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https://stockmarketrevolution.com/archives/33560Currently with a valuation of more than $400

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JohnQQ   Monday, 05/03/21 12:08:51 PM
Re: None
Post # of 24470 

Currently with a valuation of more than $400 million, Ozop Energy Solutions (OZSC) reports sales of less than $10 million and negative book value per share. I researched some of the addresses given by the company. Google maps indicates that some of the offices are located in apartments. I dislike the reverse merger executed with Power Conversion Technologies, Inc. The company reported a goodwill of $11 million, which was rapidly impaired. I believe that the current valuation is the result of significant social media activity. When investors learn about the company’s fundamentals, the share price will most likely fall.

The Reverse Merger Agreement Of Ozop Energy Solutions

Ozop Energy Solutions executed a stock purchase agreement with Power Conversion Technologies, Inc., which offers Battery Chargers, DC Power Supplies, and other tools for military/industrial applications:

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. Source: 10-k

As a result of the merger agreement, the owner of Power Conversion Technologies obtained more than 73% of the total share count. I believe that Ozop Energy Solutions sold itself for a small amount of money:

Source: 10-k

In July, Ozop Energy Solutions had a total market capitalization of $20-$30 million. I reviewed carefully the assets acquired, which, in my opinion, were worth less than $20-$30 million.

Source: Ycharts

According to the last annual report, Ozop Energy Solutions acquired total assets worth $1.2 million, and assumed liabilities worth $11.6 million. It means that the book value of Power Conversion Technologies was negative. I don’t really see why Ozop Energy agreed to buy the company. Interestingly, the goodwill reported was equal to $11.2 million. It looks an enormous amount of goodwill:

Source: 10-k

Once the acquisition was executed, Ozop Energy Solutions reported that the goodwill had to be impaired. In my opinion, minority shareholders lost a fortune with the transaction. It is quite unfair:

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. Source: 10-k

I reviewed the numbers reported by Power Conversion Technologies. According to Dun & Bradstreet, Power Conversion had, in 2020, sales of $6.59 million. Ozop Energy Solutions had a market capitalization of $20-$30 million when it executed the merger agreement. With these figures, I assume that Ozop Energy gave its shares at 0.21x-0.3x sales, and the company obtained liabilities of $11 million. It looks like a very bad deal.

Source: Power Conversion Technologies, Inc. Company Profile

Power Conversion Technologies makes money from federal contract awards. However, in the last ten years, the previous awards obtained were worth around $6-$10 million. I don’t think that the Ozop Energy Solutions executed proper due diligence on Power Conversion Technologies:

Source: Awards – GovTribe

Source: Funding – GovTribe

In March, Ozop Energy Solutions, Inc. Was Accused Of Fraud

OZOP and the CEO were accused of fraud in the United States District Court for the Southern District of New York. According to the company’s annual report, the complaint alleges that a press release related to a Master Supply Agreement with WESCO International, Inc. (NYSE: WCC) contained false and misleading information:

On March 4, 2021 a Complaint and Demand for Jury Trial (the “Complaint”) was filed by a plaintiff (the “Plaintiff”) in the United States District Court for the Southern District of New York. The Complaint named Ozop Energy Solutions, Inc. (“OZOP”) and Brian Conway, Ozop’s Chief Executive Officer, (the “CEO”). OZOP and the CEO are collectively referred to herein as “Defendants”. The Complaint alleges that the Plaintiff’s purchase and sale of OZOP’s securities, and damages caused by OZOP and its CEO, were violations of federal and state securities law and common laws. This securities fraud complaint is based on two (2) press releases issued by OZOP: the first dated January 12, 2021, which the complainant alleges contained materially false and misleading information about the execution of a Master Supply Agreement. Source: 10-k

Notice that the company first communicated the agreement with WESCO, and later said that it had no authorization to issue the press release. Ozop Energy Solutions issued another press release noting that the agreement had been terminated:

Ozop Energy Solutions retracts the press release it issued on January 12, 2021 regarding Ozop Energy Solutions entering into a Master Supply Agreement. Ozop did not have authorization to issue the press release, and the agreement referred to in the release has been terminated. Source: 10-k

Total Assets Worth $2 Million, And Market Capitalization Of $400 Million

I am concerned about the current valuation of the company. In December 2020, Ozop Energy Solutions reported cash of $1.8 million and total assets worth $2.3 million. The company’s market capitalization is more than 170x its assets:

Source: 10-k

As said, the acquisition of Power Conversion Technologies, Inc. was very detrimental for the company’s balance sheet. In 2020, the total amount of liabilities increased from $2.2 million to more than $7.3 million. As of today, the company’s asset/liability ratio is equal to 0.31x. In the near future, as more investors study the company, in my opinion, the share price will fall.

Source: 10-k

Ozop Energy Solutions Trades At More Than 133x Forward Sales

Ozop Energy Solutions reported sales of $0.8 million and $1.4 million in 2019 and 2020 respectively. After the acquisition, I was expecting a larger amount of revenue. I believed that the company would generate $6 million or even $10 million. Taking into account these numbers and the current sales growth, I could expect forward sales of $3-$4 million. If we assume a future market capitalization of more than $400 million, Ozop Energy trades at more than 133x sales.

Source: 10-k

The company’s income statement does not look good either. In 2020, the company reported sales of only $1.4 million, and the management decided to have stock-based compensation of $4.2 million. I wouldn’t want to be a shareholder of Ozop Energy Solutions. However, there is more. The company’s impairment represents 65% of the total amount of operating expenses. The company recorded goodwill of $11.5 when the acquisition was executed. In less than two years, the company decided that the target was not worth that much. Notice that Ozop Energy Solutions may pay less taxes because of the goodwill impairment. When the valuation of the target is not properly done, society as a whole pays for it.

Source: 10-k

The Businesses In Which The CEO Was Involved: Ngen Technologies

From 2014 to 2019, the CEO of Ozop Energy Solutions was also the CEO of Ngen Technologies, Inc. I believe that by understanding the stock price dynamics of Ngen Technologies, we may see what can happen to Ozop Energy’s stock price:

From October 1, 2014, through August 31, 2019, Mr. Conway was the CEO, CFO and Director of Ngen Technologies, Inc. (f/k/a/ Liberated Solutions, Inc.). His relationships and experience with investment bankers, non-dilutive financing, and public relations should be instrumental in moving the Company forward in the upcoming months. Source: 8-k

The graph below offers information on the valuation loss of Ozop Energy Solutions. From 2017 to 2019, investors saw the share price going from more than $200 to less than $1. I wonder whether the following office address is correct. I obtained it from Ngen’s annual report.

Source: Ycharts

My Due Diligence On Ozop Energy Solutions

Since I disliked quite a bit the transaction executed with Power Conversion, I decided to study Ozop Energy. I don’t expect the reader to like what I found out. In the last annual report, the company provided an address of New York. Many websites including Google Maps and Compass indicate that the address indicated is an apartment. I don’t have anything against companies being run from home. However, Ozop Energy currently has a market capitalization of more than $400 million. A few months ago, the company had a total valuation of more than $1.2 billion. I don’t know whether traders would have bought and sold shares worth $1.2 billion with this information in mind:

Source: SEC Filing

Source: Google Maps

Source: Google Maps – 26 N Main St, Florida, NY 10921, United States

Ozop gives a different address at the company’s website. However, many websites indicate that the given address is a house.

Source: Company’s Website

Source: Google Maps

Source: Google Maps

Previous Office And Change Of The Business Model

Ozop Energy Solutions was previously called Ozop Surgical Corp. The business model was different from that of Ozop Energy. I also researched the address given by Ozop Surgical. According to Google Maps, the address given by the company is a house:

Source: Previous 10-k

Source: 31 Sandfort Ln – Google Maps

Ozop Received Awards From Large Organizations, But The Company Does Not Give The Value Of The Contracts

I researched the contracts obtained by Ozop Energy Solutions in the past. The company worked for the NAVY, NASA, General Motors, and other large organizations:

Source: Company’s Website

However, the company does not seem to explain in its press releases the money received. The recent contract received from the US Navy for a 160KVA 400Hz Frequency Converter is a clear example. Ozop Energy issued a press release to let the world know that the company signed a $6k contract with the NAVY:

Ozop Energy Solutions. (OZSC), (“Ozop” or the “Company”), announced today that its wholly owned subsidiary, Power Conversion Technologies, Inc. (PCTI), has received an order from the US Navy for a 160KVA 400Hz Frequency Converter used for aircraft ground support to power the plane on the ground for a variety of purposes in lieu of using the engine and burning jet fuel. Source: Press Release

Source: Purchase Order N0010421PXA09 – GovTribe

According to GovTribe, Ozop Energy received the contract in January, but issued a press release on March 8, 2021. I don’t like that the company waited for a long time to release the information. Notice that stock price increased from January to March. Having said that, the company’s total valuation increased to more than $1.2 billion, which I cannot really justify:

Source: Ycharts

The number of people talking about Ozop Energy Solutions in social media is very impressive. I wonder whether they are aware of the company’s balance sheet and current operations. I could identify facebook groups with more than 4k members. I believe that the valuation increased because of the number of traders and social media actors:

Source: (1) Ozop Energy Solutions Investors #OZSC | Facebook

Source: (1) Ozop energy Solutions public Room | Facebook

I also researched the location of Power Conversion Technologies. There is a lot of information in the Facebook groups about Ozop Energy Solutions. Unfortunately, given the state of the balance sheet and the inventory, there is no way to justify the company’s current valuation of more than $400 million. Notice that the company does not own the properties; the management has a leasing agreement:

Source: Power Conversion Technologies, Inc. – Google Maps

Source: Facebook

Source: Facebook

My Takeaway

Currently trading with a market capitalization of more than $400 million, Ozop Energy Solutions will most likely trade significantly lower in the future. With negative book value and revenue below $10 billion, the company could be trading at less than $20 million soon. I am also very concerned about the fact that the transaction included a goodwill of $11 million. The valuation of the target was not properly assessed. Finally, please notice that we contacted the company with questions about the offices and the goodwill. Unfortunately, we did not receive any answer.

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