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.
11
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.
12
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.
13
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.
15
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.
16
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.
17
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.
18
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.
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