# Ozop Energy Solutions, Inc.: Form 10-Q for the period ended Mar 31, 2023

- Company: [Ozop Energy Solutions, Inc.](/companies/ozsc.md) (CIK 1679817)
- Form: 10-Q
- Filed: 2023-05-15
- Accepted by EDGAR: May 15, 2023, 17:03 ET
- Period: 2023-03-31
- Accession: 0001493152-23-017496
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1679817/000149315223017496/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1679817/000149315223017496/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-01-01 to 2023-03-31 | $2.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Gross profit | 3 months, 2023-01-01 to 2023-03-31 | $396.5k | us-gaap:GrossProfit |
| Operating income | 3 months, 2023-01-01 to 2023-03-31 | −$673.3k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-01-01 to 2023-03-31 | $1.2m | us-gaap:InterestExpense |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | −$2.5m | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.00 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 3 months, 2023-01-01 to 2023-03-31 | $611.4k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-01-01 to 2023-03-31 | $2.2k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-03-31 | $2.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-03-31 | $7.6m | us-gaap:AssetsCurrent |
| Total assets | at 2023-03-31 | $8.7m | us-gaap:Assets |
| Current liabilities | at 2023-03-31 | $16.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-03-31 | $31.7m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-03-31 | −$22.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 33,738 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.

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 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 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 and a wholly owned subsidiary of the Company, and was formed as a holding company. On October 29, 2021, EV Insurance Company, Inc. (“EVCO”) was formed as a captive insurer that reinsures in the State of Delaware. EVCO (DBA “OZOP Plus”) is a wholly owned subsidiary of Ozop Capital.

OES is actively engaged 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. Our solar and energy storage projects involve large-scale battery and solar photovoltaics (PV) installations. Our utility-scale storage business model 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.

*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-GridTM System, patent pending, was developed for the off-grid distribution of electricity to remove or reduce the dependency on utilities that currently burdens the EV Charging sectors. It will also reduce or eliminate the lengthy permitting processes and streamline the installations of those EV chargers.

*Modular Energy Distribution System:* The Neo-GridTM System patent pending, consists of the design, engineering, installation, and operational methodologies as well as the financial arbitrage of how we produce, capture and distribute electrical energy for the EV markets. OES has acquired through a license the rights to a proprietary system, the **Neo-GridsTM System** (patent pending), for the capture and distribution of electrical energy for the EV market. The **Neo-GridsTM System** will serve both the private auto and the commercial sectors. The exponential growth of the EV industry has been accelerated by the recent major commitments of most of the major car manufacturers. Our **Neo-GridsTM System** leverages this accelerated growth by offering (1) charging locations that can be rapidly installed in restricted areas or load limits and (2) EV charger electricity that is produced from renewable sources having little to no carbon footprint.

OES has developed a business plan for the Neo GridTM distribution system, a solution to alleviate the stress on the existing grid-tied infrastructure. The Company has completed its’ Neo GridTM research and development as well as the first stage that includes the specifications and engineered technical drawings. This completion of the first stage of allows us to move forward with stage two, as well as to begin to construct the first prototype or proof of concept, (“PoC”). Our PoC design is partially reliant on auto manufacturers establishing standardizations of the actual charging/discharging protocols of the batteries such as on-board inverters as well as bi-directional capabilities in electric vehicles, which have only recently been established. As the market growth rate of EV’s continues to rise, the stress on the existing grid-tied infrastructure shows the need for the continued development of our Neo-GridTM System as a viable solution.

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.

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.

- In May 2022, the Company entered into an agreement with GS Administrators, Inc., a member of Houston-based GSFSGroup. Under the agreement, the Company will market GSFSGroup’s EV VSC’s in all states (except, California, Florida, Massachusetts and Washington) to Ozop’s network of new and used franchised dealerships and other eligible entities. In addition to acting as an agent for the marketing, Ozop also has the right to white label the product under its’ Ozop Plus brand. Ozop’s role won’t be limited to marketing the product. GSFSGroup plans to tap into Ozop’s experience relative to battery collection and disposal and has agreed to insurance risk sharing in connection with the insurance policies that back the VSC’s. GSFSGroup is working on getting the approvals needed for the above four (4) states.
- On June 22, 2022, the Company entered into an Agent Agreement with Royal Administration Services, Inc. (“Royal”). Under the agreement, the Company will market Royal’s EV VSC’s and has the right to white label it under Ozop Plus. Royal has agreed to allow Ozop Plus on all VSC’s, marketed by Royal and the Company, to assume all the risk related to the electric battery at an agreed upon premium. The battery premium is dependent on the consumer’s selection of the duration of the VSC, the miles selected for coverage and the type of vehicle that the consumer has purchased, with a key component being the kWh size of the battery. These VSC’s have a maximum of 10 years and 150,000 miles and cover new and used cars from model year 2017 and newer. Royal’s VSCs are now effective in 46 states and the others have various waiting times or approvals needed.
- On October 13, 2022, EVCO entered a Reinsurance Contract (the “Contract”) with American Bankers Insurance Company of Florida (“ABIC” or the “Ceding Company”). Royal is the Administrator of the Contract. Pursuant to the terms of the Contract, ABIC will cede 100% of the battery coverage portion of all electric vehicle service contracts to EVCO. On the same date ABIC and EVCO also entered into a Trust Agreement, whereas EVCO as the reinsurer agrees to deposit an amount equal to unearned premium reserves, plus losses reported but unpaid, plus the estimated amount of losses incurred but not reported to the trust account. Permissible investments (with a maturity of no more than five (5) years) of the assets of the Trust account include:
- U.S. Treasury Securities
- Cash or cash instruments
- U.S agency issues
- Other investments as Ceding Company approves

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 can offer the resources needed for lighting, solar and electrical design projects. OED will provide its’ customers systems to coordinate the understanding of electrical usage with the relationship between lighting design and lighting controls, by developing more efficient ecofriendly designs by working with architects, engineers, facility managers, electrical contractors and engineers.

### Discontinued Operations

On September 1, 2022, the BOD of the Company authorized the filing of a Chapter 7 proceeding which meets the definition of a discontinued operation. Accordingly, the operating results of PCTI are reported as income (loss) from discontinued operations in the accompanying consolidated financial statements for the three months ended March 31, 2023, and 2022.

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

#### Revenue

For the three months ended March 31, 2023, the Company generated revenue of $2,791,198 compared to $2,919,322 for the three months ended March 31, 2022. Revenues from Ozop Energy Systems, Inc. (“OES”) are classified as sourced and distributed products. Ozop Engineering and Design (“OED”) operations began in the quarter ended June 30, 2022, and are classified as design and installation. Sales are summarized as follows:

|  | Three months ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Sourced and distributed products | $2,758,798 | $2,919,322 |
| Design and installation | 32,400 | - |
| Total | $2,791,198 | $2,919,322 |

As it did for most of the solar industry; OES’s importing of solar panels issues that began in the 4th quarter of 2021, continued during 2022. Covid issues continued to be disruptive to a continual source of product from foreign manufacturers as well as ocean freight backlogs and covid issues that plagued the port of arrivals related to the unloading of containers and the eventual customs clearance of the imported goods. An announcement by the U.S. Department in March 2022 stated it would investigate allegations that solar panel manufacturers in Southeast Asia are using Chinese-made parts and evading U.S. tariffs has raised alarms concerning both trade and environmental policy The department announced March 28, 2022, that it would investigate claims by a California-based solar panel manufacturer that solar energy equipment manufacturers in Cambodia, Malaysia, Thailand and Vietnam have close business ties to companies in China that produce the raw materials and some components of solar panel assemblies. On June 6, 2022, President Biden waived tariffs on solar panels from four Southeast Asian nations for two years and invoked the Defense Production Act to spur domestic solar panel manufacturing at home. The tariff exemption will serve as a “bridge” while U.S. manufacturing ramps up.

As of March 31, 2023, the Company had inventory of approximately $1,648,000. As of the date of this report the Company also has outstanding purchase orders with its panel supplier of $12,626,000 and has paid deposits of approximately $3,172,000 towards these open purchase orders. In order to meet our current customers anticipated needs for 2023, the Company would need to purchase approximately an additional $3,000,000 to be received in Q4/2023. Based on the above, management anticipates revenues may approach $20 million for 2023 for solar products.

#### Cost of sales

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

|  | Three months ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Sourced and distributed products | $2,394,700 | $2,749,349 |

Based on the above cost of sales, gross margin was 13.2% and 5.8% for the three months ended March 31, 2023, and 2022, respectively. Gross margin for OES was higher in the current due to the mix of product sales. The Company anticipates lower margins for the remainder of 2023 compared to the quarter ending March 31, 2023.

#### Operating expenses

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

|  | Three months ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Management fees, related parties | $240,000 | $390,000 |
| Stock-based compensation, other | - | 136,249 |
| Salaries, taxes, and benefits | 266,804 | 251,399 |
| Professional and consulting fees | 281,008 | 628,947 |
| Advertising and marketing | 17,772 | 2,478 |
| Rent and office expenses | 55,116 | 65,975 |
| Insurance | 48,391 | 80,834 |
| General and administrative. Other | 160,671 | 209,685 |
| Total | $1,069,762 | $1,765,567 |

Management fees- related parties, are amounts paid to our CEO. On July 10, 2020, pursuant to the PCTI transaction, the Company assumed an employment contract entered into on February 28, 2020, between the Company and Mr. Conway (the “Employment Agreement”). Mr. Conway’s compensation as adjusted was $20,000 per month. Effective January 1, 2022, the Company entered into a new employment agreement with Mr. Conway. Pursuant to the agreement, Mr. Conway received a $250,000 contract renewal bonus and receives an annual compensation of $240,000 from the Company and will also be eligible to receive bonuses and equity grants at the discretion of the BOD. The Company also agreed to compensate Mr. Conway for services provided directly to any of the Company’s subsidiaries. Ozop Capital increased Mr. Conway’s compensation to $20,000 per month in January 2022, OES began compensating Mr. Conway $20,000 in March 2022, and OED began compensating Mr. Conway $20,000 per month beginning in April 2022.

There was no stock-based compensation for the three months ended March 31, 2023. Stock based compensation for the three months ended March 31, 2022, of $136,249 is comprised of the following:

- 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 $0.027 per share. During the three months ended March 31, 2022, the Company included $135,000 in stock compensation expense.
- $1,249 of amortization of stock compensation for shares issued in April 2021.

Salaries, taxes, and benefits increased for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The increase was a result of in the quarter ending March 31, 2023 for Ozop Engineering and Design (“OED”) and EV Insurance Company (“Ozop Plus”) having employees for the entire period, compared to OED beginning in April 2022, and Ozop Plus beginning in October 2022, respectively. These increases were significantly reduced by the termination for cause of all of the employees in the west coast location.

|  | Three months ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Ozop Energy Systems | $79,701 | $251,399 |
| Ozop Engineering and Design | 152,852 | - |
| EV Insurance Company | 34,251 | - |
| Total | $266,804 | $251,399 |

Ozop Energy Systems currently has 3 employees with an aggregate annual salary of $276,000 and focused on the battery storage system, information technology and general and administrative functions. The solar distribution of this vertical is being managed by our financial consultant and the Company’s CEO. OED currently has six employees with an aggregate annual compensation of $588,000. EV Insurance Company has one employee with annual compensation of $125,000.

Professional and consulting fees decreased for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The decrease is due to the expiration of certain consulting contracts and accounting fees. These decreases were partially offset increases in legal expenses and auditing fees.

Advertising and marketing expenses increased for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The increases were related to website development, and lead generation costs.

Rent and office expense (including supplies, utilities, and internet costs) decreased for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The decrease is the result that on March 1, 2023, OES has subleased the Carlsbad office and warehouse to a third party.

Insurance expense decreased for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The decrease was the result of the termination of the west coast employees in November 2022, resulting in no health insurance and workers compensation expenses related thereto. The Company estimates that the monthly insurance expense to be approximately $20,000 per month.

#### Other (Income) Expenses

Other expense, net, for the three months ended March 31, 2023, was $1,859,651 compared to other income, net, for the three months ended March 31, 2022, of $398,305 and were as follows.

|  | Three months ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Interest expense | $1,221,533 | $3,966,898 |
| (Gain) loss on change in fair value of derivatives | 638,118 | (4,365,203) |
| Total other (income) expense, net | $1,859,651 | $(398,305) |

The decrease in interest expense for the three months ended March 31, 2023, is primarily a result of the amortization period of certain note discounts were completed in 2022, resulting in $500,568 of interest related to the amortization of note discounts in the current period, compared to $3,379,121 for the three months ended March 31, 2022. Interest expense on the face value of the principal balances of the notes payable increased due to the increased rate due to mote defaults and extended maturity dates. For the three months ended March 31, 2023, the Company recognized a loss of $638,118 on the change in the fair value of derivatives compared to a gain of $4,365,203 for the three months ended March 31, 2022.

#### Net loss

Net loss attributable to the Company for the three months ended March 31, 2023, was $2,527,552 compared to a net loss of $1,193,761 for the three months ended March 31, 2022. The change was primarily a result of the loss on the change in fair value of derivatives of $638,118 for the three months ended March 31, 2023, compared to the gain of $4,365,203 for the three months ended March 31, 2022. This increase in the loss from the changes in the fair value of derivatives was partially offset by the increase in gross profit, the decrease in operating expenses and interest expense for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

### Liquidity and Capital Resources

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of March 31, 2023, the Company had an accumulated deficit of $213,828,351 and a working capital deficit of $9,216,661 (including derivative liabilities of $4,952,388). As of March 31, 2023, the Company was in default of $3,690,000 plus accrued interest on debt instruments due to non-payment upon maturity dates. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern for one year from the date of the issuance of these financial statements. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

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 2 to the consolidated financial statements filed herein.

For the year ended December 31, 2023, we primarily funded our business operations with the existing cash on hand as of January 1, 2023, cash received from sales of inventory, and $526,393 received from sales of common stock.

As of March 31, 2023, we had cash of $1,954,814 as compared to $1,369,210 as of December 31, 2022. As of March 31, 2023, we had current liabilities of $16,785,663 (including $4,952,388 of non-cash derivative liabilities), compared to current assets of $7,569,002, which resulted in a working capital deficit of $9,216,661. The current liabilities are comprised of accounts payable, accrued expenses, convertible debt, derivative liabilities, customer deposits, deferred liability, lease obligations, notes payable and liabilities of discontinued operations.

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 three months ended March 31, 2023, net cash provided by operating activities was $611,373 compared to net cash used in operating activities of $3,060,456 for the three months ended March 31, 2022. For the three months ended March 31, 2023, our net cash provided by operating activities was primarily attributable to the net loss of $2,527,552, adjusted by non- cash items of the loss on the fair value change of derivatives of $638,118, interest expense of $500,568, and amortization and depreciation of $55,912. Net changes of $1,949,690 in operating assets and liabilities added to the cash provided by operating activities.

For the three months ended March 31, 2022, our net cash used in operating activities was primarily attributable to the net loss of $1,381,469, adjusted by non- cash interest expense of $3,379,121, stock-based compensation of $136,249 and the non-cash expenses of amortization and depreciation of $41,421. This was offset by the gain on the fair value changes in derivatives related to warrants and convertible notes of $4,365,203. Net changes of $812,666 in operating assets and liabilities increased the cash used in operating activities.

#### Investing Activities

For the three months ended March 31, 2023, the net cash used in investing activities was $2,162, compared to $40,000 for the three months ended March 31, 2022.

#### Financing Activities

For the three months ended March 31, 2023, the net cash used in financing activities was $23,607. During the three months ended March 31, 2023, we received $526,393, net of issuance costs, from the sales of common stock to GHS. During the three months ended March 31, 2023, we made payments of $550,000 for notes payable. There was no financing activity for the three months ended March 31, 2022.

### Critical Accounting Policies

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

### 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.

### Inventory

Inventories are valued at the lower of cost or net realizable value, with cost determined on the first-in, first-out basis. Inventory costs consist of finished goods. In evaluating the net realizable value of inventory, management also considers, if applicable, other factors, including known trends, market conditions, currency exchange rates and other such issues.

### Convertible Instruments

The Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815, Derivatives and Hedging Activities.

Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

The Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: The Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of this note transaction and the effective conversion price embedded in this note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.

The Company accounts for the conversion of convertible debt when a conversion option has been bifurcated using the general extinguishment standards. The debt and equity linked derivatives are removed at their carrying amounts and the shares issued are measured at their then-current fair value, with any difference recorded as a gain or loss on extinguishment of the two separate accounting liabilities.

### 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.

### Earnings (Loss) Per Share

The Company computes net income (loss) per share in accordance with FASB ASC 260, “Earnings per Share.” ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the statement of operations. Basic EPS is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. 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, 3,927 characters.

### Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of March 31, 2023. Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls over financial reporting, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective for the reasons discussed below.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting as of March 31, 2023, the Company determined that there were control deficiencies that constituted material weaknesses, as described below.

1\. We do not have an Audit Committee – While not being legally obligated to have an audit committee, it is the management’s view that such a committee, including a financial expert member, is an utmost important entity level control over the Company’s financial statement. Currently the Board of Directors acts in the capacity of the Audit Committee, and does not include a member that is considered to be independent of management to provide the necessary oversight over management’s activities.

2\. We did not maintain appropriate cash controls – As of March 31, 2023, the Company has not maintained sufficient internal controls over financial reporting for cash, including failure to segregate cash handling and accounting functions, and did not require dual signatures on the Company’s bank accounts.

Accordingly, the Company concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls.

Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.

### Changes in Internal Controls over Financial Reporting

There has been no change in our internal control over financial reporting occurred during the three months ended March 31, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Filed May 15, 2023.
Source: SEC EDGAR, the filing index for accession 0001493152-23-017496. Last ingested by Listed: Oct 24, 2026, 15:15 ET. No prices; not investment advice.