Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following is management's discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying unaudited consolidated financial statements, as well as information relating to the plans of our current management. This report includes forward-looking statements. Generally, the words "believes," "anticipates," "may," "will," "should," "expect," "intend," "estimate," "continue," and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.

While our financial statements are presented on the basis that we are a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time, our auditors have raised a substantial doubt about our ability to continue as a going concern.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). These accounting principles require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates.

The following discussion should be read in conjunction with our unaudited consolidated financial statements and the related notes that appear elsewhere in this Quarterly Report on Form 10-Q.

THE COMPANY

Ozop Energy Solutions, Inc. (the "Company," "we," "us" or "our") was originally incorporated as Newmarkt Corp. on July 17, 2015, under the laws of the State of Nevada.

On October 29, 2020, the Company formed a new wholly owned subsidiary, Ozop Surgical Name Change Subsidiary, Inc., a Nevada corporation ("Merger Sub"). The Merger Sub was formed under the Nevada Revised Statutes for the sole purpose and effect of changing the Company's name to "Ozop Energy Solutions, Inc." That same day the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with the Merger Sub and filed Articles of Merger (the "Articles of Merger") with the Nevada Secretary of State, merging the Merger Sub into the Company, which were stamped effective as of November 3, 2020. As permitted by the Section 92.A.180 of the Nevada Revised Statutes, the sole purpose and effect of the filing of Articles of Merger was to change the name of the Company from Ozop Surgical Corp to "Ozop Energy Solutions, Inc."

On December 11, 2020, the Company formed Ozop Energy Systems, Inc. ("OES"), a Nevada corporation and a wholly owned subsidiary of the Company. OES was formed to be a manufacturer and distributor of renewable energy products.

On August 19, 2021, the Company formed Ozop Capital Partners, Inc. ("Ozop Capital"), a Delaware corporation and a wholly owned subsidiary of the Company. Brian Conway was appointed as the sole officer and director of Ozop Capital and has voting control of Ozop Capital.

On October 29, 2021, EV Insurance Company, Inc. ("EVCO") was formed as a captive insurance company in the State of Delaware. EVCO is a wholly owned subsidiary of Ozop Capital. On January 7, 2022, EVCO filed with New Castle County, Delaware DBA OZOP Plus.

On February 25, 2022, the Company formed Ozop Engineering and Design, Inc. ("OED") a Nevada corporation, as a wholly owned subsidiary of the Company. OED was formed to become a premier engineering and lighting control design firm. OED offers product and design support for lighting and solar projects with a focus on fast lead times and technical support. OED and our partners are able to offer the resources needed for lighting, solar and electrical design projects. OED will provide customers systems to coordinate the understanding of electrical usage with the relationship between lighting design and lighting controls, by developing more efficient ecofriendly designs. We work with architects, engineers, facility managers, electrical contractors and engineers.

On June 11, 2024, the Company formed Automated Room Controls, Inc. ("ARC") a Nevada corporation, as a wholly owned subsidiary of the Company. ARC was created to address a significant need in the lighting controls industry. ARC's personnel has extensive experience in lighting controls since 2012, bringing together IT specialists and lighting control experts. We believe that easy deployment and creative applications can transform lighting controls into essential tools for enhancing the utility and ambiance of any space. The Company's mission is to deliver cutting-edge technology that simplifies complex control needs, ensuring seamless integration and exceptional performance.

OES operates in the renewable, electric vehicle ("EV"), energy storage and energy resiliency sectors. We are engaged in multiple business lines that include project development as well as equipment distribution.

Equipment Distributor: In April 2021, the Company signed a five-year lease (beginning June 1, 2021) of approximately 8,100 SF in California, for office and warehouse space to support the sales and distribution of our west coast operations. On February 22, 2023, with an effective date of March 1, 2023, the Company entered into a Sublease for a Single Subleasee Agreement (the "Sublease") with the landlord and a third party for the office and warehouse in Carlsbad California. Pursuant to the Sublease agreement, the third party will be responsible for all of the Company's lease obligations through May 31, 2026, the lease termination date.

Modular Energy Distribution System: The NeoVolt^™ System comprises the design engineering, installation, and operational methodologies as well as the financial arbitrage of how we produce, capture and distribute electrical energy for the EV markets. Our NeoVolt^TM System offers (1) charging locations that can be installed with reduced delays, restricted areas or load limits and (2) EV charger electricity that is produced from renewable sources claiming little to no carbon footprint.

The Company has developed a business plan for NeoVolt™, a scalable battery storage solution that aims to relieve the stress on existing grid infrastructure by providing distributed energy storage. With the first stage of engineered technical drawings completed, we are advancing to stage two and preparing to construct the initial prototype or proof of concept (PoC). NeoVolt™ is designed with advanced features, including automatic adoption of connected devices and dynamic load balancing through a master-slave configuration. These capabilities enable NeoVolt™ to seamlessly integrate with and manage energy flows across multiple devices. Furthermore, the PoC is contingent upon recent advancements in EV charging and discharging standardizations, including on-board inverters and bi-directional capabilities, to ensure compatibility and efficiency in both residential and commercial applications.

OED specializes in lighting commissioning services. On September 27, 2024, OED signed an agreement with Leviton Manufacturing Co, Inc., to serve as a field service technician for their advanced lighting control systems.

Ozop Plus markets vehicle service contracts (VSC's") for electric vehicles (EV's) that offer consumers to be able to purchase additional months and miles above the manufacturer's warranty and to also bring added value to EV owners by utilizing our partnerships and strengths in the energy market to offer unique and innovative services. Among EV owners' concerns are the EV battery repair and replacement costs, range anxiety, environmental responsibilities, roadside assistance, and the accelerated wear on additional components that EV vehicles experience. Management believes that the Ozop Plus marketed VSC's will give "peace of mind" to the EV buyer. On October 23, 2024, Ozop Capital Partners, Inc. entered into an agreement with Empire Auto Protect ("Empire"). Under the agreement, Empire will white label Royal Administration's Fully Charged VSC, to be marketed as Empire Plus. OZOP Plus will be ceded the battery premium portion of all of the Empire Plus VSC's contracted.

ARC has developed products to be an advanced lighting controls system, intricately engineered to integrate sophisticated wired and wireless technologies. At its core, it employs a hybrid network topology that facilitates both resilient wired connections and flexible wireless communications, making it suitable for complex infrastructural environments. The system is equipped with an array of sensors and control nodes, enabling precise light management and energy usage monitoring. With support for protocols such as DALI and Zigbee, alongside the capability for seamless integration with IoT platforms, ARC offers a comprehensive solution for intricate lighting networks. This system is designed not just for control and efficiency, but also for adaptability to diverse architectural and electrical layouts, embodying a technical solution for advanced, energy-conscious lighting management.

Discontinued Operations

On September 1, 2022, the BOD of the Company authorized the filing of a Chapter 7 proceedings which meets the definition of a discontinued operation. Accordingly, the operating results of PCTI are reported as income from discontinued operations in the accompanying unaudited consolidated financial statements for the three and six months ended June 30, 2026, and 2025.

Results of Operations for the three and six months ended June 30, 2026, and 2025:

Revenue

For the three and six months ended June 30, 2026, the Company generated revenue of $41,645 and $97,698, respectively, compared to $63,731 and $105,988 for the three and six months ended June 30, 2025. Revenues from Ozop Energy Systems, Inc. ("OES") and Automated Room Controls, Inc. ("ARC") are classified as sourced and distributed products. Ozop Engineering and Design ("OED") revenues are classified as design and installation. Sales are summarized as follows:

		Three months ended June 30,								Six months ended June 30,
		2026				2025				2026				2025
Sourced and distributed products		$	-			$	19,454			$	315			$	22,478
Design and installation			41,645				44,277				97,383				83,510
Total		$	41,645			$	63,731			$	97,698			$	105,988

Design and installation revenues decreased for the three months ended June 30, 2026, and increased for the six months ended June 30, 2026, compared to the three and six months ended June 30, 2025, respectively, as OED received more jobs in the current year to date period compared to the prior year to date period. Sales of sourced and distributed products (ARC and OES) were lower for the three and six months ended June 30, 2026, compared to the three and six months ended June 30, 2025, respectively. The Company believes the lower revenues were due to higher interest rates affecting homeowners' ability and desire for residential rooftop solar installations as well as competitors lowering their selling prices to try to capture a part of the lower demand. These factors also resulted in our customers having excess inventory on hand, and our decision to not currently place additional orders for solar products.

Cost of sales and Gross profit

For the three and six months ended June 30, 2026, the Company recognized cost of sales of $31,087 and $76,746, respectively, compared to $45,868 and 78,636, respectively, of cost of sales for the three and six months ended June 2025.

		Three months ended June 30,								Six months ended June 30,
		2026				2025				2026				2025
Sourced and distributed products		$	-			$	16,365			$	2,385			$	19,029
Design and installation			31,087				29,503				74,361				59,607
Total		$	31,087			$	45,868			$	76,746			$	78,636

		Three months ended June 30,								Six months ended June 30,
		2026				2025				2026				2025
Gross margin			25.4	%			28.0	%			21.4	%			25.8	%

The gross margin on design and installation was 25.4% and 23.6% for the three and six months ended June 30, 2026, compared to 33.4% and 28.6% for the three and six months ended June 30, 2025. The Company recognized a gross margin on solar products (OES) of 11.7% and 11.8% for the three and six months ended June 30, 2025, and there were no sales and gross margin for the three and six months ended June 30, 2026. For the three and six months ended June 30, 2025, ARC had a gross margin of 19.5%.

Operating expenses

Total operating expenses for the three and six months ended June 30, 2026, were $734,841 and $1,406,643 respectively, compared to $843,326 and $1,783,644 for the three and six months ended June 30, 2025. The operating expenses were comprised of:

		Three Months Ended June 30, 2026				Three Months Ended June 30, 2025				Six Months Ended June 30, 2026				Six Months Ended June 30, 2025
Management fees, related parties		$	240,000			$	240,000			$	480,000			$	480,000
Salaries, taxes, and benefits			24,641				147,414				54,082				375,504
Stock compensation expense			31,455				40,000				79,455				40,000
Travel expenses			1,189				10,858				2,872				34,257
Professional and consulting fees			282,928				228,100				506,743				457,275
Advertising and marketing			22,208				15,123				24,695				42,863
Rent, building and office expenses			53,982				24,113				93,603				58,539
Research and development costs			-				20,204				142				44,872
Insurance			30,896				49,135				61,494				112,017
General and administrative, other			47,542				68,379				103,557				138,317
Total operating expenses		$	734,841			$	843,326			$	1,406,643			$	1,783,644

Effective January 1, 2022, the Company entered into an employment agreement with Mr. Conway. Pursuant to the agreement, Mr. Conway receives annual compensation of $240,000 from the Company and will also be eligible to receive bonuses and equity grants at the discretion of the BOD. The Company also agreed to compensate Mr. Conway for services provided directly to any of the Company's subsidiaries. Currently, the subsidiaries of Ozop Capital, OES and OED, each records an expense for Mr. Conway $20,000 per month.

Salaries, taxes, and benefits decreased for the three and six months ended June 30, 2026, compared to the three and six months ended June 30, 2025. OES currently has 1 employee with an annual salary of $84,000, compared to 2 employees (through April 30, 2025) with an aggregate annual salary of $204,000 (through April 30, 2025) and $84,000 for May and June 2025. The solar distribution of this vertical is being managed by our financial consultant and the Company's CEO. For the three and six months ended June 30, 2026, OED was paying employees on a per hour basis for time travel to and from a job and time of service at a job and is 100% charged to cost of sales (see above). For the three and six months ended June 30, 2025, OED had two employees with an aggregate annual compensation of $244,000 and allocated $29,347 and $59,607, respectively, of salaries and payroll taxes to cost of sales for the three and six months ended June 30, 2025. ARC did not have any employees for the three and six months ended June 30, 2026, and is being managed by our financial consultant, our OES employee, and the Company's CEO. For the three and six months ended June 30, 2025, ARC had 3 employees (thru April 30,2025), then 2 employees for the remainder of the three months ending June 30, 2025, with an annual salary of $310,000, through April 30, 2025, and $216,000 for May and June 2025. Ozop Capital Partners had one employee through January 15, 2026, with annual compensation of $144,000. The Company allocates salaries and related expenses to the appropriate subsidiary for where their services are being performed. The expenses per subsidiary included in operating expenses for the three and six months ended June 30, 2026, and 2025, are as follows:

		Three Months Ended June 30, 2026				Three Months Ended June 30, 2025				Six Months Ended June 30, 2026				Six Months Ended June 30, 2025
Ozop Energy Systems		$	22,607			$	33,372			$	45,625			$	89,021
Ozop Engineering and Design			2,034				11,930				2,034				68,315
Automated Room Controls			-				67,097				-				151,562
Ozop Capital Partners/EV Insurance Company			-				35,015				6,423				66,606
Total		$	24,641			$	147,414			$	54,082			$	375,504

During the three and six months ended June 30, 2026, the Company issued 300,000 and 600,000, respectively, post reverse split shares of common stock pursuant to Service Agreements with third parties and recorded stock based compensation of $31,455 (three months) and $79,455 (six months). The Company valued the 300,000 shares issued in the three months ended June 30, 2026, at $162,000 based on the market price on the date of issuance and is expensing that amount over the one-year term of the agreement beginning April 20, 2026. During the three and six months ended June 30, 2025, the Company issued an aggregate of 40,000 post reverse split (200,000,000 prior to the reverse split) shares of common stock pursuant to a Service Agreement (including amendments) with a third party and recorded a stock based compensation of $40,000.

Travel expenses decreased for the three and six months ended June 30, 2026, compared to the three and six months ended June 30, 2025, as the Company had lower travel expenses related to Systems and OED.

Professional and consulting fees increased for the three and six months ended June 30, 2026, compared to the three and six months ended June 30, 2025. The increase was a result of additional professional service costs related to the filing of an S-1 registration.

Advertising and marketing expenses increased for the three months ended June 30, 2026, compared to the three months ended June 30, 2025, as result of the Company attending a trade show for EV Insurance during the current year quarter. Advertising and marketing expenses decreased for the six months ended June 30, 2026, compared to the six months ended June 30, 2025, due to lower trade show and related costs.

Building, rent and office expense (including storage, supplies, utilities, and internet costs) increased for the three and six months ended June 30, 2026, compared to the three and six months ended June 30, 2025. The increase for the three and six month periods was partially related to increases in 1) rent expense of $9,981 (three months) and $18,942 (six months), pursuant to the Company selling and subleasing the office building (See Notes 8 and 12), 2) utilities and office expense increases of approximately $6,250 (three months) and $10,565 (six months), and 3) repairs and maintenance increases of approximately $13,600 (three months) and $5,500 (six months).

Research and development costs decreased for the three and six months ended June 30, 2026, compared to the three and six months ended June 30, 2025, due to the development and testing of the ARC products occurred in the 2025 periods.

Insurance expenses decreased for the three and six months ended June 30, 2026, compared to the three and six months ended June 30, 2025. The decrease was the result a decrease in health insurance related to the decrease in employees and the Company not renewing certain insurance policies for OES. The Company estimates that the monthly insurance expense to be approximately $12,000 per month.

Other (Income) Expenses

Other expense, net, for the three and six months ended June 30, 2026, were $7,669,398 and $9,491,703, respectively, compared to $1,380,535 and $2,006,877, for the three and six months ended June 30, 2025, respectively, and were as follows:

		Three months ended June 30,								Six months ended June 30,
		2026				2025				2026				2025
Interest expense		$	1,469,843			$	751,273			$	3,261,875			$	1,489,374
Loss on change in fair value of derivatives			6,199,555				629,262				6,229,828				517,503
Total other expense, net		$	7,669,398			$	1,380,535			$	9,491,703			$	2,006,877

The increase in interest expense for the three and six months ended June 30, 2026, is primarily a result of (1) the amortization expense of $293,619 and $1,268,122, respectively, related to debt discounts on convertible notes payable and promissory notes payable, compared to $25,601 and $39,841 for the three and six months ended June 30, 2025 and (2) interest expense recorded of $392,370 and $423,149 for the three and six months ended June 30, 2026, respectively, for the initial expense recorded for the excess of the fair value of derivatives over the related discounts on newly issued convertible notes, compared to $-0- for the three and six months ended June 30, 2025. For the three and six months ended June 30, 2026, accrued interest expense on notes payable and convertible notes was $791,876 and $1,578,747 respectively, compared to $725,725 and $1,449,630 for the three and six months ended June 30, 2025, respectively. For the three and six months ended June 30, 2026, the Company recognized losses of $6,199,555 and $6,229,828, respectively, on the change in the fair value of derivatives. For the three and six months ended June 30, 2025, the Company recognized a loss of $629,262 and $517,503, respectively, on the change in the fair value of derivatives. The increase for the three and six months ended June 30, 2026, compared to the three and six months ended June 30, 2025, was primarily the result of the June 17, 2026, Exchange Agreement (see Note 5).

Net loss

Net loss attributable to the Company for the three and six months ended June 30, 2026, was $8,393,681 and $10,877,394, respectively, compared to $2,205,998 and $3,763,169 for the three and six months ended June 30, 2025, respectively. The change for the three and six months ended June 30, 2026, was primarily a result of the increase in other expenses, partially offset by the decreases in operating expenses for the three and six months ended June 30, 2026.

Liquidity and Capital Resources

The accompanying unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of June 30, 2026, the Company had an accumulated deficit of $244,458,578 and a working capital deficit of $48,795,089. As of June 30, 2026, the Company was in default of $22,129,977 plus accrued interest on debt instruments due to non-payment upon maturity dates or failure to comply with the loan's contractual payment terms. Current cash balances are not sufficient to satisfy obligations currently due. Management is exploring capital raising options which may or may not become available on a timely basis to meet the obligations that are past due. 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 consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

Currently, our current capital and our other existing resources will not be sufficient to provide the working capital needed for our current business, and additional capital will be required to meet our debt obligations, and to further expand our business. We may be unable to obtain the additional capital required on terms favorable to the Company or at all. If we are unable to generate capital or raise additional funds when required, it will have a negative impact on our business development and financial results. These conditions raise substantial doubt about our ability to continue as a going concern as well as our recurring losses from operations, deficit in equity, and the need to raise additional capital to fund operations. This "going concern" could impair our ability to finance our operations through the sale of debt or equity securities. Management's plans in regard to these factors are discussed in Note 2 to the unaudited consolidated financial statements filed herein.

For the six months ended June 30, 2026, we primarily funded our business operations with the existing cash on hand as of January 1, 2026, cash received from collection of accounts receivable, $47,069 received from sales of common stock, $582,000 received from the issuance of convertible promissory notes of $643,111, and $290,000 received from the issuance of $320,000 promissory notes.

As of June 30, 2026, we had cash of $60,449 as compared to $266,431 as of December 31, 2025. As of June 30, 2026, we had current liabilities of $49,148,696, compared to current assets of $353,607, which resulted in a working capital deficit of $48,795,089. The current liabilities are comprised of accounts payable and accrued expenses, related party liabilities, convertible debt, derivative liabilities, lease obligations, deferred liability, notes payable, and liabilities of discontinued operations.

Operating Activities

For the six months ended June 30, 2026, net cash used in operating activities was $950,051 compared to $1,186,537 for the six months ended June 30, 2025.

For the six months ended June 30, 2026, our net cash used in operating activities was primarily attributable to the net loss of $10,877,394, adjusted for the non-cash items of the loss on the fair value change of derivatives of $6,229,828, non-cash interest expense of $1,666,671, amortization and depreciation of $90,702, loss from write off security deposit of $13,408, and stock based compensation expense of $79,455, partially offset by non-cash interest income of $7,979. Net changes of $1,855,258 in operating assets and liabilities reduced the cash used in operating activities.

For the six months ended June 30, 2025, our net cash used in operating activities was primarily attributable to the net loss of $3,763,169, adjusted by the loss on the change in fair value of derivatives of $517,503, non-cash interest expense of $39,841, stock based compensation of $40,000, and amortization and depreciation of $105,843. Net changes of $1,873,445 in operating assets and liabilities reduced the cash used in operating activities.

Investing Activities

For the six months ended June 30, 2026, the net cash used in investing activities was $175,000, resulting from loans to related party in exchange for promissory notes.

For the six months ended June 30, 2025, the net cash used in investing activities was $3,490, due to purchase of office and computer equipment.

Financing Activities

For the six months ended June 30, 2026, the net cash provided by financing activities was $919,069 of which $582,000 was net proceeds received from issuance of convertible notes, $47,069 from the sales of common stock to GHS, net of issuance costs, and $290,000 from the issuances of promissory notes payable.

For the six months ended June 30, 2025, the net cash provided by financing activities was $486,965 of which $191,000 was net proceeds received from issuance of convertible note and $295,965 from the sales of common stock to GHS, net of issuance costs.

Critical Accounting Policies and Estimates

The Company's unaudited consolidated financial statements are prepared in accordance with GAAP in the United States. The preparation of its consolidated financial statements and related disclosures requires it to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in the Company's unaudited consolidated financial statements. The Company bases its estimates on historical experience, known trends and events and various other factors that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The Company evaluates its estimates and assumptions on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are described in more details in Note 3 to our financial statements appearing in "Part II-Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates" in our most recent Annual Report on Form 10-K for the year ended December 31, 2025, which was filed with the SEC on May14, 2026. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. The SEC requested that all registrants list their most "critical accounting polices" in the Management Discussion and Analysis. The SEC indicated that a "critical accounting policy" is one which is both important to the portrayal of a company's financial condition and results, and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our management believes that given current facts and circumstances, there are no material estimates or assumptions with levels of subjectivity and judgement necessary to be considered critical accounting policies and estimates. There were no significant changes to our critical accounting policies and estimates during the three and six months ended June 30, 2026.

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.