IIOT-OXYS, Inc 10-Q for FY2022 Q3
IIOT-OXYS, Inc. (ITOX)
About this 10-Q
IIOT-OXYS, Inc filed this 10-Q on November 14, 2022, covering the quarter ended September 30, 2022 (FY2022 Q3).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $23K
- up 335.7% from $5280 a year earlier
- Net loss
- $42.3K
- compared with a net loss of $325.81K a year earlier
- Diluted EPS
- $0.00
- compared with $0.00 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the quarterly period ended |
Or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the transition period from _______________________to___________________________ |
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Not applicable | Not applicable | Not applicable |
Indicate by check mark whether the registrant 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).
Yes ☒ No ☐
Indicate by check mark whether the registrant has been subject to such filing requirements for the past 90 days.
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).
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.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
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 ☐
The number of shares outstanding of the registrant’s common stock on November 9, 2022, was .
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.
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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
IIOT-OXYS, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Note receivable, net of discount of $ | ||||||||
| Intangible assets, net | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Deferred revenue | ||||||||
| Notes payable, net of discounts of $ | ||||||||
| Salaries payable to related parties | ||||||||
| Shares payable to officers | ||||||||
| Unearned interest | ||||||||
| Derivative liability | ||||||||
| Total Current Liabilities | ||||||||
| Notes payable | ||||||||
| Due to stockholders | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 4) | ||||||||
| Series B convertible preferred stock, shares designated, $0.001 par value, $ stated value; shares and shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively. Liquidation Preference $ | ||||||||
| Stockholders' Equity (Deficit) | ||||||||
| Preferred Stock, $ Par Value, shares authorized; shares and shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively | ||||||||
| Common Stock $ par value, shares authorized; Shares and Shares Issued and Outstanding at September 30, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders' Equity (Deficit) | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders' Equity (Deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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IIOT-OXYS, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of Sales | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| Amortization of intangible assets | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Other Income (Expense) | ||||||||||||||||
| Gain (Loss) on change in fair value of derivative liability | ( | ) | ||||||||||||||
| Loss on derivatives | ( | ) | ( | ) | ||||||||||||
| Gain (loss) on extinguishment of debt | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income | ||||||||||||||||
| Total Other Income (Expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net Income (Loss) Before Income Taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income tax | ||||||||||||||||
| Net Income (Loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Convertible Preferred Stock Dividend | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Income (Loss) Attributable to Common Stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net Income (Loss) Per Share Attributable to Common Stockholders - Basic and Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted Average Shares Outstanding Attributable to Common Stockholders - Basic and Diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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IIOT-OXYS, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
(Unaudited)
For the three months ended September 30, 2022
| Preferred Stock | Common Stock | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders' Equity (Deficit) | ||||||||||||||||||||||
| Balance - June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Common Stock Issued for Financing Commitments | – | |||||||||||||||||||||||||||
| Sales commissions paid on capital raise | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance - September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
For the nine months ended September 30, 2022
| Preferred Stock | Common Stock | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders' Equity (Deficit) | ||||||||||||||||||||||
| Balance - December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Common Stock Issued for Financing Commitments | – | |||||||||||||||||||||||||||
| Sales commissions paid on capital raise | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Common Stock Issued for Services | – | |||||||||||||||||||||||||||
| Common stock issued for conversion of convertible note payables | – | |||||||||||||||||||||||||||
| Beneficial Conversion Feature Associated with Discounts | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Net Loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance - September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
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For the three months ended September 30, 2021
| Preferred Stock | Common Stock | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders' Equity (Deficit) | ||||||||||||||||||||||
| Balance - June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Common stock issued for conversion of convertible note payables | – | |||||||||||||||||||||||||||
| Common stock sold for cash | – | |||||||||||||||||||||||||||
| Commission paid for raising capital | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance - September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
For the nine months ended September 30, 2021
| Preferred Stock | Common Stock | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders' Equity (Deficit) | ||||||||||||||||||||||
| Balance - December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Common stock issued for conversion of convertible note payables | – | |||||||||||||||||||||||||||
| Common stock sold for cash | – | |||||||||||||||||||||||||||
| Beneficial conversion feature discount on notes payable | – | – | ||||||||||||||||||||||||||
| Commission paid for raising capital | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Common stock issued for accrued compensation | – | |||||||||||||||||||||||||||
| Common stock issued for services | – | |||||||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance - September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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IIOT-OXYS, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
| For the nine months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used by operating activities | ||||||||
| Gain on extinguishment of debt | ( | ) | ||||||
| Stock compensation expense for services | ||||||||
| Discount on notes receivable | ||||||||
| Amortization of debt discount on notes payable and preferred stock | ||||||||
| Amortization of intangible assets | ||||||||
| Changes in Operating Assets and Liabilities | ||||||||
| (Increase) in prepaid expense | ( | ) | ||||||
| (Increase) in accounts receivable | ( | ) | ( | ) | ||||
| (Decrease) increase in accounts payable | ( | ) | ||||||
| Increase in accrued liabilities | ||||||||
| Increase (decrease) in derivative liability | ( | ) | ||||||
| Increase in unearned interest | ||||||||
| Increase in shares payable to related parties | ||||||||
| Increase (decrease) in salaries payable to related parties | ( | ) | ||||||
| Net Cash Used By Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows From Investing | ||||||||
| Cash paid for note receivable | ( | ) | ||||||
| Cash Used in Investing Activities | ( | ) | ||||||
| Cash Flows From Financing Activities | ||||||||
| Cash received from sale of common stock | ||||||||
| Cash payments of offering costs | ( | ) | ||||||
| Cash received from sale of Series B preferred stock | ||||||||
| Net Cash Provided By Financing Activities | ||||||||
| Net Decrease in Cash and Cash Equivalents | ( | ) | ( | ) | ||||
| Cash and Cash Equivalents - Beginning of Period | ||||||||
| Cash and Cash Equivalents - End of Period | $ | $ | ||||||
| Supplement Disclosures of Cash Flow Information | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Supplemental Disclosures of Non-Cash Investing and Financing Activities | ||||||||
| Conversion of convertible notes payable and derivative liabilities | $ | $ | ||||||
| Beneficial conversion feature discount on notes payable | $ | $ | ||||||
| Effect of adopting ASU-2020-06 | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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IIOT-OXYS, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2022 and 2021
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS, BASIS OF PRESENTATION AND GOING CONCERN
Unless otherwise indicated, any reference to “the Company”, “our 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., a Nevada corporation (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.
The Company was incorporated in the state of New Jersey on October 1, 2003 under the name of Creative Beauty Supply Corporation and commenced operations as of January 1, 2004. On November 30, 2007, the Board of Directors approved a plan to dispose of its wholesale and retail beauty supply business. On May 18, 2015, the Company changed its name to Gotham Capital Holdings. From January 1, 2009 until July 28, 2017, the Company had no operations. On March 16, 2017, the Board of Directors approved a name change to “IIOT-OXYS, Inc.” and authorized a change of domicile from New Jersey to Nevada.
Impact of COVID-19
During the period ended September 30, 2022, the effects of a new coronavirus (“COVID-19”) and related actions to attempt to control its spread began to impact our business. The impact of COVID-19 on our operating results for the quarter ended September 30, 2022 was limited, in all material respects, due to the government mandated numerous measures, including closures of businesses, limitations on movements of individuals and goods, and the imposition of other restrictive measures, in its efforts to mitigate the spread of COVID-19 within the country.
On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. Governments around the world have mandated, and continue to introduce, orders to slow the transmission of the virus, including but not limited to shelter-in-place orders, quarantines, significant restrictions on travel, as well as work restrictions that prohibit many employees from going to work. Uncertainty with respect to the economic effects of the pandemic has introduced significant volatility in the financial markets.
Basis of Presentation
The accompanying 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 $
| 8 |
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 condensed consolidated financial statements.
Interim Financial Statements
The accompanying unaudited interim 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 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 consolidated financial statements should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2021.
Principles of Consolidation
The consolidated financial statements for September 30, 2022 and 2021, 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.
Reclassifications
Certain amounts in the prior periods presented have been reclassified to conform to the current period financial statement presentation. These reclassifications have no effect on previously reported net income.
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.
Cash and Cash Equivalents
The Company considers all highly liquid instruments
with maturity of three months or less at the time of issuance to be cash equivalents. The Company did not have any cash equivalents as
of September 30, 2022 and December 31, 2021. The Company reported a cash balance of $
| 9 |
Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are carried at original
invoice amount less an estimate made for doubtful accounts. The Company determines the allowance for doubtful accounts by identifying
potential troubled accounts and by using historical experience and future expectations applied to an aging of accounts. Trade accounts
receivable are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are recorded as income
when received. The Company recorded accounts receivable of $
Long-Lived Assets
The Company regularly reviews the carrying value and estimated lives of its long-lived assets to determine whether indicators of impairment may exist that warrant adjustments to the carrying value or estimated useful lives. The determinants used for this evaluation include management’s estimate of the asset’s ability to generate positive income from operations and positive cash flow in future periods as well as the strategic significance of the assets to the Company’s business objectives.
Definite-lived intangible assets are amortized on a straight-line basis over the estimated periods benefited and are reviewed when appropriate for possible impairment.
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:
| · | Identification of a contract or contracts, with a customer. | |
| · | Identification of the performance obligations in the contract. | |
| · | Determination of contract price. | |
| · | Allocation of transaction price to the performance obligation. | |
| · | Recognition of revenue when, or as, performance obligation is satisfied. |
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.
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Concentration of Credit Risk
Financial instruments that potentially expose the
Company to concentrations of risk consist primarily of cash and cash equivalents which are generally not collateralized. The Company’s
policy is to place its cash and cash equivalents with high quality financial institutions, in order to limit the amount of credit exposure.
Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”), up to $
Fair Value of Financial Instruments and Fair Value Measurements
ASC 820, “Fair Value Measurements and Disclosures”, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s consolidated financial instruments consist of cash and cash equivalents, accounts receivable, prepaid expenses, accounts payable, accrued liabilities, notes payable and related parties payable. The Company believes that the recorded values of all the financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Income Taxes”. The asset and liability method provide that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The Company follows the provisions of ASC 740-10, “Accounting for Uncertain Income Tax Positions.” When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
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Convertible Debt and Convertible Preferred Stock
When the Company issues convertible debt or convertible preferred stock, it first evaluates the balance sheet classification of the convertible instrument in its entirety to determine whether the instrument should be classified as a liability under ASC 480, Distinguishing Liabilities from Equity, and second whether the conversion feature should be accounted for separately from the host instrument. A conversion feature of a convertible debt instrument or certain convertible preferred stock would be separated from the convertible instrument and classified as a derivative liability if the conversion feature, were it a standalone instrument, meets the definition of an “embedded derivative” in ASC 815, Derivatives and Hedging. Generally, characteristics that require derivative treatment include, among others, when the conversion feature is not indexed to the Company’s equity, as defined in ASC 815-40, or when it must be settled either in cash or by issuing stock that is readily convertible to cash. When a conversion feature meets the definition of an embedded derivative, it would be separated from the host instrument and classified as a derivative liability carried on the consolidated balance sheet at fair value, with any changes in its fair value recognized currently in the consolidated statements of operations.
Effective January 1, 2022, we early adopted ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” using the modified retrospective method of adoption. ASU 2020-06 simplifies the accounting for convertible instruments by removing certain separation models in Subtopic 470- 20, Debt—Debt with Conversion and Other Options, for convertible instruments. Under ASU 2020-06, the embedded conversion features no longer are separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the interest rate of convertible debt instruments typically will be closer to the coupon interest rate when applying the guidance in Topic 835, Interest. We now account for our Convertible Notes as single liabilities measured at amortized cost. As a result, the adoption of the guidance had a material impact on the consolidated financial statements and accompanying notes, resulting in adjustments of $371,125, $313,976 and $57,149 to the opening balance of additional paid-in capital, retained earnings, and long-term debt, respectively, as of January 1, 2022. We have updated our debt note (Note 5) with additional and modified disclosures as required by the standard upon adoption.
Recent Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
Other 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.
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NOTE 3 - NOTE RECEIVABLE
On April 4, 2022, the Company executed 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 paid to the borrower
$
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
at September 30, 2022 and December 31, 2021 amounted to $
| Intangible Assets Net of Amortization | ||||||||
September 30, 2022 | December 31, 2021 | |||||||
| Intangible Assets | $ | $ | ||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| Intangible Assets, net | $ | $ | ||||||
The Company determined that none of its intangible
assets were impaired as of September 30, 2022 and December 31, 2021, 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 $
The following table summarizes the Company’s estimated future amortization expense of intangible assets with finite lives as of September 30:
| Schedule of future amortization | ||||
| Amortization Expense | ||||
| 2022 (Remainder of the year) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ |
| 13 |
NOTE 5 - COMMITMENTS AND CONTINGENCIES
On June 11, 2020, the Company entered into a Debt
Forgiveness Agreement with the CEO, pursuant to which the CEO forgave $
On June 11, 2020, the Company entered into a Debt
Forgiveness Agreement with the COO, pursuant to which the COO forgave $
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 shares of the Company common stock under the 2022 Stock Incentive Plan,
which will vest (i) shares on April 1, 2023, (ii) shares on April 1, 2024, and (iii) shares on April 1,
2024. The Company recorded $
| 14 |
NOTE 6 - CONVERTIBLE NOTES PAYABLE
The following table summarizes the outstanding balance of convertible notes payable, interest and conversion rates as of September 30, 2022 and December 31, 2021, respectively.
| Schedule of convertible notes payable | ||||||||||
September 30, 2022 |
December 31, 2021 |
|||||||||
| A. | Convertible note payable to an investor with interest at 12% per annum, convertible at any time into shares of common stock at $0.008 per share. The balance of principal and accrued and unpaid interest is payable on maturity on March 1, 2023, unless automatically extended for one-year periods if no Event of Default is existing. The note is secured by substantially all the assets of the Company. | $ | $ | |||||||
| B. | Convertible note payable to an investor with interest at 5% per annum, convertible at any time into shares of common stock at $0.00084 per share. Interest is payable annually with the balance of principal and interest due on maturity on March 1, 2024. The note is secured by substantially all the assets of the Company. | |||||||||
| D. | Convertible note payable to an investor with interest at 12% per annum, convertible at any time into shares of common stock at $0.008 per share. The balance of principal and accrued and unpaid interest is payable on March 1, 2023, unless automatically extended for one-year periods if no Event of Default is existing. The note is secured by substantially all the assets of the Company. | |||||||||
| E. | Convertible notes payable to a related party with interest at 12% per annum, convertible at any time into shares of common stock at $0.00084 per share. Interest is payable quarterly with the balance of principal and interest due on maturity on August 2, 2024. The notes are secured by substantially all the assets of the Company. | |||||||||
| F. | Convertible note payable to an investor with interest at 10% per annum, convertible at any time into shares of common stock at $0.01 per share. Principal and interest due on maturity on April 29, 2023. | |||||||||
| G. | Convertible note payable to an investor with interest at 10% per annum, convertible at any time into shares of common stock at $0.0099 per share. Note was issued as payment for future fees to be incurred under the related Equity Financing Agreement. Principal and interest due on maturity on April 29, 2023. | |||||||||
| Less: deferred financing costs | ( |
) | ( |
) | ||||||
| Less unamortized discount | ( |
) | ||||||||
| Net balance | ||||||||||
| Less current portion | ( |
) | ( |
) | ||||||
| Long term portion | $ | $ | ||||||||
| 15 |
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.
On May 23, 2022, the noteholder of Note A converted $
On January 28, 2021, the noteholder of Note A agreed to extend the maturity date of the Senior Secured Convertible Promissory Note to March 1, 2022, in exchange for the reduction of the conversion price to $0.01 per share, and all prior Events of Default (as defined in the Note A) including penalties of $100,000 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. On December 14, 2021, the Company entered into amendment to the Note A which limits the respective holder to conversions resulting in beneficial ownership by the holder and its affiliates of no more than 4.99% of the outstanding shares of common stock of the Company. The Company recorded $100,000 as extinguishment of debt in its statements of operations for the year ended December 31, 2021.
The Company recorded interest expense of $
The principal balance payable on Note A amounted to
$
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, 2022 of the Senior 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 (Note 9).
The Company recorded interest expense of $
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.
On January 28, 2021, the noteholder of Note D agreed to extend the maturity date of the Senior Secured Convertible Promissory Note to March 1, 2022 in exchange for the reduction of the conversion price to $0.01 per share, and all prior Events of Default (as defined in the Note D) including penalties of $10,000 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 recorded $10,000 as extinguishment of debt in its statements of operations for the nine months ended September 30, 2021.
The Company recorded interest expense of $
| 16 |
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 Senior Secured Convertible Promissory Note to
The Company recorded interest expense of $
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 Senior Secured Convertible Promissory Note to
The Company recorded interest expense of $
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 Senior Secured Convertible Promissory Note to
The Company recorded interest expense of $
The following table sets forth the computation of basic and diluted net loss per share of common stock for the three months and nine months ended September 30, 2022 and 2021:
| Schedule of earnings per share | ||||||||
| Three Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Net loss attributable to common stockholders (basic) | $ | ( | ) | $ | ( | ) | ||
| Shares used to compute net loss per common share, basic and diluted | ||||||||
| Net loss per share attributable to common stockholders, basic and diluted | $ | ( | ) | $ | ( | ) | ||
| 17 |
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Net loss attributable to common stockholders (basic) | $ | ( | ) | $ | ( | ) | ||
| Shares used to compute net loss per common share, basic and diluted | ||||||||
| Net loss per share attributable to common stockholders, basic and diluted | $ | ( | ) | $ | ( | ) | ||
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 nine months ended September 30, 2022 and 2021, respectively, because their inclusion would be anti-dilutive:
| Schedule of anti-dilutive shares | ||||||||
| As of September 30, | ||||||||
| 2022 | 2021 | |||||||
| Warrants to purchase common stock | ||||||||
| Potentially issuable shares related to convertible notes payable and convertible preferred stock | ||||||||
| Potentially issuable unvested shares to directors and officers | ||||||||
| Potentially issuable vested shares to a consultant | ||||||||
| Total anti-dilutive common stock equivalents | ||||||||
NOTE 8 - RELATED PARTIES
At September 30, 2022 and December 31, 2021, respectively,
the amount due to two stockholders was $
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 $
NOTE 9 - STOCKHOLDERS' EQUITY
The Company has an authorized capital of 1,000,000,000 shares, $ par value common stock, and shares of $ par value preferred stock at September 30, 2022. The Company has shares and 220,254,396 shares of common stock, and shares and 25,845 shares of preferred stock, issued and outstanding as of September 30, 2022 and December 31, 2021, respectively.
| 18 |
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 27, 2022 to September 30, 2022, the investor purchased shares of common stock for a
cash consideration of $
On February 23, 2022, the Company issued to a consultant
for services rendered, pursuant to a consulting agreement, shares of common stock valued at the fair market price on the date
of issuance of $
On May 23, 2022, the noteholder of Note A converted
$
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 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 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 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 shares of the Company’s common stock to an officer and 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. The common shares vested pursuant to the 2022 Plan amounted to shares at September 30, 2022 and the remain unvested as of that date. For the three months and nine months ended September 30, 2022, the Company recorded $ and $ as stock compensation expense for the 764,384 shares and 1,512,329 shares payable to an officer and a director that remain unvested as of September 30, 2022.
| 19 |
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 September 30, 2022 and 2021, and changes during the six months period then ended, is presented below:
| Summary of non-vested shares | ||||||||
| 2022 Plan | Non-vested Shares of Common Stock | Weighted Average Fair Value | ||||||
| Balance at December 31, 2021 | $ | |||||||
| Awarded | ||||||||
| Vested | ||||||||
| Forfeited | ||||||||
| Balance at September 30, 2022 | $ | |||||||
| 2017 Plan and 2019 Plan | ||||||||
| Balance at December 31, 2020 | $ | |||||||
| Awarded | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ||||||||
| Balance at September 30, 2021 | $ | |||||||
Preferred Stock
Series A Supervoting Convertible Preferred Stock
On July 2, 2020, the Board of Directors of the Company authorized the issuance of shares of preferred stock, $ 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.
| 20 |
Voting Rights:
| A. | If at least one share of Series A Super Voting Preferred Stock is issued and outstanding, then the total aggregate issued shares of Series A Super Voting Preferred Stock at any given time, regardless of their number, shall have voting rights equal to 20 times the sum of: i) the total number of shares of Common stock which are issued and outstanding at the time of voting, plus ii) the total number of shares of all Series of Preferred stocks which are issued and outstanding at the time of voting. |
| B. | Each individual share of Series A Super Voting Preferred Stock shall have the voting rights equal to: |
[twenty times the sum of: {all shares of Common stock issued and outstanding at the time of voting + all shares of Series A and any newly designated Preferred stock issued and outstanding at the time of voting}]
Divided by:
[the number of shares of Series A Super Voting Preferred Stock issued and outstanding at the time of voting]
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 25,896 shares of preferred stock issued and outstanding at September 30, 2022 and December 31, 2021, 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 shares of preferred stock, $ 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 $, 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.
| 21 |
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.
| · | 115% of the stated value if the redemption takes place within 90 days of issuance; | |
| · | 120% of the stated value if the redemption takes place after 90 days and within 120 days of issuance | |
| · | 125% of the stated value if the redemption takes place after 120 days and within 180 days of issuance; and | |
| · | each share of Preferred Stock is redeemed one year from the day of issuance |
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 service fee.
On November 19, 2020 (the date of receipt of cash
proceeds of $
| 22 |
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 $
On December 16, 2020 (the date of receipt of cash
proceeds of $
On February 7, 2022 (the date of receipt of cash proceeds
of $
On March 24, 2022 (the date of receipt of cash proceeds
of $
The Company valued the fair value using the Black-Scholes
option pricing model at September 30, 2022, with the following assumptions: conversion exercise price - $, the closing stock price
of the Company's common stock on the date of valuation - $
As a result of receipt of cash proceeds relating to
Series B Convertible Preferred Stock, the Company recorded derivative liability of $
| 23 |
Warrants
A summary of the status of the Company’s warrants as of September 30, 2022 and 2021, and changes during the three months then ended, is presented below:
| Summary of warrant activity | ||||||||||||
| Shares Under Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | ||||||||||
| Outstanding at December 31, 2020 | ||||||||||||
| Issued | $ | Years | ||||||||||
| Exercised | ||||||||||||
| Expired/Forfeited | ||||||||||||
| Outstanding at September 30, 2021 | $ | Years | ||||||||||
| Outstanding at December 31, 2021 | ||||||||||||
| Issued | $ | Years | ||||||||||
| Exercised | ||||||||||||
| Expired/Forfeited | ||||||||||||
| Outstanding at September 30, 2022 | $ | Years | ||||||||||
NOTE 10 - SUBSEQUENT EVENTS
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 October 16, 2022, pursuant to the Equity Financing Agreement, the Company sold 6,130,677 shares of its common stock for cash consideration of $12,038 and paid sales commissions of $241.
On November 1, 2022, pursuant to the Equity Financing Agreement, the Company sold 6,364,961 shares of its common stock for cash consideration of $10,936 and paid sales commissions of $219.
| 24 |
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, 2021. 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 September 30, 2021 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:
| · | the unprecedented impact of COVID-19 pandemic on our business, customers, employees, subcontractors and supply chain, consultants, service providers, stockholders, investors and other stakeholders; | |
| · | the impact of conflict between the Russian Federation and Ukraine on our operations; | |
| · | geo-political events, such as the crisis in Ukraine, government responses to such events and the related impact on the economy both nationally and internationally; | |
| · | general market and economic conditions; | |
| · | our ability to maintain and grow our business with our current customers; | |
| · | our ability to meet the volume and service requirements of our customers; | |
| · | industry consolidation, including acquisitions by us or our competitors; | |
| · | capacity utilization and the efficiency of manufacturing operations; | |
| · | success in developing new products; | |
| · | timing of our new product introductions; | |
| · | new product introductions by competitors; | |
| · | the ability of competitors to more fully leverage low-cost geographies for manufacturing or distribution; | |
| · | product pricing, including the impact of currency exchange rates; | |
| · | effectiveness of sales and marketing resources and strategies; | |
| · | adequate manufacturing capacity and supply of components and materials; | |
| · | strategic relationships with our suppliers; | |
| · | product quality and performance; | |
| · | protection of our products and brand by effective use of intellectual property laws; | |
| · | the financial strength of our competitors; | |
| · | the outcome of any future litigation or commercial dispute; | |
| · | barriers to entry imposed by competitors with significant market power in new markets; | |
| · | government actions throughout the world; and | |
| · | our ability to service secured debt, when due. |
| 25 |
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
During the year 2020, the effects of a new coronavirus (“COVID-19”) and related actions to attempt to control its spread began to impact our business. The impact of COVID-19 on our operating results for the year ended December 31, 2021 was limited, in all material respects, due to the government mandated numerous measures, including closures of businesses, limitations on movements of individuals and goods, and the imposition of other restrictive measures, in its efforts to mitigate the spread of COVID-19 within the country.
On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. Governments around the world have mandated, and continue to introduce, orders to slow the transmission of the virus, including but not limited to shelter-in-place orders, quarantines, significant restrictions on travel, as well as work restrictions that prohibit many employees from going to work. Uncertainty with respect to the economic effects of the pandemic has introduced significant volatility in the financial markets.
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.
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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.
On December 14, 2017, we entered into a Share Exchange Agreement (the “HereLab SEA”) with HereLab, Inc., a Delaware corporation (“HereLab”), and HereLab’s two shareholders pursuant to which we would acquire all the issued and outstanding shares of HereLab in exchange for the issuance of 1,650,000 shares of our Common Stock, on a pro rata basis, to HereLab’s two shareholders. The closing of the transaction occurred on January 11, 2018 and HereLab became our wholly-owned subsidiary.
At the present time, we have two, wholly-owned subsidiaries which are OXYS Corporation and HereLab, Inc., 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 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.
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 September 30, 2022 Compared to the Three Months Ended September 30, 2021
The Company reported $23,003 and $5,280 in service revenues with cost of sales of $5,140 and $1,275 for the three months ended September 30, 2022 and 2021, respectively.
The Company incurred general and administrative expenses (“G&A”) of $158,818 for the three months ended September 30, 2022 as compared to $208,531 for the same comparable period in 2021. The net decrease of $49,713 in G&A expenses resulted primarily due to a reduction in professional fees paid to consultants of $40,778 and reduction in payroll and stock compensation earned by the Officers and Director of $2,946. The Company recorded a gain of $125,568 due to the change in the fair market value of derivative liabilities during the three months ended September 30, 2022 as compared to a loss of $18,103 for the same comparable period in 2021. The Company recorded interest income of $5,986 for the three months ended September 30, 2022 due to the unsecured promissory note extended to a third party earning 10% interest per annum compared to $0 interest earned in the comparable period of 2021. The Company recorded an interest expense of $14,913 for the three months ended September 30, 2022 as compared to $100,701 for the same comparable period in 2021. The interest expense decreased because the Company did not record any amortization of debt discount during the three months ended September 30, 2022 as compared to recording $82,329 in amortization of debt discounts to interest expense during the three months ended September 30, 2021.
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Results of Operations for the Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021
The Company recorded $39,503 and $5,280 of revenues and $5,650 and $1,275 in cost of sales during the nine months ended September 30, 2022 and 2021, respectively.
The Company incurred general and administrative expenses (“G&A”) of $543,449 for the nine months ended September 30, 2022 as compared to $737,746 for the same comparable period in 2021. The decrease in G&A expenses resulted primarily due to reduction in professional and consulting fees of $316,400 in the nine months ended September 30, 2022 as compared to the same comparable period in 2021. This reduction of expense was offset by an increase in payroll costs of $99,723 during the nine months ended September 30, 2022 as compared to the same comparable period in 2021. The Company recorded a gain of $277,424 due to the change in the fair market value of derivative liabilities during the nine months ended September 30, 2022 as compared to a gain of $172,558 for the same comparable period in 2021. The Company recorded a loss on derivatives of $207,447 and $0 for the nine months ended September 30, 2022 and 2021, respectively, due to the change in mark to market of the fair value of derivative liabilities. In addition, the Company recorded a gain of $120,000 on the extinguishment of debt upon agreeing with the note holders to a reduction in the debt conversion price during the nine months ended September 30, 2021, whereas, no such gain or loss was recorded for the same comparable period in 2022. The Company recorded an interest income of $11,647 for the nine months ended September 30, 2022 as compared to $0 for the same comparable period in 2021. The Company recorded interest expense of $278,605 and $333,039 for the nine months ended September 30, 2022 and 2021, respectively. The interest expense decreased due to the Company recording reduction in the fair market value of the derivative liability to interest expense. As a result, the Company recorded a loss of $775,217 for the nine months ended September 30, 2022 as compared to a loss of $818,211 for the same comparable period in 2021.
Our revenue for the quarter ended September 30, 2022 exceeded the total revenue for 2021, as was anticipated in our Quarterly Report on Form 10-Q for the first quarter of 2022.
We continue to gain traction with strategic partners, customers, and potential customers in our key two markets: Smart Manufacturing / Industry 4.0 and Structural Health Monitoring (SHM). These are both high growth markets. Market research shows the worldwide Industry 4.0 market in 2021 was $64.9 billion USD and is projected to be $165.5 billion USD by 2026 (20.6% CAGR).[1] Also, the worldwide Structural Health Monitoring industry was $2.0 billion USD in 2021 and will reach $4.0 billion USD by 2027 (CAGR of 14.6%).[2] Through our collaborations with Aretas Sensor Networks, we have access to a third market, Indoor Air Quality Monitors, which is estimated at $3.7 billion USD in 2020 and projected to reach $6.4 billion USD in 2027, growing at 8.2% CAGR.[3]
Year to Date Accomplishments in 2022:
| · | We announced in the first quarter that we entered into an NDA with an EU Electrical Technology Original Equipment Manufacturer. Collaborative discussions continue and we expect this agreement to lead to new business in due time. | |
| · | The Canadian Indoor Air Quality Sensor and IIoT Platform company, Aretas Sensor Networks, with whom we entered into an NDA in the first quarter, continues to progress as well. In addition to the initial collaborative agreement signed in the first quarter, we signed an algorithm development contract in the second quarter and recorded revenue from that contract in this quarter. We also signed a co-marketing and co-selling agreement with Aretas in this quarter and expect revenue from sales commissions in the fourth quarter. | |
| · | Our Structural Health Monitoring business continues to gather momentum, receiving a contract extension with a New England State’s DOT for Bridge Monitoring announced in the first quarter for monitoring throughout the second quarter. A proposal for monitoring and equipment upgrades for the 2022 to 2023 fiscal year was submitted in the second quarter and received the formal contract in the third quarter of 2022. We have recorded revenue on this contract since July and will continue to receive revenue from the contract through June of 2023. | |
| · | We continue to secure significant and supportive funding. | |
| · | Our full time Machine Learning Engineer, hired in the first quarter, continues to expand our focus on the Artificial Intelligence (AI) and Machine Learning (ML) aspects of our business | |
| · | Our CEO, Cliff Emmons, and COO, Karen McNemar, both renewed their employment contracts in June, ensuring stable experienced leadership focused on long-term growth. |
_________________________
[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
[3] https://www.reportlinker.com/p05957040/Global-Indoor-Air-Quality-Monitors-Industry.html
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We believe the underlying strengths of the Company are gathering momentum for expected growth: an experienced leadership team; contributions of our new Machine Learning Engineer, a PhD level Machine Learning Algorithms specialist; strong execution on contracts to date; and a steady focus on prospecting, submitting proposals, and securing Proof of Concepts (POCs). Those completed contracts to date have produced two successful pilot programs: one on manufacturing operations for our Fortune 500 Pharma customer, and a pilot with a full year of data collection and analysis on our structural health monitoring program for a New England state’s DOT – which has now led to a bridge monitoring contract extension, which includes equipment upgrades and additional analysis. Our continued focus on high potential growth markets (specifically Biotech, Pharma, and Medical Device Operations, Structural Health Monitoring, and Indoor Air Quality), has yielded numerous prospects for future growth. Specifically, we secured an AI – Machine Learning sub-contract and initiated a POC for our IAQ strategic partner in the second quarter and signed a co-marketing and co-selling agreement with the same strategic partner in the third quarter.
We are pleased that the momentum of the second quarter’s revenue continued into the third quarter and expect it will continue through the fourth quarter. Our third quarter revenue exceeded our second quarter revenue and expect revenue for the second half of 2022 will exceed that generated in the first half of 2022. In total, we expect that total revenue for 2022 will be approaching 2019 levels. This is due to the hard work of the past year that has resulted in two successful pilots, in two of our key target industry verticals. We now have data and algorithms to build strong use cases and marketing collateral that can be leveraged to extend contracts with current customers and win additional contracts with new customers in all targeted industry segments. Also, the strength of the collaboration agreements with both Aingura IIoT, S.G. and Aretas Sensor Networks have substantially bolstered financial stability, added talent breadth and depth, and complimentary industry segment experience. Furthermore, the continued liquidity of our stock has attracted funding opportunities, and access to additional capital has and will enable funding of business development, intellectual property development, staff augmentation, and inorganic growth opportunities. Combined with our underlying strengths: experienced leadership; savvy technological talent, and operational execution excellence; we believe these revenue goals are achievable.
As of September 30, 2022, the total principal amount owed to Sergey Gogin was $205,000. For more information on the note, please see NOTE 6 - CONVERTIBLE NOTES PAYABLE of the footnotes to the consolidated, unaudited financial statements.
Liquidity and Capital Resources
At September 30, 2022, the Company had a cash balance of $34,284, which represents a $12,537 reduction from the $46,821 balance at December 31, 2021. This reduction was primarily the result of cash provided by the sale of common stock of $481,657 and Series B preferred stock (net of offering costs of $9,633) in the aggregate amount of $187,000, offset by net cash used in operating activities of $471,561 due to acceleration in product development activities, and cash used in investing activities by executing a note receivable of $200,000 from Aretas. The Company’s working capital at September 30, 2022 was a deficit of $1,473,996, as compared to a working capital deficit of $1,108,786 at December 31, 2021.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has incurred losses from operations of $775,217 for the nine months ended September 30, 2022, and has an accumulated deficit of $9,005,473 at September 30, 2022, which raises substantial doubt about the Company’s ability to continue as a going concern.
Management believes the Company will continue to incur losses and negative cash flows from operating activities for the foreseeable future and will need additional equity or debt financing to sustain its operations until it can achieve profitability and positive cash flows, if ever. Management plans to seek additional debt and/or equity financing for the Company but cannot assure that such financing will be available on acceptable terms. At the Company’s current rate of expenditure, the Company anticipates being able to maintain current operations for three months; however, management is proposing to raise any necessary additional funds not provided by operations through loans or through additional sales of equity securities. There is no assurance that the Company will be successful in raising this additional capital or in achieving profitable operations.
The Company’s continuation as a going concern is dependent upon its ability to ultimately attain profitable operations, generate sufficient cash flow to meet its obligations, and obtain additional financing as may be required. Our auditors have included a going concern qualification in their auditors’ report dated April 14, 2022. Such a going concern qualification may make it more difficult for us to raise funds when needed. The outcome of this uncertainty cannot be assured.
The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. There can be no assurance that management will be successful in implementing its business plan or that the successful implementation of such business plan will actually improve the Company’s operating results.
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Recently Issued Accounting Standards
Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.
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.
Emerging Growth Company
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Certain specified reduced reporting and other regulatory requirements that are available to public companies that are emerging growth companies. These provisions include:
| 1. | an exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002; |
| 2. | an exemption from the adoption of new or revised financial accounting standards until they would apply to private companies; |
| 3. | an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about our audit and our financial statements; and |
| 4. | reduced disclosure about our executive compensation arrangements. |
We have elected to take advantage of the exemption from the adoption of new or revised financial accounting standards until they would apply to private companies. As a result of this election, our financial statements may not be comparable to public companies required to adopt these new requirements.
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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 September 30, 2022. Based on their evaluation, Mr. Emmons and Ms. McNemar concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2022.
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 September
30, 2022, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial
reporting.
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PART II—OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Equity Financing Agreement
On November 1, 2021, we entered into an Equity Financing Agreement with GHS Investments, LLC (“GHS”) for an equity line. Although we are not required to sell shares under the Equity Financing Agreement, the Equity Financing Agreement gives us the option to sell to GHS up to $2,500,000 worth of our common stock, in increments, beginning on the first trading day after the effective date of this Registration Statement and ending on the earlier of (i) the date GHS has purchased an aggregate of $2,500,000 of our common stock pursuant to the Equity Financing Agreement, (ii) November 1, 2023, twenty-four months from the date of execution of the Equity Financing Agreement, or (iii) upon mutual termination of the Equity Financing Agreement (the “Open Period”).
During the Open Period, we may, in our sole discretion, deliver a put notice (“Put Notice”) to GHS which shall state the dollar amount requested by us (the “Put Amount”) and number of shares intends to sell to GHS on a designated closing date. The purchase price (the “Purchase Price”) of the common stock sold pursuant to a Put Notice will be set at 90% of the lowest volume-weighted average price of our common stock during the ten consecutive trading day period immediately preceding the date on which we deliver the Put Notice to GHS. We are obligated to deliver a number of shares to GHS equal to Put Amount divided by the Purchase Price in consideration of the payment of the Put Amount.
Below is a table of all puts made by the Company under the Equity Financing Agreement during the quarter ended September 30, 2022:
| Date of Put | Number of Shares Sold | Total Proceeds, Net of Discounts | Effective Price per Share | Net Proceeds |
| 7/28/22 | 2,984,997 | $12,211 | $0.004090909 | $11,967 |
| 8/15/22 | 3,021,668 | $10,136 | $0.0033545 | $9,933 |
| 8/30/22 | 5,865,257 | $20,635 | $0.0035182 | $20,222 |
| 9/15/22 | 5,600,661 | $17,871 | $0.0031909 | $17,513 |
| 9/30/22 | 10,817,889 | $27,438 | $0.0025364 | $26,889 |
The shares issued in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D under the Securities Act, based in part on the representations of the investor. There were $1,763 in sales commissions paid to J.H. Darbie & Co., Inc. (“J.H. Darbie”) pursuant to these transactions.
Item 6. Exhibits
| SEC Ref. No. | Title of Document |
| 31.1* | Rule 13a-14(a) Certification by Principal Executive Officer |
| 31.2* | Rule 13a-14(a) Certification by Principal Financial and Accounting Officer |
| 32.1** | Section 1350 Certification of Principal Executive Officer |
| 32.2** | Section 1350 Certification of Principal Financial and Accounting Officer |
| 101.INS* | Inline XBRL Instance Document |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104* | Cover Page Interactive Data File (formatted in iXBRL, and included in exhibit 101) |
*Filed with this Report.
**Furnished with this Report.
| 32 |
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.
| IIOT-OXYS, Inc. | ||
| Date: November 14, 2022 | By | /s/ Clifford L. Emmons |
| Clifford L. Emmons, Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: November 14, 2022 | By | /s/ Karen McNemar |
| Karen McNemar, Interim Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
| 33 |
Exhibit 31.1
CERTIFICATIONS
I, Clifford L. Emmons, certify that:
| 1. | I have reviewed this Form 10-Q quarterly report of IIOT-OXYS, Inc. for the quarter ended September 30, 2022; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
| |
| b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
| |
| c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
| |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
| |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 14, 2022 | |||
| /s/ Clifford L. Emmons | |||
| Clifford L. Emmons, Chief Executive Officer | |||
| (Principal Executive Officer) | |||
Exhibit 31.2
CERTIFICATIONS
I, Karen McNemar, certify that:
| 1. | I have reviewed this Form 10-Q quarterly report of IIOT-OXYS, Inc. for the quarter ended September 30, 2022; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
| |
| b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
| |
| c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
| |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
| |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 14, 2022 | |||
| /s/ Karen McNemar | |||
| Karen McNemar, Interim Chief Financial Officer | |||
| (Principal Financial and Accounting Officer) | |||
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of IIOT-OXYS, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2022, as filed with the Securities and Exchange Commission (the “Report”), the undersigned principal executive and principal financial officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: November 14, 2022 | |||
| /s/ Clifford L. Emmons | |||
| Clifford L. Emmons, Chief Executive Officer | |||
| (Principal Executive & Financial Officer) | |||
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of IIOT-OXYS, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2022, as filed with the Securities and Exchange Commission (the “Report”), the undersigned principal executive and principal financial officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: November 14, 2022 | |||
| /s/ Karen McNemar | |||
| Karen McNemar, Interim Chief Financial Officer | |||
| (Principal Financial and Accounting Officer) | |||