and outstanding and warrants to purchase 3,236 shares of Series D Preferred Stock are outstanding as of December 31, 2021. Mr. Conway owns 1,333 shares of Series D Preferred Stock as of December 31, 2021.

On July 7, 2020, the Company filed a Certificate of Designation with the State of Nevada of the Company’s Series E Preferred Stock. Under the terms of the Certificate of Designation of Series E Preferred Stock, 3,000 shares of the Company’s preferred stock have been designated as Series E Preferred Stock. The holders of the Series E Convertible Preferred Stock shall not be entitled to receive dividends. No holder of the Series E Preferred Stock shall be entitled to vote on any matter submitted to the shareholders of the Corporation for their vote, waiver, release or other action, except as may be otherwise expressly required by law. At any time, the Corporation may redeem for cash out of funds legally available therefor, any or all of the outstanding Preferred Stock (“Optional Redemption”) at $1,000 (one thousand dollars) per share. The shares of Series E Preferred Stock have not been registered under the Securities Act of 1933 or the laws of any state of the United States and may not be transferred without such registration or an exemption from registration. On July 10, 2020, pursuant to the SPA with PCTI, the Company issued 500 shares of Series E preferred Stock to Chis, and on August 28, 2020, pursuant to Mr. Conway’s employment agreement, the Company issued 500 shares of Series E Preferred Stock to Mr. Conway. As of December 31, 2021, and 2020, there were -0- and 1,000 shares, respectively, of Series E Preferred Stock issued and outstanding.

### Recent Events

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 April 4, 2022, the Company and GHS Investments LLC (“GHS”). signed a Securities Purchase Agreement (the “GHS Purchase Agreement”) for the sale of up to Two Hundred Million (200,000,0000) shares of the Company’s common stock to GHS. We may sell shares of our common stock from time to time over a six (6)- month period ending October 4, 2022, at our sole discretion, to GHS under the GHS Purchase Agreement. The purchase price shall be 85% of lowest VWAP for the ten (10) days preceding the Company’s notice to GHS for the sale of the Company’s common stock. On April 8, 2022, the Company filed a Prospectus Supplement to the Registration Statement dated October 14, 2021, regarding the GHS Purchase Agreement.

### Business Overview

### Ozop Energy Systems

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 and is actively engaged in the renewable, electric vehicle (“EV”), energy storage and energy resiliency sectors. OES management has decades of experience in the renewable, storage and resilient energy businesses and associated markets, which include but are not limited to project finance, project development, equipment finance, construction, utility protocol, regulatory policy and technology assessment.

We are engaged in multiple business lines that include Project Development as well as Equipment Distribution. Our solar and energy storage projects involve large-scale battery and solar photovoltaics (PV) installations. The utility-scale storage business is based on an arbitrage business model in which we install multiple 1+ megawatt batteries, charge them with off-peak grid electricity under contract with the utility, then sell the power back during peak load hours at a premium, as dictated by prevailing electricity tariffs.

*Equipment Distributor:* OES has entered the component supply/distribution side of the renewable, resiliency and energy storage industries distributing the core components associated with residential and commercial solar PV systems as well as onsite battery storage and power generation. In April 2021, the Company signed a five- year lease (beginning June 1, 2021) of approximately 8,100 SF in California, for office and warehouse space to support the sales and distribution of our west coast operations. The components we are distributing include PV panels, solar inverters, solar mounting systems, stationary batteries, onsite generators and other associated electrical equipment and components that are all manufactured by multiple companies, both domestic and international. These core products are sourced from management-developed relationships and are distributed through our existing network and our in-house sales team. Sales were approximately $10.6 million for the year ended December 31, 2021.

*Solar PV:* Our PV business model involves the design and construction of electrical generating PV systems that can sell power to the utilities or be used for off grid use as part of our developing Neo-Grids solution. The Neo-Grids proprietary program, patents 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.

*Modular Energy Distribution System:* The Neo-Grids, patent pending, is comprised 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. Neo-Grids will serve both the private auto and the commercial sectors. OES has license rights to the proprietary “flow” that was filed with the United States Patent and Trademark Office in March 2021. 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 business model leverages this accelerated growth by offering (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.

OES has developed a business plan for the Neo Grids distribution solution that is being executed now and will be coming out of Research and Development for proof of concept in Q4 2021. Having identified several manufacturers and established a supply line for EV chargers, we have entered into agreements for EV charger installations as part of this proof of concept and plan to service them under multi-year agreements.

### Ozop Plus

On August 19, 2021, the Company formed Ozop Capital Partners, Inc. (“Ozop Capital”), a Delaware corporation. The Company is the majority shareholder of Ozop Capital. 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 (DBA OZOP Plus). Ozop Plus plans on producing vehicle service contracts (“VSC’s”) for electric vehicles (EV’s). to respond to not only in filling the gap of a manufacturer’s warranty but to bring added value to EV owners by utilizing our partnerships and strengths in the renewable 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 VSC will give “peace of mind” to the EV buyer. The Company is currently in negotiations to complete the necessary agreements to launch the product in Q2 2022. Additionally, the Company is also in discussions with entities whereby Ozop Plus can re-insure the battery portion of another entity’s VSC.

### PCTI

The following relates to PCTI activity during the year ended December 31, 2021. Due to supply chain issues and other factors, management is currently reviewing the current business model of PCTI, in determining the best course of action going forward.

PCTI designs, develops, manufactures and distributes standard and custom power electronic solutions. All of its products are manufactured in the United States.

#### Principal Products and Services

PCTI has four main product lines: DC Power Supplies from 5KW to 2MW, Battery chargers from 5KW to 2MW, DC/AC inverters to 1.5MVA and frequency converters up to 1MVA.

PCTI historically has manufactured the following product types:

- DC & AC Power Supplies: Our DC power supplies use a multipulse SCR / IGBT design to achieve high efficiency, low ripple, precise regulation and low output noise, available in ratings from 5KW to 2MW.
- High Voltage Battery Chargers: PCTI offers rugged high-current battery chargers to a variety of high-current industrial charging applications from 5KW to 2MW.
- Converters/Inverters: DC/DC, DC/AC, AC/AC, solar cell power stations, power transmission, electrostatic precipitator.
- 400Hz Aircraft Ground Support Equipment: Distribution equipment, gate boxes, switchboards, line drop compensators, line protection modules.
- Power Electronic Modules: Integrated modules with IGBTs, SCRs, MOSFET, Diodes, GTO, GTC-Bipolar.
- Other Power Electronic Products: Prototyping, R&D, consulting.

#### Microgrids

Microgrids are becoming more necessary not just as a way to provide electricity to a remote region but also as a source of resiliency. Whether the entity is critical to society like a hospital, police station or container terminal or needs to maintain revenues by remaining operational (e.g. a manufacturer or food processor), a microgrid provides that unique function. Because PCTI’s inverters and battery chargers are in the highest power segments, they are uniquely suited for microgrid applications.

#### Sales and marketing

For legacy products, the Company uses a government contracting service that reviews the daily buying notices from the U.S. government and filters them via keywords specific to the company’s market sectors. Additionally, opportunities come through the U.S. Governments System of Award Management.

#### Competition

There are different competitors for each product line that are also further divided by power segment. By serving the high power products sector, we have sought to limit competition and commoditization of our products. We compete as a solution driven company, providing PCTI with what we believe are better margins and larger order values. As we are moving the direction of the company into the renewable energy storage market space, we are aware that some of the competitors have strong brand names. We believe PCTI offers a larger breath of product offering in these power ranges while our competition is fragmented in this area. In the high- power segment, we believe PCTI’s experience, technology and flexibility provides a great advantage over other competitors.

We compete with many companies in the various application segments including larger, more established companies with substantial capabilities, personnel and financial resources.

PCTI is positioning itself to compete in the high power segment, with a focus on renewable energy and EV markets. These two segments are continuously looking to advance their products, which makes it difficult for the larger companies to adjust. We believe this is how PCTI will have an advantage to compete as a solutions driven company.

Many of our competitors have a larger presence in global markets. PCTI is also looking to expend its global footprint.

#### Intellectual Property

PCTI has a 30-year design library that includes all four product lines as well as some related equipment. One of our advantages over our competitors is our proprietary digital signal processing (DSP) control currently in its 7th generation. To the best of our knowledge, we believe that none of our competitors are using this sophisticated control topology at this time. DSP control permits great flexibility in our designs, allowing us to produce a wide variety of designs in a shorter period of time than our competitors. DSP allows for real-time control and monitoring of the equipment, which is faster than sequential control. This provides significant performance improvement as well as energy savings in the equipment.

PCTI additionally has trade secrets and know-how related to the design, manufacture, and testing of the equipment.

#### Research and Development

To maintain our level of continuous innovation, PCTI conducts numerous internal R&D projects. Additionally, the unique needs and applications of our customers require that we conduct R&D and engineering in order to provide them with the needed solutions and products.

#### Employees

As of the date of this filing, the Company employs 21 full time employees. Ozop and PCTI have contracts with various independent contractors and consultants to fulfill additional needs, including accounting, investor relations, business development, permitting, and other corporate functions, and may increase staff further as we expand activities and bring new projects on line.

## Properties

As filed, 1,265 characters.

We do not own any real estate or other properties. On October 25, 2019, PCTI executed a non-cancellable lease of office and industrial space totaling 11,800 square feet in Zelienople, PA., which began December 1, 2019 and expires on November 30, 2022. The lease terms include monthly rent of $7,000.

On January 2, 2021, the Company entered into a ten (10) year lease for a 6-bay garage storage facility of approximately 2,500 square feet. Pursuant to the lease the Company agreed to issue 100,000,000 shares of restricted common stock. The shares were certificated on March 8, 2021, with an effective date of January 2, 2021. The Company valued the shares $0.0063, (the market value of the common stock on the date of the agreement) and has recorded $630,000 as a prepaid expense. As of the date of this report, the Company has not yet taken possession of the space, and is in negotiations with the landlord regarding other potential properties.

On April 14, 2021, the Company entered into a five-year lease which began on June 1, 2021, for approximately 8,100 square feet of office and warehouse space in Carlsbad, California, expiring May 31, 2026. Initial lease payments of $13,148 begin on June 1, 2021, and increase by approximately 2.4% annually thereafter.

## Legal proceedings

As filed, 875 characters.

On March 4, 2021 a Complaint and Demand for Jury Trial (the “Complaint”) was filed by a plaintiff (the “Plaintiff”) in the United States District Court for the Southern District of New York. The Complaint named Ozop Energy Solutions, Inc. (“OZOP”) and Brian Conway, Ozop’s Chief Executive Officer, (the “CEO”). OZOP and the CEO are collectively referred to herein as “Defendants”. On May 12, 2021, the plaintiff and or their counsel, gave notice that the above action is voluntarily dismissed, pursuant to Rule 41(a)(1)(A)(i) of the Federal Rules of Civil Procedure, without prejudice against the defendants Brian Conway and OZOP Energy Solutions, Inc.

Other than the above, we know of no legal proceedings to which we are a party or to which any of our property is the subject, which are pending, threatened or contemplated or any unsatisfied judgments against the Company.

## Management's discussion and analysis

As filed, 32,594 characters.

*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 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.

### 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 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 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 August 19, 2021, the Company formed Ozop Capital Partners, Inc. (“Ozop Capital”), a Delaware corporation. The Company is the majority shareholder of Ozop Capital with PJN Holdings LLC, a New York limited liability company, being the minority shareholder. Ozop Capital was formed as a holding company and seeks to develop a captive insurance company. Brian Conway was appointed as the sole officer and director of Ozop Capital and has voting control of Ozop Capital.

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.

### Stock Purchase Agreement

On 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 to Chis. The Acquisition is being accounted for as a business combination and was treated as a reverse acquisition for accounting purposes with PCTI as the accounting acquirer in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”). In accordance with the accounting treatment for a reverse acquisition, the Company’s historical financial statements prior to the reverse merger were and will be replaced with the historical financial statements of PCTI prior to the reverse merger, in all future filings with the U.S. Securities and Exchange Commission (the “SEC”). The consolidated financial statements after completion of the reverse merger have and will include the assets, liabilities and results of operations of the combined company from and after the closing date of the reverse merger.

The Company utilized the Option Pricing Method (the “OPM”) to value the transaction. The OPM method treats all equity linked instruments as call options on the enterprise value, with exercise prices and liquidation preferences based on the terms of the various common, preferred, options, warrants, and convertible debt. Under this method, the common stock only has value if the funds available for distribution to the shareholders exceed the liquidation preferences of the preferred stock and face value of the convertible debt. The timing of a liquidity event is required to utilize this method. The OPM considers the various terms of the stockholder agreements—including the level of seniority among the securities, dividend policy, conversion ratios, and cash allocations—upon liquidation of the enterprise. In addition, the method implicitly considers the effect of the liquidation preference as of the future liquidation date, not as of the valuation date. A feature of the OPM is that it explicitly recognizes the option-like payoffs of the various share classes utilizing information in the underlying asset (that is, estimated volatility) and the risk-free rate to adjust for risk by adjusting the probabilities of future payoffs. The following table summarizes the preliminary value of the consideration issued and the preliminary purchase price allocation of the fair value of assets acquired and liabilities assumed in the transaction.

|  | Purchase Price Allocation |
| --- | ---: |
| Fair value of OZOP equity consideration issued | $818,444 |
| Assets acquired | $1,229,917 |
| Goodwill | 11,201,145 |
| Liabilities assumed | (11,612,618) |
|  | $818,444 |

The Company reviews the goodwill allocated to each of our reporting units for possible impairment annually and whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Pursuant to that review, management has determined that the goodwill arising from the above transaction has been impaired and accordingly $11,201,145 has been recorded as an impairment expense for the year ended December 31, 2020.

Included in the audited Consolidated Statements of Comprehensive Loss for the years ended December 31, 2020, are the results of Ozop, the accounting acquiree, of revenues of $-0- and a loss before income taxes of $7,782,364. The following table provides unaudited pro forma results of operations for the year ended December 31, 2020, as if the acquisition had been consummated as of the beginning of that period. The pro forma results include the effect of certain purchase accounting adjustments, such as the estimated changes in depreciation and amortization expense on the acquired intangible assets. However, pro forma results do not include any anticipated cost savings (if any) of the combined companies. Accordingly, such amounts are not necessarily indicative of the results if the acquisition has occurred on the date indicated, or which may occur in the future.

*Unaudited pro forma results year ended December 31, 2020*

|  |  |
| --- | ---: |
| Revenues | $1,411,432 |
| Loss before income taxes | (51,779,499) |
| Basic and fully diluted loss per share | $(0.02) |

### Stock Redemption Agreement

On 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.

### Results of Operations for the years ended December 31, 2021 and 2020:

The following discussion relates to the historical financial statements of PCTI, and beginning on July 11, 2020 the consolidated financial statements include the assets, liabilities and results of operations of PCTI and Ozop, (the combined company from and after the closing date of the reverse merger).

#### Revenue

For the year ended December 31, 2021, the Company generated revenue of $11,928,605 compared to $1,411,432 for the year ended December 31, 2020. The increase in revenues is a result of revenues of $10,595,799 from Ozop Energy Systems, beginning May 2021, and are classified as sourced and distributed products. Sales are summarized as follows:

|  | Year ended December 31, 2021 | 2020 |
| --- | ---: | ---: |
| Sourced and distributed products | $10,595,799 | $- |
| Manufactured products | 1,332,806 | 1,411,432 |
| Total | $11,928,605 | $1,411,432 |

#### Cost of sales

For the years ended December 31, 2021, and 2020, the Company recognized $10,342,413 and $1,404,348, respectively, of cost of sales.

|  | Year ended December 31, 2021 | 2020 |
| --- | ---: | ---: |
| Sourced and distributed products | $9,763,943 | $- |
| Manufactured products | 578,470 | 1,404,358 |
| Total | $10,342,413 | $1,404,358 |

Based on the above cost of sales, gross margin was 13.3% and 0.5% for the years ended December 31, 2021, and 2020, respectively. The increase of gross margin for the current year is a result of the manufactured orders shipped in 2021 were at a higher margin than the manufactured orders were in 2020. While the improved margin was partially offset by the lower margins recognized on the sourced and distributed products, gross profit dollars increased from the sale of the sourced and distributed products. The sourced and distributed margins were approximately 7.9% for 2021. Due to product availability, increased buy prices and delivery issues that the solar industry experienced at the end of the 4th quarter 2021, and into the first quarter of 2022, the Company expects that margins on sourced products may be temporarily reduced at the beginning of 2022. However, the Company anticipates that margins of sourced products will rise during the remainder of 2022. While the overall margin will be reduced, the higher gross profit dollars generated from the higher sourced and distributed products revenues will benefit the Company.

#### Operating expenses

Total operating expenses for the years ended December 31, 2021, and 2020, were $14,387,941 and $17,585,427, respectively. The operating expenses were comprised of:

|  | Year ended December 31, 2021 | 2020 |
| --- | ---: | ---: |
| Management fees, related parties including stock-based compensation of $2,850,000 and $4,286,648, respectively | $3,803,765 | $4,747,952 |
| Stock-based compensation, other | 6,472,751 | - |
| Salaries, taxes and benefits | 1,227,192 | 436,198 |
| Professional and consulting fees | 1,284,364 | 459,340 |
| Advertising and marketing | 41,712 | 55,249 |
| Rent and office expenses | 251,646 | 122,277 |
| Insurance | 262,682 | 58,461 |
| Impairment | - | 11,526,303 |
| General and administrative. Other | 1,043,829 | 179,647 |
| Total | $14,387,941 | $17,585,427 |

For the year ended December 31, 2020, the above amounts include expenses incurred by PCTI for the year ended December 31, 2020, and expenses incurred by Ozop for the period July 11, 2020 through December 31, 2020.

Wages and management fees- related parties, include amounts paid to our CEO and to the President (resigned July 2021) of PCTI. The CEO is eligible for additional bonuses as approved by the Board of Directors of the Company. Beginning January 1, 2021, the CEO was compensated $20,000 per month and effective September 1, 2021, an additional $10,000 per month for the management of Ozop Capital. The following table summarizes management fees:

|  | Year ended December 31, 2021 | 2020 |
| --- | ---: | ---: |
| CEO, parent | $812,099 | $377,804 |
| CEO, parent- Series E Preferred Stock | 2,850,000 | - |
| CEO, parent- Series D Preferred Stock | - | 4,286,648 |
| President, subsidiary (resigned July 2021) | 141,666 | 83,500 |
| Total | $3,803,765 | $4,747,952 |

The Series E Preferred Stock based compensation for the year ended December 31, 2021 is a result of on March 2, 2021, the BOD authorized the issuance of 1,800 shares of Series E Preferred Stock to Mr. Conway and on April 16, 2021, the BOD authorized the issuance of 1,050 to Mr. Conway. The issuances were for services performed. Pursuant to the terms and conditions of the Certificate of Designation of the Series E Preferred Stock, including the redemption value of $1,000 per share, the Company recorded $2,850,000 as stock-based compensation expense for year ended December 31, 2021.

The Series D Preferred Stock based compensation for the year ended December 31, 2020, of $4,286,648, is related to 1,333 shares of Series D Preferred Stock issued to Mr. Conway on August 28, 2020, pursuant to his employment agreement. The Series D Preferred Stock was convertible in the aggregate into three times the number of shares of common stock outstanding at the time of conversion. Mr. Conway owns 6.67% of the issued and outstanding Series D Preferred Stock, and based on the 3,107,037,634 shares outstanding on August 28, 2020, Mr. Conway’s Preferred Stock was convertible into 621,253,401 shares of common stock. Based on the share price of the common stock on that date of $0.0065, the shares were valued at $4,286,648.

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

- 5,000,000 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. The consultant was terminated in October 2021, and accordingly, for the year ended December 31, 2021, $1,000,000 is included in stock-based compensation expense.
- 10,000,000 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 year ended December 31, 2021, the Company recorded $74,751 as stock-based compensation expense.

14

- 5,000,000 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 year ended December 31, 2021.
- 10,000,000 shares issued for services. The shares were valued at $0.0056 per share, the date the Company agreed to issue the shares. For the year ended December 31, 2021, the Company included $56,000 in stock compensation expense.
- 10,000,000 shares issued pursuant to a consulting agreement dated February 24, 2021. The shares were valued at $0.2386 per share. For the year ended December 31, 2021, the Company included $2,386,000 in stock compensation expense.
- 5,000,000 shares of common stock issued in the aggregate to two new employees pursuant to their offers of employment dated March 31, 2021. The shares were valued at $0.23 per share (the market price of the common stock on the date of the issuance). For the year ended December 31, 2021, the Company included $460,000 in stock compensation expense for the 5,000,000 shares of common stock.
- Issuance 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 year ended December 31, 2021.
- 5,000,000 shares of common stock 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 (the market price of the common stock on the date of the issuance). For the year ended December 31, 2021, the Company included $372,500 in stock compensation expense for the 5,000,000 shares of common stock.
- 452,080 shares of common stock issued for services. 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 year ended December 31, 2021.
- 637,755 shares of common stock to be issued for services. The shares were valued at $0.0392 per share (the market price of the common stock on the date of the issuance), and $25,000 is included in stock-based compensation expense for the year ended December 31, 2021.
- 5,000,000 shares of common stock issued in the aggregate to two employees pursuant to their offers of employment dated March 31, 2021. The shares were valued at $0.0455 per share (the market price of the common stock on the date of the issuance). For the year ended December 31, 2021, the Company included $227,500 in stock compensation expense for the 5,000,000 shares of common stock.

Salaries, taxes and benefits increased for the year ended December 31, 2021, compared to the year ended December 31, 2020. Included in the increase are the cost of OES employees in 2021. The California operation of OES had expenses of $378,232 for the year ended December 31, 2021. In addition to the California employees, OES had payroll expenses of $284,525 covering business development, sales, administration and IT.

Professional and consulting fees increased to $1,284,364 for the year ended December 31, 2021, compared to $459,340 for the year ended December 31, 2020. The increase was due to accounting and auditing expenses of Ozop included in the current year, the engagement of various consultants by OES as we initiated the Company’s business plan regarding distribution of renewable energy products, the inclusion of Ozop Capital’s consultants as well as an increase in legal fees in 2021. The Company’s consolidated current monthly professional and consulting fees is approximately $140,000.

Advertising and marketing expenses decreased for the year ended December 31, 2021, compared to the year ended December 31, 2020. The decrease was related to additional marketing programs during the year ended December 31, 2020, including brand awareness programs for both PCTI and Ozop.

Rent and office expense (including supplies, utilities and internet costs) increased for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was the result of including in 2021, rent and office expense of approximately $41,983 for Ozop and $121,343 for OES. The Company estimates that the monthly OES rent and office expense for the California operation to be approximately $18,000 per month.

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

- $11,201,145 for the impairment of goodwill related to the transaction between PCTI and Ozop. The impairment was calculated based on the balance of the assets acquired and the liabilities assumed as of December 31, 2020.
- $130,207 for the impairment of license rights as management has decided not to go forward with the use of the license rights of Spinus.
- $194,951 for the impairment of goodwill related to the transaction between Ozop and Spinus.

#### Other Income (Expenses)

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

|  | Year ended December 31, 2021 | 2020 |
| --- | ---: | ---: |
| Interest expense | $53,252,232 | $3,409,393 |
| Loss on change in fair value of derivatives | 17,349,076 | 176,050 |
| Debt restructure expense | 16,450,000 | - |
| Loss (gain) on extinguishment of debt | 95,449,994 | (195,553) |
| Total other expense, net | $182,501,302 | $3,389,890 |

The increase in other expense for the year ended December 31, 2021, is primarily a result of loss on extinguishment of debt related to the market value of shares of common stock issued in excess of the debt and accrued interest extinguished. The Company also issued 175,000,000 shares of restricted common stock related to the restructure of the deferred liability. The shares were valued at $0.094 per share and the Company recognized $16,450,000 of restructuring costs. Included in interest expense for the year ended December 31, 2021, is the initial $38,907,939 of fair value related to the issuance of 375,000,000 warrants. In addition, the increases were the result of the amortization of debt discounts and losses on changes in fair values of derivatives, related to convertible notes and warrants.

#### Net loss

The net loss for the year ended December 31, 2021, was $195,303,051 compared to $20,968,243 for the year ended December 31, 2020. The increase in the loss was primarily a result of the increase in other expenses of $179,111,412 described above partially offset by lower operating expenses and the increase in gross profit.

### Liquidity and Capital Resources

Currently, our current capital and our other existing resources will be sufficient to provide the working capital needed for our current business, however, 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 below and also in Note 3 to the consolidated financial statements filed herein.

For the year ended December 31, 2021, we primarily funded our business operations with $15,000,000 of proceeds received pursuant to the issuances of promissory notes and $13,100,000 received from the Series D SPA (see Note 13 to the financial statements filed herein). Of the proceeds, $5,000,000 was used for the redemption of 5,000 shares of Series E Preferred Stock and $11,250,000 was used for the redemption of Chis’s Series C and Series D Preferred Stock (see Note 11 to the financial statements filed herein).

As of December 31, 2021, we had cash of $6,767,167 as compared to $1,808,476 at December 31, 2020. As of December 31, 2021, we had current liabilities of $38,385,016 (including $20,966,701 of non-cash derivative liabilities), compared to current assets of $10,159,108, which resulted in a working capital deficit of $28,225,908. The current liabilities are comprised of accounts payable, accrued expenses, convertible debt, derivative liabilities, customer deposits, lease obligations and notes payable.

In December 2019, a novel strain of coronavirus (COVID-19) emerged. Because COVID-19 infections have been reported throughout the United States, certain federal, state and local governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of COVID-19. The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but it may have a material adverse impact on our business, financial condition and results of operations. Management expects that its business will be impacted to some degree, but the significance of the impact of the COVID-19 outbreak on the Company’s business and the duration for which it may have an impact cannot be determined at this time.

#### Operating Activities

For the year ended December 31, 2021, net cash used in operating activities was $6,368,006 compared to $1,811,816 for the year ended December 31, 2020. For the year ended December 31, 2021, our net cash used in operating activities was primarily attributable to the net loss of $195,303,051, adjusted by loss on debt extinguishment of $95,499,996, non- cash interest expense of $51,492,115 (including $38,907,939 for the initial fair value of the 375,000,000 warrants issued), losses on the fair value changes in derivatives related to warrants and convertible notes of $17,349,075, debt restructuring costs of $16,450,000, stock-based compensation of $9,322,751 and the non-cash expenses of interest and amortization and depreciation of $189,348. Net changes of $1,318,240 in operating assets and liabilities increased the cash used in operating activities, primarily as a result of the start-up of the Company’s California operations in the support of inventory and accounts receivable.

For the year ended December 31, 2020, our net cash used in operating activities was primarily attributable to the net loss of $20,968.243, adjusted by impairment charges of $11,526,303, stock-based compensation of $4,286,647, the non-cash expenses of interest and amortization and depreciation of $2,984,251 and losses on the fair value changes in derivatives of $176,050. Net changes of $378,729 in operating assets and liabilities and a gain on extinguishment of debt of $195,553 reduced the cash used in operating activities.

#### Investing Activities

For the year ended December 31, 2021, the net cash used in investing activities was $116,836, compared to net cash provided by investing activities of $424.431 for the year ended December 31, 2020.

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

#### Financing Activities

For the year ended December 31, 2021, the net cash provided by financing activities was $11,443,533, compared to $3,168,487 for the year ended December 31, 2020. During the year ended December 31, 2021, we received $15,000,000 of proceeds from the issuances of $16,610,000 face value of promissory notes and $13,100,000 (net of costs) from the Series D SPA. During the year ended December 31, 2021, the Company acquired 47,500 shares of Series C Preferred Stock and 18,667 shares of Series D Preferred Stock from Chis for $11,250,000, redeemed 5,000 shares of the Series E Preferred Stock for $5,000,000, and repaid $392,833 of notes payable and $13,634 to shareholders.

During the year ended December 31, 2020, the Company received proceeds of $750,000 pursuant to an obligation to pay a perpetual 1.8% (as amended) fee of revenues, $489,000 of proceeds from the issuances of convertible note financings, $1,553,000 from the issuances of promissory notes, $400,000 advance from affiliate, $100,400 from the Payroll Protection Program and $42,420 from shareholders. During the year ended December 31, 2020, the Company repaid $101,864 of principal of convertible notes and notes payable and $74,470 to shareholders.

### Critical Accounting Policies

Our significant accounting policies are described in more details in the notes to our financial statements appearing elsewhere in this Annual Report on Form 10-K. We believe the following accounting policies to be most critical to the judgement and estimates used in the preparation of our financial statements:

### Basis of Presentation

The accompanying consolidated financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“US GAAP”). The consolidated financial statements include the accounts of the Company and PCTI and the Company’s other wholly owned subsidiaries Ozop Energy Systems, Inc., Ozop LLC, Ozop HK and Spinus, LLC (“Spinus”), and the Company’s majority owned subsidiary Ozop Capital Partners, Inc. All intercompany accounts and transactions have been eliminated in consolidation.

### Use of Estimates

The 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.

### Intangible Assets

Intangible assets primarily represent purchased patent and license rights. The Company amortizes these costs over the shorter of the legal life of the patent or its estimated economic life using the straight-line method. The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to future undiscounted cash flows to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.

### Revenue Recognition

Effective 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: (1) 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. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue Recognition. Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured. There was no impact on the Company’s financial statements as a result of adopting Topic 606 for the years ended December 31, 2021, and 2020.

### Earnings (Loss) Per Share

The Company computes net 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. Diluted 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.

### 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.

## Controls and procedures

As filed, 5,285 characters.

### Evaluation of Disclosure Controls and Procedures

A review and evaluation was performed by the Company’s management, including the Company’s Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), as of the end of the period covered by this annual report on Form 10-K, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this annual report. Based on that review and evaluation, the CEO and CFO have concluded that as of December 31, 2021, disclosure controls and procedures were not effective at ensuring that the material information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported as required in the application of SEC rules and forms.

#### Management’s Report on Internal Controls over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a set of processes designed by, or under the supervision of, a company’s principal executive and principal financial officers, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:

- Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and disposition of our assets;
- Provide reasonable assurance our transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
- Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. It should be noted that any system of internal control, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our CEO and CFO have evaluated the effectiveness of our internal control over financial reporting as described in Exchange Act Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this report based upon criteria established in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). As a result of this evaluation, we concluded that our internal control over financial reporting was not effective as of December 31, 2021, as described below.

We assessed the effectiveness of the Company’s internal control over financial reporting as of evaluation date and identified the following material weaknesses:

*Insufficient Resources:* We have an inadequate number of personnel with requisite expertise in the key functional areas of finance and accounting.

*Inadequate Segregation of Duties*: We have an inadequate number of personnel to properly implement control procedures.

*Lack of Audit Committee:* We do not have a functioning audit committee, resulting in lack of independent oversight in the establishment and monitoring of required internal controls and procedures.

We are committed to improving the internal controls and will (1) consider using third party specialists to address shortfalls in staffing and to assist us with accounting and finance responsibilities, (2) increase the frequency of independent reconciliations of significant accounts which will mitigate the lack of segregation of duties until there are sufficient personnel and (3) may consider appointing additional outside directors and audit committee members in the future.

We have discussed the material weakness noted above with our independent registered public accounting firm. Due to the nature of these material weaknesses, there is a more than remote likelihood that misstatements which could be material to the annual or interim financial statements could occur that would not be prevented or detected.

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the rules of the SEC that permit us to provide only management’s report in this annual report.

#### Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

Filed Apr 15, 2022.
Source: SEC EDGAR, the filing index for accession 0001493152-22-010106. Last ingested by Listed: Oct 24, 2026, 15:15 ET. No prices; not investment advice.