IIOT-OXYS, Inc. - Quarter Report: 2023 June (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

Or

Commission File Number: 000-50773

IIOT-OXYS, Inc.

(Exact name of registrant as specified in its charter)

(401) 307-3092

(Registrant’s telephone number, including area code)

Securities registered pursuant to section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

The number of shares outstanding of the registrant’s common stock on August 18, 2023, was 406,815,293.

TABLE OF CONTENTS

Introductory Comment

Unless otherwise indicated, any reference to “the Company”, “our company”, “we”, “us”, or “our” refers to IIOT-OXYS, Inc., a Nevada corporation, and as applicable to its wholly owned subsidiaries, OXYS Corporation, a Nevada corporation, and HereLab, Inc., a Delaware corporation.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

IIOT-OXYS, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

IIOT-OXYS, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

IIOT-OXYS, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity (Deficit)

(Unaudited)

For the three months ended June 30, 2023

For the six months ended June 30, 2023

For the three months ended June 30, 2022

For the six months ended June 30, 2022

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

IIOT-OXYS, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

IIOT-OXYS, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

June 30, 2023 and 2022

(Unaudited)

NOTE 1 - NATURE OF OPERATIONS, BASIS OF PRESENTATION AND GOING CONCERN

Unless otherwise indicated, any reference to “the Company”, “we”, “us”, or “its” refers to IIOT-OXYS, Inc., a Nevada corporation, and as applicable to its wholly-owned subsidiaries, OXYS Corporation, a Nevada corporation, and HereLab, Inc., a Delaware corporation.

IIOT-OXYS, Inc., incorporated in Nevada on July 6, 2017, (the “Company”) was established for the purpose of designing, building, testing, and selling Edge Computing Systems for the Industrial Internet. The Company is currently devoting substantially all its efforts in identifying, developing and marketing engineered products, software and services for applications in the Industrial Internet which involves collecting and processing data collected from a wide variety of industrial systems and machines.

Impact of COVID-19

The global COVID-19 pandemic continues to present uncertainty and unforeseeable risks to the Company’s operations and business plan. The Company has closely monitored recent developments, including the lifting of COVID-19 safety measures, the spread of new strains or variants of the coronavirus (such as the Delta and Omicron variants), and supply chain and labor shortages. Thus, the full impact of the COVID-19 pandemic on the business and operations remains uncertain and will vary depending on the pandemic’s future impact on the third parties with whom the Company does business, as well as any legal or regulatory consequences resulting therefrom. The Company has been following the recommendations of health authorities to minimize exposure risk for its team members and may take further actions that alter our operations, including any required by federal, state or local authorities, or that it determines are in the best interests of its employees and other third parties with whom the Company does business.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company. The financial statements and accompanying notes are the representations of the Company’s management, who is responsible for their integrity and objectivity. In the opinion of the Company’s management, the financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.

Going Concern

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has suffered continuing operating losses, has a working capital deficit of $1,931,009, used cash flows in operating activities of $78,551, and has an accumulated deficit of $9,768,365 as of June 30, 2023. These factors, among others, raise a substantial doubt about the Company’s ability to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations. The accompanying condensed financial statements do not include any adjustments to reflect the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Management believes that the Company will be able to achieve a satisfactory level of liquidity to meet the Company’s obligations for the next twelve months by generating cash through additional borrowings and/or sale of equity securities, as needed. However, there can be no assurance that the Company will be able to generate sufficient liquidity to maintain its operations. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following summary of significant accounting policies of the Company is presented to assist in the understanding of the Company’s financial statements. These accounting policies conform to GAAP in all material respects and have been consistently applied in preparing the accompanying consolidated financial statements.

Interim Financial Statements

The accompanying unaudited interim condensed consolidated financial statements and related notes have been prepared in accordance with GAAP for interim financial information, and in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) with respect to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The unaudited interim condensed consolidated financial statements furnished reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2022 filed with the SEC on April 13, 2023.

Principles of Consolidation

The consolidated financial statements for June 30, 2023 and 2022, respectively, include the accounts of Company, and its wholly-owned subsidiaries OXYS Corporation and HereLab, Inc. All significant intercompany balances and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of accounts payable, accrued liabilities and payable to related parties. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Basic and Diluted Earnings (Loss) Per Common Share

The Company computes earnings (loss) per share in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”), ASC 260, “Earnings per Share”. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible note and preferred stock 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 or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.

Revenue Recognition

The Company’s revenue is derived primarily from providing services under contractual agreements. The Company recognizes revenue in accordance with ASC Topic No. 606, Revenue from Contracts with Customers (“ASC 606”) which was adopted on January 1, 2018.

According to ASC 606, the Company recognizes revenue based on the following criteria:

The Company used a practical expedient available under ASC 606-10-65-1(f)4 that permits it to consider the aggregate effect of all contract modifications that occurred before the beginning of the earliest period presented when identifying satisfied and unsatisfied performance obligations, transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations.

The Company has elected to treat shipping and handling activities as cost of sales. Additionally, the Company has elected to record revenue net of sales and other similar taxes.

Recent Accounting Pronouncements

Accounting standards that have been issued or proposed by FASB and do not require adoption until a future date, are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

NOTE 3 - NOTE RECEIVABLE

On April 4, 2022, the Company was issued an unsecured convertible promissory note with the principal sum of $200,000 (“Note”) with a company incorporated under the laws of the Province of British Columbia. The Note bears an original issuance discount of $7,500 and matures on April 4, 2024. The interest on the Note will begin to accrue at the rate of 10% per annum from the date of the Note, and will continue to accrue on the outstanding principal until the entire balance is paid or converted into shares of common stock equal to 3.23% of the fully diluted share capital of the borrower on the conversion date. The terms of the Note require the borrower to prepay (i) within 30 days of April 4, 2022, the first twelve months of interest totaling $20,000, and (ii) within six months of April 4, 2022, the interest for the second twelve months under the Note totaling $20,000. The Company will have the right, at its option on the maturity date, to convert all the principal sum into the common stock equal to 3.23% of the fully diluted share capital of the borrower as of the conversion date. On April 4, 2022, the Company advanced to the borrower $192,500 cash and recorded an original issuance discount on note receivable of $7,500. On April 21, 2022, the Company received $20,000 as prepaid interest from the borrower for the first twelve months of the Note.

The Company recorded interest income earned on the Note of $5,921 and $11,777 for the three months and six months ended June 30, 2023, and $5,661 and $5,661 for the three months and six months ended June 30, 2022. The Company recorded unearned interest of $0 and $5,151, and unamortized original debt discount of $2,856 and $4,716 at June 30, 2023 and December 31, 2022, respectively.

NOTE 4 - INTANGIBLE ASSETS

The Company’s intangible assets comprise of intellectual property revolving around their field tests, sensor integrations, and board designs. Intangible assets, net of amortization amounted to $224,038 and $248,585 at June 30, 2023 and December 31, 2022, respectively. 

The Company determined that none of its intangible assets were impaired as of June 30, 2023 and December 31, 2022, respectively, Amortizable intangible assets are amortized using the straight-line method over their estimated useful lives of ten years. Amortization expense of finite-lived intangibles was $12,341 and $12,341 for the three months ended June 30, 2023 and 2022, respectively. Amortization expense of finite-lived intangibles was $24,547 and $24,547 for the six months ended June 30, 2023 and 2022, respectively.

The following table summarizes the Company’s estimated future amortization expense of intangible assets with finite lives as of June 30, 2023: 

NOTE 5 - COMMITMENTS AND CONTINGENCIES

In prior years, the Company entered into consulting agreements with one director, three executive officers, and one engineer of the Company, which include commitments to issue shares of the Company’s common stock from the Company’s 2017 Stock Incentive Plan and 2019 Stock Incentive Plans. All the consulting agreements have been terminated and shares have been issued in conjunction with the related separation agreements. According to the terms of the agreements, 3,547,788 shares were vested and issued per the Company’s 2017 Stock Incentive Plan as of June 30, 2023 and December 31, 2022, and 3,080,000 shares and 2,980,000 shares were vested and issued per the Company’s 2019 Stock Incentive Plan as of June 30, 2023 and December 31, 2022, respectively.

In the event that the agreement is terminated by either party pursuant to the terms of the agreement, all unvested shares which have been earned shall vest on a pro-rata basis as of the effective date of the termination of the agreement and all unearned, unvested shares shall be terminated. The value of the shares was assigned at fair market value on the effective date of the agreement and the pro-rata number of shares earned was calculated and amortized at the end of each reporting period.

On March 18, 2022, the Company adopted 2022 Stock Incentive Plan and reserved for issuance 20,000,000 shares of common stock for incentivizing its management team.

Employment Agreement – CEO/Interim CTO

On June 2, 2022, the Board approved an Employment Agreement with the CEO/Interim CTO dated effective April 1, 2022 whereby, the CEO will receive an annual salary of $100,000 which accrues unless converted into shares of common stock of the Company at a stipulated conversion rate. If the Company reaches $1,000,000 in cumulative sales over a 12-month period, the annual salary will increase to $150,000 commencing the following month. If the Company reaches $5,000,000 in cumulative sales over a 12-month period, the annual salary will increase to $200,000 commencing the following month. The Company awarded the CEO an aggregate of 7,000,000 shares of the Company’s common stock under the 2022 Stock Incentive Plan, which will vest (i) 1,500,000 shares on April 1, 2023, (ii) 2,500,000 shares on April 1, 2024, and (iii) 3,000,000 shares on April 1, 2025. The shares are valued at the 90% of the average market price of the shares of 30 trading days at the end of each quarter. As of June 30, 2023, 1,500,000 shares of the common stock were vested and payable to the CEO, and 5,500,000 shares of common stock remain unvested. The Company has recorded $142,424 in salaries payable to the CEO as of June 30, 2023 and December 31, 2022, respectively.

Employment Agreement – COO/Interim CFO

On June 2, 2022, the Board approved an Employment Agreement with the COO/Interim CFO dated effective April 1, 2022, whereby, the officer will receive an annual salary of $100,000 which accrues unless converted into shares of common stock of the Company at a stipulated conversion rate. If the Company reaches $1,000,000 in cumulative sales over a 12-month period, the annual salary will increase to $150,000 commencing the following month. If the Company reaches $5,000,000 in cumulative sales over a 12-month period, the annual salary will increase to $200,000 commencing the following month. The Company awarded the COO/Interim CFO an aggregate of 7,000,000 shares of the Company common stock under the 2022 Stock Incentive Plan, which will vest (i) 1,500,000 shares on April 1, 2023, (ii) 2,500,000 shares on April 1, 2024, and (iii) 3,000,000 shares on April 1, 2025. The shares are valued at the 90% of the average market price of the shares of 30 trading days at the end of each quarter. As of June 30, 2023, 1,500,000 shares of the common stock were vested and payable to the officer, and 5,500,000 shares of common stock remain unvested The Company recorded $121,092 in salaries payable to the COO/Interim CFO as of June 30, 2023 and December 31, 2022, respectively.

NOTE 6 - CONVERTIBLE NOTES PAYABLE

The following table summarizes the outstanding balance of convertible notes payable, interest and conversion rates as of June 30, 2023 and December 31, 2022, respectively. 

A. January 18, 2018 Convertible Note and Warrants (“Note A”)

On March 14, 2022, the noteholder of Note A agreed to extend the maturity date of March 1, 2022 of the Senior Secured Convertible Promissory Note to March 1, 2023, in exchange for the reduction of the conversion price to $0.008 per share, and all prior Events of Default (as defined in the Note A) including penalties were waived, and all future Events of Default (as defined in the Note A) pertaining to the future payment of interest were waived through maturity. The Company was in default with the terms of the Note A as of June 30, 2023 and negotiated with the noteholder to extend the maturity date to cure the default on July 21, 2023 (See Note 10 – Subsequent Events).

The Company recorded interest expense of $6,133 and $12,199 for the three months and six months ended June 30, 2023, and $7,701 and $16,430 for the three months and six months ended June 30, 2022, respectively. Accrued interest payable on Note A was $172,067 and $159,868 as of June 30, 2023 and December 31, 2022, respectively.

The principal balance payable on Note A amounted to $205,000 on June 30, 2023 and December 31, 2022, respectively.

B. January 2019 Convertible Note and Warrants (“Note B”)

Effective March 1, 2021, the noteholder of Note B agreed to extend the maturity date of March 1, 2021 of the Secured Convertible Promissory Note to March 1, 2024, and all prior Events of Default (as defined in the Note B) including penalties were waived, and all other terms of the Note B remain the same.

The Company recorded interest expense of $686 and $1,364 on Note B for the three months and six months ended June 30, 2023, and $678 and $1,364 for the three months and six months ended June 30, 2022, respectively. Accrued interest payable on Note B was $12,206 and $10,842 as of June 30, 2023 and December 31, 2022, respectively.

The principal balance payable on Note B amounted to $55,000 on June 30, 2023 and December 31, 2022, respectively.

D. March 2019 Convertible Note and Warrants (“Note D”)

On March 14, 2022, the noteholder of Note D agreed to extend the maturity date of March 1, 2022 of the Senior Secured Convertible Promissory Note to March 1, 2023, in exchange for the reduction of the conversion price to $0.008 per share, and all prior Events of Default (as defined in the Note D) including penalties were waived, and all future Events of Default (as defined in the Note D) pertaining to the future payment of interest were waived through maturity. The Company was in default with the terms of the Note D as of June 30, 2023 and negotiated with the noteholder to extend the maturity date to cure the default on July 21, 2023 (See Note 10 – Subsequent Events).

The Company recorded interest expense of $1,496 and $2,975 on Note D for the three months and six months ended June 30, 2023, and $1,496 and $2,975 for the three months and six months ended June 30, 2022, respectively. Accrued interest payable on Note D was $23,673 and $20,698 as of June 30, 2023 and December 31, 2022, respectively.

The principal balance payable on Note D amounted to $50,000 on June 30, 2023 and December 31, 2022, respectively.

E. August 2019 Convertible Note and Warrants (“Note E”)

On August 2, 2021, the noteholder of Note E agreed to extend the maturity date of the Secured Convertible Promissory Note to August 2, 2024. All other terms and conditions of the Note E remain the same.

The Company recorded interest expense of $3,740 and $7,438 on Note E for the three months and six months ended June 30, 2023, and $3,740 and $7,438 for the three months and six months ended June 30, 2022, respectively. Accrued interest payable on Note E was $56,128 and $48,690 as of June 30, 2023 and December 31, 2022, respectively.

The principal balance payable on Note E amounted to $125,000 on June 30, 2023 and December 31, 2022, respectively.

F. July 2020 Equity Financing Arrangement (“Note F”)

On April 29, 2022, the noteholder of Note F agreed to extend the maturity date of the Secured Convertible Promissory Note to April 29, 2023. All other terms and conditions of the Note F remain the same. On March 23, 2023, the noteholder of Note F converted the principal balance of its convertible promissory note of $25,814 and $7,186 of accrued interest into 17,837,838 shares of common stock of the Company valued at the fair value of $0.00185 per share. On April 27, 2023, the noteholder of Note F converted the remaining principal balance of $7,353 and accrued interest of $71 into 4,949,507 shares of common stock of the Company valued at the fair value of $0.0015 per share.

The Company recorded interest expense of $71 and $828 on Note F for the three months and six months ended June 30, 2023, and $827 and $1,645 for the three months and six months ended June 30, 2022, respectively. Accrued interest payable on Note F was $0 and $5,029 as of June 30, 2023 and December 31, 2022, respectively.

The principal balance payable on Note F amounted to $0 and $33,167 on June 30, 2023 and December 31, 2022, respectively.

G . July 2020 Equity Financing Arrangement (“Note G”)

On April 29, 2022, the noteholder of Note G agreed to extend the maturity date of the Secured Convertible Promissory Note to April 29, 2023. On May 1, 2023, the noteholder of Note G agreed to extend the maturity date of the Secured Convertible Promissory Note to April 29, 2025. All other terms and conditions of the Note G remain the same.

The Company recorded interest expense of $1,870 and $3,719 on Note G for the three months and six months ended June 30, 2023, and $1,870 and $3,719 for the three months and six months ended June 30, 2022, respectively. Accrued interest payable on Note G was $19,559 and $17,240 as of June 30, 2023 and December 31, 2022, respectively.

The principal balance payable of Note G amounted to $75,000 at June 30, 2023 and December 31, 2022, respectively.

NOTE 7 - EARNINGS (LOSS) PER SHARE

The following table sets forth the computation of basic and diluted net loss per share of common stock for the three months ended June 30, 2023 and 2022: 

Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted-average number of common shares and common share equivalents outstanding for the period. Common stock equivalents are only included when their effect is dilutive. The Company’s potentially dilutive securities which include stock options, convertible debt, convertible preferred stock and common stock warrants have been excluded from the computation of diluted net loss per share as they would be anti-dilutive. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares outstanding due to the Company’s net loss position.

The following outstanding common stock equivalents have been excluded from diluted net loss per common share for the six months ended June 30, 2023 and 2022, respectively, because their inclusion would be anti-dilutive: 

NOTE 8 - RELATED PARTIES

At June 30, 2023 and December 31, 2022, respectively, the amount due to two stockholders was $1,000 relating to depositing funds for opening bank accounts for the Company.

The Company executed an operating lease to rent its current office facility from a stockholder on a month-to-month basis at a monthly rent of $250 starting January 1, 2020. The Company recorded rent expense of $750 and $1,500 for the three months and six months ended June 30, 2023 and 2022, respectively. The Company has recorded $1,000 and $250 of rent payable to the stockholder in accounts payable as of June 30, 2023 and December 31, 2022, respectively.

NOTE 9 - STOCKHOLDERS' EQUITY

The Company has an authorized capital of 1,000,000,000 shares, $0.001 par value common stock, and 10,000,000 shares of $0.001 par value preferred stock at June 30, 2023. The Company has 406,815,293 shares 352,174,583 shares of common stock, and 25,845 shares and 25,845 shares of preferred stock, issued and outstanding as of June 30, 2023 and December 31, 2022, respectively.

Common Stock

Holders of shares of common stock are entitled to one vote for each share on all matters to be voted on by the stockholders. Holders of common stock do not have cumulative voting rights. Holders of common stock are entitled to share ratably in dividends, if any, as may be declared from time to time by the Board of Directors in its discretion from funds legally available, therefore. In the event of liquidation, dissolution, or winding up of the Company, the holders of common stock are entitled to share pro rata in all assets remaining after payment in full of all liabilities. All of the outstanding shares of common stock are fully paid and non-assessable. Holders of common stock have no preemptive rights to purchase the Company’s common stock. There are no conversion or redemption rights or sinking fund provisions with respect to the common stock.

On February 24, 2021, the Company entered into a Common Stock Purchase Agreement with an investor pursuant to which the investor agreed to purchase up to $5,000,000 of the Company’s registered common stock at $0.015 per share. Pursuant to the Agreement, purchases may be made by the Company during the Commitment Period (as defined in the Agreement) through the submission of a purchase notice to the investor no sooner than ten business days after the preceding closing. No purchase notice can be made in an amount less than $10,000 or greater than $500,000 or greater than two times the average of the daily trading dollar volume for the Company’s common stock during the ten business days preceding the purchase date. Each purchase notice is limited to the investor beneficially owning no more than 4.99% of the total outstanding common stock of the Company at any given time. There are certain conditions precedent to each purchase including, among others, an effective registration statement in place and the VWAP of the closing price of the Company’s common stock greater than $0.0175 for the Company's common stock during the five business days prior to the closing. From January 1, 2023 to March 31, 2023, the investor purchased 31,603,364 shares of common stock for a cash consideration of $54,196.

On February 10, 2023, the Company issued 50,000 shares of its common stock to a consultant for services. The common stock was valued at the fair market price of $215 on the date of issuance. The shares were issued under the Company’s 2019 Stock Incentive Plan.

On February 21, 2023, the Company issued 100,000 shares of its common stock to a consultant for services. The common stock was valued at the fair market price of $340 on the date of issuance. The shares were issued under the Company’s 2019 Stock Incentive Plan.

On March 13, 2023, the Company issued 100,000 shares of its common stock to a consultant for services. The common stock was valued at the fair market price of $270 on the date of issuance. The shares were issued under the Company’s 2019 Stock Incentive Plan.

On March 23, 2023, the noteholder of Note F converted the principal balance of $25,814 and accrued interest of $7,186 into 17,837,838 shares of common stock. The shares issued were valued at the fair value of common stock on the date of issuance.

On April 27, 2023, the noteholder of Note F converted the principal balance of $7,353 and accrued interest of $71 into 4,949,507 shares of common stock. The shares issued were valued at the fair value of common stock on the date of issuance.

Stock Incentive Plans

On December 14, 2017, the Board of Directors of the Company approved the 2017 Stock Incentive Plan (the “2017 Plan”). Awards may be made under the 2017 Plan for up to 4,500,000 shares of common stock of the Company. All of the Company’s employees, officers and directors, as well as consultants and advisors to the Company are eligible to be granted awards under the 2017 Plan. No awards can be granted under the 2017 Plan after the expiration of 10 years from the plan approval but awards previously granted may extend beyond that date. Awards may consist of both incentive and non-statutory options, restricted stock units, stock appreciation rights, and restricted stock awards.

On March 11, 2019, the Board of Directors of the Company approved the 2019 Stock Incentive Plan (the “2019 Plan”). Awards may be made under the 2019 Plan for up to 5,000,000 shares of common stock of the Company. All of the Company’s employees, officers and directors, as well as consultants and advisors to the Company are eligible to be granted awards under the 2019 Plan. No awards can be granted under the 2019 Plan after the expiration of 10 years from the plan approval but awards previously granted may extend beyond that date. Awards may consist of both incentive and non-statutory options, restricted stock units, stock appreciation rights, and restricted stock awards.

On March 18, 2022, the Board of Directors approved and adopted the 2022 Stock Incentive Plan (the “2022 Plan”). Awards may be made under the 2022 Plan for up to 20,000,000 shares of common stock of the Company, subject to adjustment as to the number and kind of shares awarded. Only employees and directors of the Company or an Affiliated company are eligible to receive Incentive Options under the 2022 Plan. The Company awarded 7,000,000 shares of the Company’s common stock to an officer and 7,000,000 shares of common stock to a director of the Company (see Note 4) vesting 1,500,000 shares vesting on the first anniversary on the date of issuance, 2,500,000 shares vesting on the second anniversary of the date of issuance, and 3,000,000 shares on the third anniversary of the date of issuance. In addition, on October 3, 2022, the Company awarded 300,000 shares of common stock to an advisor vesting 100,000 shares on the first anniversary date of issuance, 100,000 shares vesting on the second anniversary, and the remaining 100,000 vesting the third anniversary of the date of issuance. The common shares vested pursuant to the 2022 Plan amounted to 3,000,000 shares and 0 shares at June 30, 2023 and December 31, 2022, and the 11,300,000 shares remain unvested as of June 30, 2023. For the three months and six months ended June 30, 2023, the Company recorded $1,271 and $3,006 as stock compensation expense for the 747,945 shares and 1,488,942 shares payable to an officer and a director that remain unvested as of June 30, 2023. Total shares payable to an officer, consultant and a director totaled 3,756,164 shares and 2,568,493 shares at June 30, 2023 and December 31, 2022, respectively.

Shares earned and issued related to the consulting agreements are issued under the 2017 Stock Incentive Plan and the 2019 Stock Incentive Plan (Note 4). Vesting of the shares is subject to acceleration of vesting upon the occurrence of certain events such as a Change of Control (as defined in the agreement) or the listing of the Company’s common stock on a senior exchange.

A summary of the status of the Company’s non-vested shares as of June 30, 2023 and 2022, and changes during the three months period then ended, is presented below: 

Preferred Stock

Series A Supervoting Convertible Preferred Stock

On July 2, 2020, the Board of Directors of the Company authorized the issuance of 15,600 shares of preferred stock, $0.001 par value per share, designated as Series A Supervoting Convertible Preferred Stock.

Dividends: Initially, there will be no dividends due or payable on the Series A Supervoting Preferred Stock. Any future terms with respect to dividends shall be determined by the Board consistent with the Corporation’s Articles of Incorporation.

Liquidation and Redemption Rights: Upon the occurrence of a Liquidation Event (as defined below), the holders of Series A Supervoting Preferred Stock are entitled to receive net assets on a pro-rata basis. Each holder of Series A Supervoting Preferred Stock is entitled to receive ratably any dividends declared by the Board, if any, out of funds legally available for the payment of dividends. Liquidation Event means (i) the liquidation, dissolution or winding-up, whether voluntary or involuntary, of the corporation, (ii) the purchase or redemption by the corporation of the shares of any class of stock or the merger or consolidation of the corporation with or into any other corporation or corporations, or (iii) the sale, license or lease of all or substantially all, or any material part of, the Corporation’s assets.

Conversion: Each holder of Series A Supervoting Preferred Stock may voluntarily convert its shares into shares of common stock of the Corporation at a rate of 1:100 (as may be adjusted for any combinations or splits with respect to such shares).

Rank: All shares of the Series A Supervoting Preferred Stock shall rank senior to the Corporation’s (A) common stock, par value $0.001 per share, and any other class or series of capital stock of the Corporation hereafter created.

Voting Rights:

With respect to all matters upon which stockholders are entitled to vote or to which stockholders are entitled to give consent, the holders of the outstanding shares of Series A Super Voting Preferred Stock shall vote together with the holders of Common Stock without regard to class, except as to those matters on which separate class voting is required by applicable law or the Articles of Incorporation or Bylaws.

The Company had 25,845 shares of preferred stock issued and outstanding at June 30, 2023 and December 31, 2022, respectively.

Series B Convertible Preferred Stock Equity Financing

On November 16, 2020, the Board of Directors of the Company authorized the issuance of up to 600 shares of preferred stock, $0.001 par value per share, designated as Series B Convertible Preferred Stock. Each share of Preferred Stock has a par value of $0.001 per share and a stated value of $1,200, subject to increase set forth in the Certificate of Designation.

Dividends: Each share of Series B Convertible Preferred Stock shall be entitled to receive, and the Corporation shall pay, cumulative dividends of 12% per annum, payable quarterly, beginning on the Original Issuance Date and ending on the date that such share of Series B Convertible Preferred Share has been converted or redeemed (the “Dividend End Date”). Dividends may be paid in cash or in shares of Series B Convertible Preferred Stock. From and after the initial Closing Date, in addition to the payment of dividends pursuant to Section 2(a), each Holder shall be entitled to receive, and the Corporation shall pay, dividends on shares of Series B Convertible Preferred Stock equal to (on an as-if-converted-to-Common-Stock basis) and in the same form as dividends actually paid on shares of the common stock when, as and if such dividends are paid on shares of the common stock. The Corporation shall pay no dividends on shares of the common stock unless it simultaneously complies with the previous sentence.

Voting Rights: The Series B Convertible Preferred Stock will vote together with the common stock on an as converted basis subject to the Beneficial Ownership Limitations (not in excess of 4.99% conversion limitation). However, as long as any shares of Series B Convertible Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of the Series B Convertible Preferred Stock directly and/or indirectly (a) alter or change adversely the powers, preferences or rights given to the Series B Convertible Preferred Stock or alter or amend this Certificate of Designation, (b) authorize or create any class of stock ranking as to redemption or distribution of assets upon a Liquidation (as defined in Section 5) senior to, or otherwise pari passu with, the Series B Convertible Preferred Stock or, authorize or create any class of stock ranking as to dividends senior to, or otherwise pari passu with, the Series B Convertible Preferred Stock, (c) amend its Articles of Incorporation or other charter documents in any manner that adversely affects any rights of the Holders, (d) increase the number of authorized shares of Series B Convertible Preferred Stock, or (e) enter into any agreement with respect to any of the foregoing.

Liquidation: Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to the Stated Value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereon under this Certificate of Designation, for each share of Series B Convertible Preferred Stock before any distribution or payment shall be made to the holders of any Junior Securities, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Holders shall be ratably distributed among the Holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.

Conversion: Each share of Series B Convertible Preferred Stock shall be convertible, at any time and from time to time from and after the Original Issue Date at the option of the Holder thereof, into that number of shares of common stock (subject to the limitations) determined by dividing the Stated Value of such share of Series B Convertible Preferred Stock by the Conversion Price. The Conversion Price for the Series B Convertible Preferred Stock shall be the amount equal to the lowest traded price for the Company’s common stock for the fifteen (15) Trading Days immediately preceding the date of such conversion. All such foregoing determinations will be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction that proportionately decreases or increases the common stock during such measuring period. Following an event of default, the Conversion price shall equal the lower of: (a) the then applicable Conversion Price; or (b) a price per share equaling 80% of the lowest traded price for the Company’s common stock during the ten (10) trading days preceding the relevant Conversion.

Redemption: The Series B Convertible Preferred Stock may be redeemed by payment of the stated value thereof, with the following premiums based on the time of the redemption.

November 19, 2020

On November 19, 2020, pursuant to the terms of a Securities Purchase Agreement dated November 16, 2020 (the “SPA”), the Company entered into a new preferred equity financing agreement with GHS Investments, LLC (“GHS”) in the amount of up to $600,000. The SPA provides for GHS’s purchase, from time to time, of up to 600 shares of the newly-designated Series B Convertible Preferred Stock. The initial closing under the SPA consisted of 45 shares of Series B Convertible Preferred Stock, stated value $1,200 per share, issued to GHS for an initial purchase price of $45,000, or $1,000 per share. At the Company’s option, and subject to the terms of the SPA and the Certificate of Designation for the Series B Convertible Preferred Stock (the “COD”), additional closings in the amount of 40 shares of Series B Convertible Preferred Stock for a total purchase price of $40,000 may take place at a rate of up to once every 30 days. In connection with the initial closing in the amount of 45 shares of Series B Convertible Preferred Stock, the Company issued an additional 25 shares of Series B Convertible Preferred Stock to GHS as a commitment fee.

No additional closings may take place after the two-year anniversary of the SPA, or once the entire $600,000 amount has been funded. If the average daily dollar trading volume for the Company’s common stock for the 30 trading days preceding a particular additional closing is at least $50,000 per day, the Company may, at its option, increase the amount of that additional closing to 75 shares of Series B Convertible Preferred Stock ($75,000).

The Series B Convertible Preferred Stock is classified as temporary equity, as it is convertible upon issuance at an amount equal to the lowest traded price for the Company’s common stock for the fifteen trading days immediately preceding the date of conversion.

Based on the requirements of ASC 815, Derivatives and Hedging, the conversion feature represents an embedded derivative that is required to be bifurcated and accounted for as a separate derivative liability. The derivative liability is originally recorded at its estimated fair value and is required to be revalued at each conversion event and reporting period. Changes in the derivative liability fair value are reported in operating results each reporting period.

On November 19, 2020, GHS purchased a total of 70 shares of Series B Convertible Preferred Stock for gross proceeds of $45,000. The Company paid $900 in selling commissions to complete this financing.

On November 19, 2020 (the date of receipt of cash proceeds of $45,000 issuance), the Company valued the fair value of the derivative and recorded an initial derivative liability of $103,267, $58,267 as day one loss on the derivative, $39,000 as interest expense, and $39,000 as Series B Convertible Preferred Stock mezzanine liability, and $45,000 as amortization.

The Company recalculated the value of the derivative liability associated with this convertible preferred stock recording a loss of $23,960 and $24,159 for the three months and six months ended June 30, 2023, and a loss of $14,922 and gain of $3,147 for the three months and six months ended June 30, 2022, respectively, in connection with the change in fair market value of the derivative liability. The Company recorded $2,513 and $4,999 as preferred stock dividend expense for the three months and six months ended June 30, 2023, and $2,513 and $4,999 as preferred stock dividend for the three months and six months ended June 30, 2022. The Company recorded $26,319 and $21,320 as preferred stock dividend payable as of June 30, 2023 and December 31, 2022, respectively. Derivative liability payable for this transaction totaled $96,615 and $72,456 at June 30, 2023 and December 31, 2022, and Series B Convertible Preferred Stock mezzanine liability was $84,000 at June 30, 2023 and December 31, 2022, respectively.

The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0013 to $0.0141, the closing stock price of the Company's common stock on the date of valuation ranging from $0.0015 to $0.0184, an expected dividend yield of 0%, expected volatility ranging from 160.41% to 440.99%, risk-free interest rates ranging from 0.38% to 5.40%, and an expected term ranging from 0.13 years to 1.50 years.

December 16, 2020

On December 16, 2020, pursuant to the terms of the SPA, GHS purchased an additional 85 shares of Series B Convertible Preferred Stock for gross proceeds of $85,000. The Company paid $1,700 in selling commissions to complete this financing.

On December 16, 2020 (the date of receipt of cash proceeds of $85,000 issuance), the Company valued the fair value of the derivative and recorded an initial derivative liability of $106,241, $21,241 as day one loss on the derivative, $17,000 as interest expense, and $17,000 as Series B Convertible Preferred Stock mezzanine liability, and $85,000 as amortization.

The Company recalculated the value of the derivative liability associated with this convertible preferred stock recording a loss of $29,094 and $29,336 for the three months and six months ended June 30, 2023, and a loss of $11,897 and gain of $19,311 for the three months and six months ended June 30, 2022, in connection with the change in fair market value of the derivative liability. The Company recorded preferred stock dividend expense of $3,052 and $6,070 for the three months and six months ended June 30, 2023, and $3,052 and $6,070 for the three months and six months ended June 30, 2022. The Company recorded $31,053 and $24,983 as preferred stock dividend payable as of June 30, 2023 and December 31, 2022, respectively. Derivative liability payable for this transaction totaled $117,319 and 87,982 at June 30, 2023 and December 31, 2022, and Series B Convertible Preferred Stock mezzanine liability was $102,000 at June 30, 2023 and December 31, 2022, respectively.

The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0013 to $0.0141, the closing stock price of the Company's common stock on the date of valuation ranging from $0.0015 to $0.0184, an expected dividend yield of 0%, expected volatility ranging from 160.41% to 437.59%, risk-free interest rates ranging from 0.38% to 5.40%, and an expected term ranging from 0.21 years to 1.50 years.

December 20, 2021

On December 20, 2021, pursuant to the terms of the SPA, GHS purchased an additional 51 shares of Series B Convertible Preferred Stock for gross proceeds of $51,000. The Company paid $1,000 in selling commissions to complete this financing.

The Company recalculated the value of the derivative liability associated with this convertible preferred stock recording a loss of $17,457 and $17,602 for the three months and six months ended June 30, 2023, in connection with the change in fair market value of the derivative liability. The Company recorded preferred stock dividend expense of $1,831 and $3,642 for the three months and six months ended June 30, 2023. The Company recorded preferred stock dividend payable of $11,207 and $7,565 as of June 30, 2023 and December 31, 2022, respectively. Derivative liability payable for this transaction totaled $70,391 and $52,789 at June 30, 2023 and December 31, 2022 and Series B Convertible Preferred Stock mezzanine liability was $102,000 at June 30, 2023 and December 31, 2022, respectively.

The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0013 to $0.0050 the closing stock price of the Company's common stock on the date of valuation ranging from $0.0015 to $0.0070, an expected dividend yield of 0%, expected volatility ranging from 174.58% to 221.64%, risk-free interest rates ranging from 0.39% to 5.40%, and an expected term of 1.50 years.

February 7, 2022

On February 7, 2022, pursuant to the terms of the SPA, GHS purchased an additional 51 shares of Series B Convertible Preferred Stock for gross proceeds of $51,000. The Company paid $1,000 in selling commissions to complete this financing.

On February 7, 2022 (the date of receipt of cash proceeds of $51,000 issuance), the Company valued the fair value of the derivative and recorded an initial derivative liability of $65,025, $14,025 as day one loss on the derivative, $10,200 as interest expense, and $10,200 as Series B Convertible Preferred Stock mezzanine liability, and $51,000 as amortization.

The Company recalculated the value of the derivative liability associated with this convertible preferred stock recording a loss of $17,457 and $17,602 for the three months and six months ended June 30, 2023, and a gain of $15,870 and a loss of $1,058 for the three months and six months ended June 30, 2022, in connection with the change in fair market value of the derivative liability. The Company recorded preferred stock dividend expense of $1,831 and $3,642 for the three months and six months ended June 30, 2023, and preferred stock dividend expense of $1,831 and $2,877 for the three months and six months ended June 30, 2022. The Company recorded preferred stock dividend payable of $10,221 and $6,579 as of June 30, 2023 and December 31, 2022, respectively. Derivative liability payable for this transaction totaled $70,391 and $52,789 at June 30, 2023 and December 31, 2022 and Series B Convertible Preferred Stock mezzanine liability was $61,200 at June 30, 2023 and December 31, 2022, respectively.

The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0013 to $0.0096, the closing stock price of the Company’s common stock on the date of valuation ranging from $0.0015 to $0.0172, an expected dividend yield of 0%, expected volatility ranging from 160.35% to 189.90%, risk-free interest rates ranging from 1.09% to 5.40%, and an expected term of 1.35 to 1.5 years.

March 24, 2022

On March 24, 2022, pursuant to the terms of the SPA, GHS purchased an additional 136 shares of Series B Convertible Preferred Stock for gross proceeds of $136,000. The Company paid $2,720 in selling commissions to complete this financing.

On March 24, 2022 (the date of receipt of cash proceeds of $136,000 issuance), the Company valued the fair value of the derivative and recorded an initial derivative liability of $328,422, $192,422 as day one loss on the derivative, $27,200 as interest expense, and $27,200 as Series B Convertible Preferred Stock mezzanine liability, and $136,000 as amortization.

The Company recalculated the value of the derivative liability associated with the convertible note at June 30, 2023 and 2022, and recorded a loss of $46,551 and $46,938 for the three months and six months ended June 30, 2023 and 2022, and a gain of $47,006 and $152,201 for the three months and six months ended June 30, 2022, in connection with the change in fair market value of the derivative liability. In addition, the Company recorded preferred stock dividend expense of $4,883 and $9,712 for the three months and six months ended June 30, 2023, and $4,883 and $5,259 for the three months and six months ended June 30, 2022. Preferred stock dividend payable to GHS for this derivative totaled $24,843 and $15,131 at June 30, 2023 and December 31, 2022. Derivative liability payable for this transaction totaled $187,710 and $140,772 at June 30, 2023 and December 31, 2022, respectively, and Series B Convertible Preferred Stock mezzanine liability was $163,200 at June 30, 2023 and December 31, 2022.

The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0013 to $0.0096, the closing stock price of the Company’s common stock on the date of valuation ranging from $0.0015 to $0.0183, an expected dividend yield of 0%, expected volatility ranging from 160.35% to 189.90%, risk-free interest rates ranging from 1.55% to 5.40%, and an expected term of 1.48 to 1.5 years.

November 17, 2022

On November 17, 2022, pursuant to the terms of the SPA, GHS purchased an additional 61 shares of Series B Convertible Preferred Stock for gross proceeds of $61,000. The Company paid $1,220 in selling commissions to complete this financing.

On November 17, 2022 (the date of receipt of cash proceeds of $61,000 issuance), the Company valued the fair value of the derivative and recorded an initial derivative liability of $54,072, $6,928 as day one gain on the derivative, $12,200 as interest expense, and $12,200 as Series B Convertible Preferred Stock mezzanine liability, and $61,000 as amortization.

The Company recalculated the value of the derivative liability associated with the convertible note at June 30, 2023 and recorded a loss of $20,879 and $21,053 for the three months and six months ended June 30, 2023, in connection with the change in fair market value of the derivative liability. In addition, the Company recorded preferred stock dividend expense of $2,190 and $4,356 for the three months and six months ended June 30, 2023. Preferred stock dividend payable to GHS for this derivative totaled $5,415 and $1,059 at June 30, 2023 and December 31, 2022. Derivative liability payable for this transaction totaled $84,193 and $63,140 at June 30, 2023 and December 31, 2022, respectively, and Series B Convertible Preferred Stock mezzanine liability was $73,200 at June 30, 2023 and December 31, 2022.

The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0013 to $0.0020, the closing stock price of the Company’s common stock on the date of valuation ranging from $0.0015 to $0.0022, an expected dividend yield of 0%, expected volatility ranging from 174.58% to 189.90%, risk-free interest rates ranging from 4.64% to 5.40%, and an expected term of 1.5 years.

As a result of issuance of derivative instruments, the Company recorded a derivative liability of $626,563 and $469,873 as of June 30, 2023 and December 31, 2022, and Series B Convertible Preferred Stock liability of $544,800 as of June 30, 2023 and December 31, 2022, respectively.

Warrants

A summary of the status of the Company’s warrants as of June 30, 2023 and 2022, and changes during the six months then ended, is presented below: 

NOTE 10 – SUBSEQUENT EVENT

Management has evaluated subsequent events through the date of this Report, the date the financial statements were available to be issued, noting the following items that would impact the accounting for events or transactions in the current period or require additional disclosure.

On July 21, 2023, the Company and noteholders A and D agreed to amend the maturity date of the convertible promissory notes to March 1, 2024, subject to certain conditions with respect to voluntary conversions, conversion prices, incentive shares to be issued to the noteholders upon request from the noteholders (1^st incentive shares worth $20,000), and upon full conversion of the notes, the noteholder shall receive 2^nd incentive shares worth $50,000. The conversion price for the incentive shares shall be the volume weighted average price (VWAP) per common share for the previous ten (10) trading days (See Note 6 – Convertible Promissory Notes).

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contain certain forward-looking statements. Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events; are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited to, those discussed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022. We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements.

Basis of Presentation

The financial information presented below and the following Management Discussion and Analysis of the Consolidated Financial Condition, Results of Operations, Stockholders’ Equity and Cash Flow for the quarterly periods ended June 30, 2023 and 2022 gives effect to our acquisition of OXYS Corporation (“OXYS”) on July 28, 2017. In accordance with the accounting reporting requirements for the recapitalization related to the “reverse merger” of OXYS, the financial statements for OXYS have been adjusted to reflect the change in the shares outstanding and the par value of the common stock of OXYS. Additionally, all intercompany transactions between the Company and OXYS have been eliminated.

Forward-Looking Statements

Statements in this management’s discussion and analysis of financial condition and results of operations contain certain forward-looking statements. To the extent that such statements are not recitations of historical fact, such statements constitute forward looking statements which, by definition involve risks and uncertainties. Where in any forward-looking statements, if we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result or be achieved or accomplished.

Factors that may cause differences between actual results and those contemplated by forward-looking statements include those discussed in “Risk Factors” and are not limited to the following:

You should not rely on forward-looking statements in this document. This management’s discussion contains forward looking statements that involve risks and uncertainties. We use words such as “anticipates,” “believes,” “plans,” “expects,” “future,” “intends,” and similar expressions to identify these forward-looking statements. Prospective investors should not place undue reliance on these statements, which apply only as of the date of this document. Our actual results could differ materially from those anticipated in these forward-looking statements.

Critical Accounting Policies

The following discussions are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. These financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States.

The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingencies. We continually evaluate the accounting policies and estimates used to prepare the financial statements. We base our estimates on historical experiences and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management.

Trends and Uncertainties

On July 28, 2017, we closed the reverse acquisition transaction under the Securities Exchange Agreement dated March 16, 2017, as reported in our Current Report on Form 8-K filed with the Commission on August 3, 2017. Following the closing, our business has been that of OXYS, Inc. and HereLab, Inc., our wholly owned subsidiaries. Our operations have varied significantly following the closing since, prior to that time, we were an inactive shell company.

Impact of COVID-19

The global COVID-19 pandemic continues to present uncertainty and unforeseeable risks to the Company’s operations and business plan. The Company has closely monitored recent developments, including the lifting of COVID-19 safety measures, the spread of new strains or variants of the coronavirus (such as the Delta and Omicron variants), and supply chain and labor shortages. Thus, the full impact of the COVID-19 pandemic on the business and operations remains uncertain and will vary depending on the pandemic’s future impact on the third parties with whom the Company does business, as well as any legal or regulatory consequences resulting therefrom. The Company has been following the recommendations of health authorities to minimize exposure risk for its team members and may take further actions that alter our operations, including any required by federal, state or local authorities, or that it determines are in the best interests of its employees and other third parties with whom the Company does business.

Historical Background

We were incorporated in the State of New Jersey on October 1, 2003 under the name of Creative Beauty Supply of New Jersey Corporation and subsequently changed our name to Gotham Capital Holdings, Inc. on May 18, 2015. We commenced operations in the beauty supply industry as of January 1, 2004. On November 30, 2007, our Board of Directors approved a plan to dispose of our wholesale and retail beauty supply business. From January 1, 2009 until July 28, 2017, we had no operations and were a shell company.

On March 16, 2017, our Board of Directors adopted resolutions, which were approved by shareholders holding a majority of our outstanding shares, to change our name to “IIOT-OXYS, Inc.”, to authorize a change of domicile from New Jersey to Nevada, to authorize a 2017 Stock Awards Plan, and to approve the Securities Exchange Agreement (the “OXYS SEA”) between the Company and OXYS Corporation (“OXYS”), a Nevada corporation incorporated on August 4, 2016.

Under the terms of the OXYS SEA we acquired 100% of the issued voting shares of OXYS in exchange for 34,687,244 shares of our Common Stock. We also cancelled 1,500,000 outstanding shares of our Common Stock and changed our management to Mr. DiBiase who also served in management of OXYS. Also, one of our principal shareholders entered into a consulting agreement with OXYS to provide consulting services during the transition. The OXYS SEA was effective on July 28, 2017, and our name was changed to “IIOT-OXYS, Inc.” at that time. Effective October 26, 2017, our domicile was changed from New Jersey to Nevada.

At the present time, we have two, wholly-owned subsidiaries which are OXYS Corporation and HereLab, Inc. (an entity immaterial to our operations), through which our operations are conducted.

General Overview

IIOT-OXYS, Inc., a Nevada corporation (the “Company”), and OXYS, were originally established for the purposes of designing, building, testing, and selling Edge Computing systems for the Industrial Internet. Both companies were, and presently are, early-stage technology startups that are largely pre-revenue in their development phase. HereLab (an entity immaterial to our operations) is also an early-stage technology development company. We received our first revenues in the last quarter of 2017, continued to realize revenues until 2020 when the pandemic hit, and we realized nominal revenues through 2021, and have shown increased revenues in 2022, and 2023 year-to-date.

We develop hardware, software and algorithms that monitor, measure and predict conditions for energy, structural, agricultural and medical applications. We use domain-specific Artificial Intelligence to solve industrial and environmental challenges. Our engineered solutions focus on common sense approaches to machine learning, algorithm development and hardware and software products.

We use off the shelf components, with reconfigurable hardware architecture that adapts to a wide range of customer needs and applications. We use open-source software tools, while still creating proprietary content for customers, thereby reducing software development time and cost. The software works with the hardware to collect data from the equipment or structure that is being monitored.

We focus on developing insights. We develop algorithms that help our customers create insights from vast data streams. The data collected is analyzed and reports are created for the customer. From these insights, the customer can act to improve their process, product or structure.

Results of Operations for the Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022

For the three months ended June 30, 2023, we earned revenues of $35,289 and incurred related cost of sales of $8,495. Our operating expenses were $130,080 which included professional fees of $61,505, payroll costs of $54,151, amortization of intangible assets of $12,342, and general and administrative expenses of $2,082. We recorded net other expenses of $163,473 consisting of interest expense of $13,996, a loss due to change in fair market value of derivative liability of $155,398, offset by interest income on note receivable of $5,921. We also recorded $16,299 as preferred stock dividend on convertible preferred stock for the three months ended June 30, 2023. As a result, we incurred a net loss of $283,058 for the three months ended June 30, 2023.

Comparatively, for the three months ended June 30, 2022, we earned revenues of $16,500 and incurred related cost of sales of $510. Our operating expenses were $229,962 which included professional fees of $68,184, payroll costs of $130,290, amortization of intangible assets of $12,341, and general and administrative expenses of $19,147. We recorded net other income of $25,399, consisting of interest expense of $16,319 on notes payable due to amortization of debt discount and interest payable on notes payable, offset by gain on change in the fair market value of derivative liability of $36,057, and interest income on note receivable of $5,661. We also recorded $12,280 as preferred stock dividend on convertible preferred stock for the three months ended June 30, 2022. As a result, we incurred a net loss of $200,853 for the three months ended June 30, 2022.

During the current and prior period, we did not record an income tax benefit due to the uncertainty associated with the Company’s ability to utilize the deferred tax assets.

Results of Operations for the Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022

For the six months ended June 30, 2023, we earned revenues of $78,572 and incurred related cost of sales of $25,459. Our operating expenses were $308,485 which included professional fees of $124,167, payroll costs of $140,258, amortization of intangible assets of $24,547, and general and administrative expenses of $19,513. We recorded net other expenses of $173,437 consisting of interest expense of $28,524, and a loss due to change in fair market value of derivative liability of $156,690, offset by interest income on note receivable of $11,777. We also recorded $32,419 as preferred stock dividend on convertible preferred stock for the six months ended June 30, 2023. As a result, we incurred a net loss of $461,228 for the six months ended June 30, 2023.

Comparatively, for the six months ended June 30, 2022, we earned revenues of $16,500 and related cost of sales of $510. Our operating expenses were $409,177 which included professional fees of $107,739, payroll costs of $240,948, amortization of intangible assets of $24,547, and general and administrative expenses of $35,943. We recorded net other expenses of $308,117, consisting of interest expense of $263,691 on notes payable due to amortization of debt discount and interest payable on notes payable, loss on derivates of $201,943, offset by gain on change in the fair market value of derivative liability of $151,856 and interest income on note receivable of $5,661. We also recorded $24,708 as preferred stock dividend on convertible preferred stock for the six months ended June 30, 2022. As a result, we incurred a net loss of $726,012 for the six months ended June 30, 2022.

During the current and prior period, we did not record an income tax benefit due to the uncertainty associated with the Company’s ability to utilize the deferred tax assets.

The first half year of revenue in 2023 was a significant improvement over the same period in 2022 (an increase of 376%) and sustained the revenue momentum achieved throughout 2022. We expect this momentum achieved in the first half of 2023 will continue through the remainder of 2023 – given adequate funding to fuel sales & marketing efforts. Our strong six months revenue and our confidence this momentum will continue through 2023, and beyond, are based on the following factors:

We believe that our business development in these industries has high potential for success, due to the strength of their size and growth. The global smart manufacturing (also known as Industry 4.0) was $97.6 billion in 2022 and will reach $228.3 billion by 2027 (CAGR 18.5%),¹ and the worldwide SHM industry was $2.0 billion in 2021 and will reach $4.0 billion by 2027 (CAGR of 14.6%).²

Among our many tailwinds, we do face a significant headwind. Since February, we have been unable to raise funds for ongoing operations through our existing financing agreements due to market conditions. Our CEO and COO have not received any compensation since mid-April (their salaries have accrued), and the lack of funds have significantly limited sales and marketing efforts. Our management is working to secure funding from our lead investor to pay for ongoing expenses and the leadership team is considering many options for both the short and long term. These options will depend largely upon our ability to continue to raise funds and implement a marketing and sales plan. In the event we are unable to raise adequate funds, management may need to consider other options such as pursuing suitable companies to merge with or acquire us.

It is anticipated that revenue momentum will continue through the second quarter of 2023 and that overall total revenue for 2023 will exceed that of 2022. Revenue in Q3 2023 may be less than in the same period in 2022 due to reduced available funds for sales and marketing efforts. However, given the valuable real-world data we have collected, our Artificial Intelligence (“AI”) Machine Learning algorithms we’ve developed, compelling use cases and marketing collateral developed from our data and algorithms, combined with our experienced leadership, savvy technological talent, and operational execution excellence, we believe these goals are achievable, if adequate funding for sales and marketing efforts is secured.

Liquidity and Capital Resources for the Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022

At June 30, 2023, we had a cash balance of $7,896, which represents a $25,440 reduction from the $33,336 cash balance at December 31, 2022. This decrease was primarily as a result of net cash used in operating activities of $78,551, and net cash provided by financing activities of $53,111.

Operating Activities

Net cash flows used in operating activities for the six months ended June 30, 2023 was $78,551, primarily attributed to the net loss of $461,228, stock compensation expense of $825, discount received on note receivable of $1,860, and amortization of intangible assets of $24,547. The Company recorded changes in operating assets and liabilities of $359,166 primarily attributable to decrease in accounts receivable of $3,588, increase in prepaid expenses and other current assets of $4,987, increase in accounts payable of $81,559, increase in accrued liabilities of $80,574, increase in derivative liabilities of $156,690, decrease in unearned interest of $2,932, increase in shares payable to related parties of $3,006, and increase in salaries payable to related parties of $41,667.

^[1] https://www.marketsandmarkets.com/Market-Reports/industry-4-market-102536746.html

^[2] https://www.marketsandmarkets.com/Market-Reports/structural-health-monitoring-market-101431220.html

Net cash flows used in operating activities for the six months ended June 30, 2022 was $346,823, primarily attributable to net loss of $726,012, stock compensation expense of $900, discount on note receivable of $6,606, amortization of debt discount on notes payable and preferred stock of $37,400, and amortization of intangible assets of $24,547. The Company recorded a net change in operating assets and liabilities of $309,736 attributable to net increase in accounts receivable of $16,500, net decrease in accounts payable of $4,371, net increase in accrued liabilities of $53,280, net increase in derivative liabilities of $241,591, increase in unearned interest of $15,233, net increase in shares payable to related parties of $8,604, and increase in salaries payable to related parties of $11,899.

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2023 was $0. Net cash used in investing activities for the six months ended June 30, 2022 resulted due to cash advanced for a promissory note totaling $200,000.

Financing activities

Net cash provided by financing activities for the six months ended June 30, 2023 was $53,111, primarily due to sales of our common stock of $54,195 and paying $1,084 in costs incurred in raising capital. Net cash provided by financing activities for the six months ended June 30, 2022 was $573,498 primarily due to cash received from sale of common stock of $393,365 and paying $7,867 in costs for raising capital, and cash received from sale of Series B Preferred Stock of $188,000.

As a result of the above activities, the Company recorded a decrease of $25,440 in cash for the six months ended June 30, 2023, and an increase of $26,675 for the six months ended June 30, 2022, respectively.

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has suffered continuing operating losses, has a working capital deficit of $1,931,009, used cash flows in operating activities of $78,551, and has an accumulated deficit of $9,768,365 as of June 30, 2023. These factors, among others, raise a substantial doubt about the Company’s ability to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity capital expenditures or capital resources.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, the Company has elected not to provide the disclosure required by this item.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Company has established disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and, as such, is accumulated and communicated to the Company’s Chief Executive Officer, Clifford L. Emmons, who serves as our principal executive officer, and to the Company’s Interim Chief Financial Officer, Karen McNemar, who serves as our principal financial and accounting officer, as appropriate to allow timely decisions regarding required disclosure. Mr. Emmons and Ms. McNemar, evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, as of June 30, 2023. Based on their evaluation, Mr. Emmons and Ms. McNemar concluded that the Company’s disclosure controls and procedures were not effective as of June 30, 2023.

Changes in Internal Control Over Financial Reporting

There has been no change in the Company’s internal control over financial reporting, as defined in Rules 13a-15(f) of the Exchange Act, during the Company’s quarter ended June 30, 2023, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

Item 6. Exhibits

*Filed with this Report.

**Furnished with this Report.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.