IIOT-OXYS, Inc 10-Q for FY2023 Q2
IIOT-OXYS, Inc. (ITOX)
About this 10-Q
IIOT-OXYS, Inc filed this 10-Q on August 18, 2023, covering the quarter ended June 30, 2023 (FY2023 Q2).
Headline figures
Quarter ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $35.29K
- up 113.9% from $16.5K a year earlier
- Net loss
- $266.76K
- compared with a net loss of $188.57K 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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
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).
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 | ☐ |
| x | 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 August 18, 2023, 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.
| 2 |
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
IIOT-OXYS, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
| June 30, 2023 | December 31, 2022 | |||||||
| ASSETS | (Unaudited) | |||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| 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 | ||||||||
| Unearned interest | ||||||||
| Notes payable - current | ||||||||
| Shares payable to related parties | ||||||||
| Salaries payable to related parties | ||||||||
| Derivative liabilities | ||||||||
| 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 issued and outstanding at June 30, 2023 and December 31, 2022, respectively. Liquidation preference $ | ||||||||
| Stockholders' Equity (Deficit) | ||||||||
| Series A Preferred Stock, $ par value, Shares authorized; shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively | ||||||||
| Common Stock $ Par Value, shares authorized; shares and shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders' Equity (Deficit) | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders' Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
IIOT-OXYS, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
| For The Three Months Ended June 30, | For The Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of Sales | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Amortization of intangible assets | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Other Income (Expense) | ||||||||||||||||
| Gain (Loss) on change in FMV of derivative liability | ( | ) | ( | ) | ||||||||||||
| Loss on derivative | ( | ) | ||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total Other Income (Expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net Loss Before Income Taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for Income Tax | ||||||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Convertible Preferred Stock Dividend | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Loss Attributable to Common Stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net 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.
| 4 |
IIOT-OXYS, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity (Deficit)
(Unaudited)
For the three months ended June 30, 2023
| Preferred Stock | Common Stock | Additional Paid-In | Accumulated | Total Stockholders' Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance - March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Common stock issued for conversion of convertible note payable | – | |||||||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance - June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
For the six months ended June 30, 2023
| Preferred Stock | Common Stock | Additional Paid-In | Accumulated | Total Stockholders' Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance - December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| 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 payable | – | |||||||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance - June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
For the three months ended June 30, 2022
| Preferred Stock | Common Stock | Additional Paid-In | Accumulated | Total Stockholders' Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance - March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Common Stock Issued for Financing Commitments | – | |||||||||||||||||||||||||||
| Sales commissions paid on capital raise | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Common stock issued for conversion of convertible note payables | – | |||||||||||||||||||||||||||
| Net Income (loss) | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance - June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
For the six months ended June 30, 2022
| Preferred Stock | Common Stock | Additional Paid-In | Accumulated | Total Stockholders' Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (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 - June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
IIOT-OXYS, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash (used) by operating activities | ||||||||
| Stock compensation expense for services | ||||||||
| Discount on note receivable | ( | ) | ||||||
| Amortization of debt discount on notes payable and preferred stock | ||||||||
| Amortization of intangible assets | ||||||||
| Changes in Operating Assets and Liabilities | ||||||||
| (Increase) Decrease in: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Increase (Decrease) in: | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued liabilities | ||||||||
| Derivative liability | ||||||||
| Unearned interest | ( | ) | ||||||
| Shares payable to related parties | ||||||||
| Salaries payable to related parties | ||||||||
| Net Cash Used by Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Cash paid for note receivable | ( | ) | ||||||
| Net Cash used in Investing Activities | ( | ) | ||||||
| Cash Flows from Financing Activities | ||||||||
| Cash received from sale of common stock | ||||||||
| Cash payments of offering costs | ( | ) | ( | ) | ||||
| Proceeds from sale of Series B Preferred Stock | ||||||||
| Net Cash Provided By Financing Activities | ||||||||
| Net Increase (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 | $ | $ | ||||||
| Effect of adopting ASU-2020-06 | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
IIOT-OXYS, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2023 and 2022
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS, BASIS OF PRESENTATION AND GOING CONCERN
Unless otherwise indicated, any reference to “the Company”, “we”, “us”, or “its” refers to IIOT-OXYS, Inc., a Nevada corporation, and as applicable to its wholly-owned subsidiaries, OXYS Corporation, a Nevada corporation, and HereLab, Inc., a Delaware corporation.
IIOT-OXYS, Inc., incorporated in Nevada on July 6, 2017, (the “Company”) was established for the purpose of designing, building, testing, and selling Edge Computing Systems for the Industrial Internet. The Company is currently devoting substantially all its efforts in identifying, developing and marketing engineered products, software and services for applications in the Industrial Internet which involves collecting and processing data collected from a wide variety of industrial systems and machines.
Impact of COVID-19
The global COVID-19 pandemic continues to present uncertainty and unforeseeable risks to the Company’s operations and business plan. The Company has closely monitored recent developments, including the lifting of COVID-19 safety measures, the spread of new strains or variants of the coronavirus (such as the Delta and Omicron variants), and supply chain and labor shortages. Thus, the full impact of the COVID-19 pandemic on the business and operations remains uncertain and will vary depending on the pandemic’s future impact on the third parties with whom the Company does business, as well as any legal or regulatory consequences resulting therefrom. The Company has been following the recommendations of health authorities to minimize exposure risk for its team members and may take further actions that alter our operations, including any required by federal, state or local authorities, or that it determines are in the best interests of its employees and other third parties with whom the Company does business.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company. The financial statements and accompanying notes are the representations of the Company’s management, who is responsible for their integrity and objectivity. In the opinion of the Company’s management, the financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.
Going Concern
The accompanying condensed consolidated financial
statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements,
the Company has suffered continuing operating losses, has a working capital deficit of $
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.
| 7 |
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following summary of significant accounting policies of the Company is presented to assist in the understanding of the Company’s financial statements. These accounting policies conform to GAAP in all material respects and have been consistently applied in preparing the accompanying consolidated financial statements.
Interim Financial Statements
The accompanying unaudited interim condensed consolidated financial statements and related notes have been prepared in accordance with GAAP for interim financial information, and in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) with respect to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The unaudited interim condensed consolidated financial statements furnished reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2022 filed with the SEC on April 13, 2023.
Principles of Consolidation
The consolidated financial statements for June 30, 2023 and 2022, respectively, include the accounts of Company, and its wholly-owned subsidiaries OXYS Corporation and HereLab, Inc. All significant intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of accounts payable, accrued liabilities and payable to related parties. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
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.
| 8 |
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.
Recent Accounting Pronouncements
Accounting standards that have been issued or proposed by FASB and do not require adoption until a future date, are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
NOTE 3 - NOTE RECEIVABLE
On April 4, 2022, the Company was issued an unsecured
convertible promissory note with the principal sum of $200,000 (“Note”) with a company incorporated under the laws of the
Province of British Columbia. The Note bears an original issuance discount of $7,500 and matures on April 4, 2024. The interest on the
Note will begin to accrue at the rate of 10% per annum from the date of the Note, and will continue to accrue on the outstanding principal
until the entire balance is paid or converted into shares of common stock equal to 3.23% of the fully diluted share capital of the borrower
on the conversion date. The terms of the Note require the borrower to prepay (i) within 30 days of April 4, 2022, the first twelve months
of interest totaling $20,000, and (ii) within six months of April 4, 2022, the interest for the second twelve months under the Note totaling
$20,000. The Company will have the right, at its option on the maturity date, to convert all the principal sum into the common stock equal
to 3.23% of the fully diluted share capital of the borrower as of the conversion date. On April 4, 2022, the Company advanced to the borrower
$
The Company recorded interest income earned on
the Note of $
| 9 |
NOTE 4 - INTANGIBLE ASSETS
The Company’s intangible assets comprise
of intellectual property revolving around their field tests, sensor integrations, and board designs. Intangible assets, net of amortization
amounted to $
| Schedule of intangible assets | ||||||||
June 30, 2023 | December 31, 2022 | |||||||
| Intangible Assets | $ | $ | ||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| Intangible Assets, net | $ | $ | ||||||
The Company determined that none of its intangible
assets were impaired as of June 30, 2023 and December 31, 2022, respectively, Amortizable intangible assets are amortized using the straight-line
method over their estimated useful lives of ten years. Amortization expense of finite-lived intangibles was $
The following table summarizes the Company’s estimated future amortization expense of intangible assets with finite lives as of June 30, 2023:
| Schedule of future amortization | ||||
| Amortization Expense | ||||
| 2023 (Remainder of the year) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total | $ | |||
NOTE 5 - COMMITMENTS AND CONTINGENCIES
In prior years, the Company entered into consulting agreements with one director, three executive officers, and one engineer of the Company, which include commitments to issue shares of the Company’s common stock from the Company’s 2017 Stock Incentive Plan and 2019 Stock Incentive Plans. All the consulting agreements have been terminated and shares have been issued in conjunction with the related separation agreements. According to the terms of the agreements, shares were vested and issued per the Company’s 2017 Stock Incentive Plan as of June 30, 2023 and December 31, 2022, and shares and shares were vested and issued per the Company’s 2019 Stock Incentive Plan as of June 30, 2023 and December 31, 2022, respectively.
In the event that the agreement is terminated by either party pursuant to the terms of the agreement, all unvested shares which have been earned shall vest on a pro-rata basis as of the effective date of the termination of the agreement and all unearned, unvested shares shall be terminated. The value of the shares was assigned at fair market value on the effective date of the agreement and the pro-rata number of shares earned was calculated and amortized at the end of each reporting period.
On March 18, 2022, the Company adopted 2022 Stock Incentive Plan and reserved for issuance shares of common stock for incentivizing its management team.
| 10 |
Employment Agreement – CEO/Interim CTO
On
June 2, 2022, the Board approved an Employment Agreement with the CEO/Interim CTO dated effective April 1, 2022 whereby, the CEO
will receive an annual salary of $100,000 which accrues unless converted into shares of common stock of the Company at a stipulated
conversion rate. If the Company reaches $1,000,000 in cumulative sales over a 12-month period, the annual salary will increase to
$150,000 commencing the following month. If the Company reaches $5,000,000 in cumulative sales over a 12-month period, the annual
salary will increase to $200,000 commencing the following month. The Company awarded the CEO an aggregate of
Employment Agreement – COO/Interim CFO
On June 2, 2022, the Board approved an Employment
Agreement with the COO/Interim CFO dated effective April 1, 2022, whereby, the officer will receive an annual salary of $100,000 which
accrues unless converted into shares of common stock of the Company at a stipulated conversion rate. If the Company reaches $1,000,000
in cumulative sales over a 12-month period, the annual salary will increase to $150,000 commencing the following month. If the Company
reaches $5,000,000 in cumulative sales over a 12-month period, the annual salary will increase to $200,000 commencing the following month.
The Company awarded the COO/Interim CFO an aggregate of 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, 2025. The shares are valued at the 90% of the average market price of the shares of
30 trading days at the end of each quarter. As of June 30, 2023, shares of the common stock were vested and payable to the officer, and shares of common stock remain unvested The Company recorded $
NOTE 6 - CONVERTIBLE NOTES PAYABLE
The following table summarizes the outstanding balance of convertible notes payable, interest and conversion rates as of June 30, 2023 and December 31, 2022, respectively.
| Schedule of convertible notes payable | ||||||||||
June 30, 2023 | December 31, 2022 | |||||||||
| 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, 2024, 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, 2024, 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 $0.0014 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 $0.0014 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, 2025. | |||||||||
| Less: deferred financing costs | ( | ) | ( | ) | ||||||
| Less unamortized discount | ||||||||||
| Net balance | ||||||||||
| Less current portion | ( | ) | ( | ) | ||||||
| Long term portion | $ | $ | ||||||||
| 11 |
A. January 18, 2018 Convertible Note and Warrants (“Note A”)
On March 14, 2022, the noteholder of Note A agreed to extend the maturity date of March 1, 2022 of the Senior Secured Convertible Promissory Note to March 1, 2023, in exchange for the reduction of the conversion price to $0.008 per share, and all prior Events of Default (as defined in the Note A) including penalties were waived, and all future Events of Default (as defined in the Note A) pertaining to the future payment of interest were waived through maturity. The Company was in default with the terms of the Note A as of June 30, 2023 and negotiated with the noteholder to extend the maturity date to cure the default on July 21, 2023 (See Note 10 – Subsequent Events).
The Company recorded interest expense of $
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, 2021 of the Secured Convertible Promissory Note to March 1, 2024, and all prior Events of Default (as defined in the Note B) including penalties were waived, and all other terms of the Note B remain the same.
The Company recorded interest expense of $
The principal balance payable on Note B amounted
to $
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
The Company recorded interest expense of $
The principal balance payable on Note D amounted
to $
| 12 |
E. August 2019 Convertible Note and Warrants (“Note E”)
On August 2, 2021, the noteholder of Note E agreed to extend the maturity date of the Secured Convertible Promissory Note to August 2, 2024. All other terms and conditions of the Note E remain the same.
The Company recorded interest expense of $
The principal balance payable on Note E amounted
to $
F. July 2020 Equity Financing Arrangement (“Note F”)
On April 29, 2022, the noteholder of Note F agreed
to extend the maturity date of the Secured Convertible Promissory Note to
The Company recorded interest expense of $
The principal balance payable on Note F amounted
to $
G . July 2020 Equity Financing Arrangement (“Note G”)
On April 29, 2022, the noteholder of Note G agreed
to extend the maturity date of the Secured Convertible Promissory Note to
The Company recorded interest expense of $
The principal balance payable of Note G amounted
to $
| 13 |
The following table sets forth the computation of basic and diluted net loss per share of common stock for the three months ended June 30, 2023 and 2022:
| Schedule of earnings per share | ||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| 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 six months ended June 30, 2023 and 2022, respectively, because their inclusion would be anti-dilutive:
| Schedule of anti dilutive shares | ||||||||
| As of June 30, | ||||||||
| 2023 | 2022 | |||||||
| Warrants to purchase common stock | ||||||||
| Potentially issuable shares related to convertible notes payable and convertible preferred stock | ||||||||
| Total anti-dilutive common stock equivalents | ||||||||
NOTE 8 - RELATED PARTIES
At June 30, 2023 and December 31, 2022, 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 $
| 14 |
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 June 30, 2023. The Company has shares shares of common stock, and shares and shares of preferred stock, issued and outstanding as of June 30, 2023 and December 31, 2022, respectively.
Common Stock
Holders of shares of common stock are entitled to one vote for each share on all matters to be voted on by the stockholders. Holders of common stock do not have cumulative voting rights. Holders of common stock are entitled to share ratably in dividends, if any, as may be declared from time to time by the Board of Directors in its discretion from funds legally available, therefore. In the event of liquidation, dissolution, or winding up of the Company, the holders of common stock are entitled to share pro rata in all assets remaining after payment in full of all liabilities. All of the outstanding shares of common stock are fully paid and non-assessable. Holders of common stock have no preemptive rights to purchase the Company’s common stock. There are no conversion or redemption rights or sinking fund provisions with respect to the common stock.
On February 24, 2021, the Company entered into
a Common Stock Purchase Agreement with an investor pursuant to which the investor agreed to purchase up to $5,000,000 of the Company’s
registered common stock at $0.015 per share. Pursuant to the Agreement, purchases may be made by the Company during the Commitment Period
(as defined in the Agreement) through the submission of a purchase notice to the investor no sooner than ten business days after the
preceding closing. No purchase notice can be made in an amount less than $10,000 or greater than $500,000 or greater than two times the
average of the daily trading dollar volume for the Company’s common stock during the ten business days preceding the purchase date.
Each purchase notice is limited to the investor beneficially owning no more than 4.99% of the total outstanding common stock of the Company
at any given time. There are certain conditions precedent to each purchase including, among others, an effective registration statement
in place and the VWAP of the closing price of the Company’s common stock greater than $0.0175 for the Company's common stock during
the five business days prior to the closing. From January 1, 2023 to March 31, 2023, the investor purchased shares of common stock for a cash consideration of $
On February 10, 2023, the Company issued
shares of its common stock to a consultant for services. The common stock was valued at the fair market price of $
On February 21, 2023, the Company issued
shares of its common stock to a consultant for services. The common stock was valued at the fair market price of $
On March 13, 2023, the Company issued
shares of its common stock to a consultant for services. The common stock was valued at the fair market price of $
On March 23, 2023, the noteholder of Note F converted
the principal balance of $
On April 27, 2023, the noteholder of Note F converted
the principal balance of $
| 15 |
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. In addition, on October 3, 2022, the Company awarded shares of common stock to an advisor vesting 100,000 shares on the first anniversary date of issuance, 100,000 shares vesting on the second anniversary, and the remaining 100,000 vesting the third anniversary of the date of issuance. The common shares vested pursuant to the 2022 Plan amounted to shares and shares at June 30, 2023 and December 31, 2022, and the shares remain unvested as of June 30, 2023. For the three months and six months ended June 30, 2023, the Company recorded $ and $ as stock compensation expense for the shares and shares payable to an officer and a director that remain unvested as of June 30, 2023. Total shares payable to an officer, consultant and a director totaled shares and shares at June 30, 2023 and December 31, 2022, respectively.
Shares earned and issued related to the consulting agreements are issued under the 2017 Stock Incentive Plan and the 2019 Stock Incentive Plan (Note 4). Vesting of the shares is subject to acceleration of vesting upon the occurrence of certain events such as a Change of Control (as defined in the agreement) or the listing of the Company’s common stock on a senior exchange.
| 16 |
A summary of the status of the Company’s non-vested shares as of June 30, 2023 and 2022, and changes during the three months period then ended, is presented below:
| Schedule of summary of non-vested shares | ||||||||
| Non-vested Shares of Common Stock | Weighted Average Fair Value | |||||||
| 2022 Plan | ||||||||
| Authorized shares per the 2022 Plan – shares | ||||||||
| Balance at December 31, 2022 | $ | |||||||
| Awarded | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ||||||||
| Balance at June 30, 2023 | $ | |||||||
| 2019 Plan | ||||||||
| Authorized shares per the 2019 Plan – shares | ||||||||
| Balance at December 31, 2022 | $ | |||||||
| Awarded | ||||||||
| Vested | ||||||||
| Forfeited | ||||||||
| Balance at June 30, 2023 | $ | |||||||
| 2017 Plan | ||||||||
| Authorized shares per the 2017 Plan – shares | ||||||||
| Balance at December 31, 2022 | $ | |||||||
| Awarded | ||||||||
| Vested | ||||||||
| Forfeited | ||||||||
| Balance at June 30, 2023 | $ | |||||||
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.
| 17 |
Conversion: Each holder of Series A Supervoting Preferred Stock may voluntarily convert its shares into shares of common stock of the Corporation at a rate of 1:100 (as may be adjusted for any combinations or splits with respect to such shares).
Rank: All shares of the Series A Supervoting Preferred Stock shall rank senior to the Corporation’s (A) common stock, par value $0.001 per share, and any other class or series of capital stock of the Corporation hereafter created.
Voting Rights:
| 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 shares of preferred stock issued and outstanding at June 30, 2023 and December 31, 2022, respectively.
Series B Convertible Preferred Stock Equity Financing
On November 16, 2020, the Board of Directors of the Company authorized the issuance of up to 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.
| 18 |
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 |
November 19, 2020
On November 19, 2020, pursuant to the terms of a Securities Purchase Agreement dated November 16, 2020 (the “SPA”), the Company entered into a new preferred equity financing agreement with GHS Investments, LLC (“GHS”) in the amount of up to $600,000. The SPA provides for GHS’s purchase, from time to time, of up to 600 shares of the newly-designated Series B Convertible Preferred Stock. The initial closing under the SPA consisted of 45 shares of Series B Convertible Preferred Stock, stated value $1,200 per share, issued to GHS for an initial purchase price of $45,000, or $1,000 per share. At the Company’s option, and subject to the terms of the SPA and the Certificate of Designation for the Series B Convertible Preferred Stock (the “COD”), additional closings in the amount of 40 shares of Series B Convertible Preferred Stock for a total purchase price of $40,000 may take place at a rate of up to once every 30 days. In connection with the initial closing in the amount of 45 shares of Series B Convertible Preferred Stock, the Company issued an additional 25 shares of Series B Convertible Preferred Stock to GHS as a commitment fee.
No additional closings may take place after the two-year anniversary of the SPA, or once the entire $600,000 amount has been funded. If the average daily dollar trading volume for the Company’s common stock for the 30 trading days preceding a particular additional closing is at least $50,000 per day, the Company may, at its option, increase the amount of that additional closing to 75 shares of Series B Convertible Preferred Stock ($75,000).
The Series B Convertible Preferred Stock is classified as temporary equity, as it is convertible upon issuance at an amount equal to the lowest traded price for the Company’s common stock for the fifteen trading days immediately preceding the date of conversion.
Based on the requirements of ASC 815, Derivatives and Hedging, the conversion feature represents an embedded derivative that is required to be bifurcated and accounted for as a separate derivative liability. The derivative liability is originally recorded at its estimated fair value and is required to be revalued at each conversion event and reporting period. Changes in the derivative liability fair value are reported in operating results each reporting period.
| 19 |
On November 19, 2020, GHS purchased a total of
70 shares of Series B Convertible Preferred Stock for gross proceeds of $
On November 19, 2020 (the date of receipt of cash
proceeds of $
The Company recalculated the value of the derivative
liability associated with this convertible preferred stock recording a loss of $
The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0013 to $0.0141, the closing stock price of the Company's common stock on the date of valuation ranging from $0.0015 to $0.0184, an expected dividend yield of 0%, expected volatility ranging from 160.41% to 440.99%, risk-free interest rates ranging from 0.38% to 5.40%, and an expected term ranging from 0.13 years to 1.50 years.
December 16, 2020
On December 16, 2020, pursuant to the terms of
the SPA, GHS purchased an additional 85 shares of Series B Convertible Preferred Stock for gross proceeds of $
On December 16, 2020 (the date of receipt of cash
proceeds of $
The Company recalculated the value of the derivative
liability associated with this convertible preferred stock recording a loss of $
The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0013 to $0.0141, the closing stock price of the Company's common stock on the date of valuation ranging from $0.0015 to $0.0184, an expected dividend yield of 0%, expected volatility ranging from 160.41% to 437.59%, risk-free interest rates ranging from 0.38% to 5.40%, and an expected term ranging from 0.21 years to 1.50 years.
| 20 |
December 20, 2021
On December 20, 2021, pursuant to the terms of
the SPA, GHS purchased an additional 51 shares of Series B Convertible Preferred Stock for gross proceeds of $
The Company recalculated the value of the
derivative liability associated with this convertible preferred stock recording a loss of $
The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0013 to $0.0050 the closing stock price of the Company's common stock on the date of valuation ranging from $0.0015 to $0.0070, an expected dividend yield of 0%, expected volatility ranging from 174.58% to 221.64%, risk-free interest rates ranging from 0.39% to 5.40%, and an expected term of 1.50 years.
February 7, 2022
On February 7, 2022, pursuant to the terms of
the SPA, GHS purchased an additional 51 shares of Series B Convertible Preferred Stock for gross proceeds of $
On February 7, 2022 (the date of receipt of cash
proceeds of $51,000 issuance), the Company valued the fair value of the derivative and recorded an initial derivative liability of $
The Company recalculated the value of the derivative
liability associated with this convertible preferred stock recording a loss of $
The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0013 to $0.0096, the closing stock price of the Company’s common stock on the date of valuation ranging from $0.0015 to $0.0172, an expected dividend yield of 0%, expected volatility ranging from 160.35% to 189.90%, risk-free interest rates ranging from 1.09% to 5.40%, and an expected term of 1.35 to 1.5 years.
| 21 |
March 24, 2022
On March 24, 2022, pursuant to the terms of the
SPA, GHS purchased an additional 136 shares of Series B Convertible Preferred Stock for gross proceeds of $
On March 24, 2022 (the date of receipt of cash
proceeds of $136,000 issuance), the Company valued the fair value of the derivative and recorded an initial derivative liability of $
The Company recalculated the value of the derivative
liability associated with the convertible note at June 30, 2023 and 2022, and recorded a loss of $
The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0013 to $0.0096, the closing stock price of the Company’s common stock on the date of valuation ranging from $0.0015 to $0.0183, an expected dividend yield of 0%, expected volatility ranging from 160.35% to 189.90%, risk-free interest rates ranging from 1.55% to 5.40%, and an expected term of 1.48 to 1.5 years.
November 17, 2022
On November 17, 2022, pursuant to the terms of
the SPA, GHS purchased an additional 61 shares of Series B Convertible Preferred Stock for gross proceeds of $
On November 17, 2022 (the date of receipt of cash
proceeds of $61,000 issuance), the Company valued the fair value of the derivative and recorded an initial derivative liability of $
The Company recalculated the value of the derivative
liability associated with the convertible note at June 30, 2023 and recorded a loss of $
The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0013 to $0.0020, the closing stock price of the Company’s common stock on the date of valuation ranging from $0.0015 to $0.0022, an expected dividend yield of %, expected volatility ranging from % to %, risk-free interest rates ranging from % to %, and an expected term of years.
As a result of issuance of derivative instruments,
the Company recorded a derivative liability of $
| 22 |
Warrants
A summary of the status of the Company’s warrants as of June 30, 2023 and 2022, and changes during the six months then ended, is presented below:
| Schedule of summary of warrant activity | ||||||||||||
| Shares Under Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | ||||||||||
| Outstanding at December 31, 2021 | ||||||||||||
| Issued | $ | Years | ||||||||||
| Exercised | ||||||||||||
| Expired/Forfeited | ||||||||||||
| Outstanding at June 30, 2022 | $ | Years | ||||||||||
| Outstanding at December 31, 2022 | ||||||||||||
| Issued | $ | Years | ||||||||||
| Exercised | ||||||||||||
| Expired/Forfeited | ||||||||||||
| Outstanding at June 30, 2023 | $ | Years | ||||||||||
NOTE 10 – SUBSEQUENT EVENT
Management has evaluated subsequent events through the date of this Report, the date the financial statements were available to be issued, noting the following items that would impact the accounting for events or transactions in the current period or require additional disclosure.
On July 21, 2023, the Company and noteholders A and D agreed to amend the maturity date of the convertible promissory notes to March 1, 2024, subject to certain conditions with respect to voluntary conversions, conversion prices, incentive shares to be issued to the noteholders upon request from the noteholders (1st incentive shares worth $20,000), and upon full conversion of the notes, the noteholder shall receive 2nd incentive shares worth $50,000. The conversion price for the incentive shares shall be the volume weighted average price (VWAP) per common share for the previous ten (10) trading days (See Note 6 – Convertible Promissory Notes).
| 23 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contain certain forward-looking statements. Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events; are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited to, those discussed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022. We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements.
Basis of Presentation
The financial information presented below and the following Management Discussion and Analysis of the Consolidated Financial Condition, Results of Operations, Stockholders’ Equity and Cash Flow for the quarterly periods ended June 30, 2023 and 2022 gives effect to our acquisition of OXYS Corporation (“OXYS”) on July 28, 2017. In accordance with the accounting reporting requirements for the recapitalization related to the “reverse merger” of OXYS, the financial statements for OXYS have been adjusted to reflect the change in the shares outstanding and the par value of the common stock of OXYS. Additionally, all intercompany transactions between the Company and OXYS have been eliminated.
Forward-Looking Statements
Statements in this management’s discussion and analysis of financial condition and results of operations contain certain forward-looking statements. To the extent that such statements are not recitations of historical fact, such statements constitute forward looking statements which, by definition involve risks and uncertainties. Where in any forward-looking statements, if we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result or be achieved or accomplished.
Factors that may cause differences between actual results and those contemplated by forward-looking statements include those discussed in “Risk Factors” and are not limited to the following:
| · | 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; |
| 24 |
| · | 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. |
You should not rely on forward-looking statements in this document. This management’s discussion contains forward looking statements that involve risks and uncertainties. We use words such as “anticipates,” “believes,” “plans,” “expects,” “future,” “intends,” and similar expressions to identify these forward-looking statements. Prospective investors should not place undue reliance on these statements, which apply only as of the date of this document. Our actual results could differ materially from those anticipated in these forward-looking statements.
Critical Accounting Policies
The following discussions are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. These financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingencies. We continually evaluate the accounting policies and estimates used to prepare the financial statements. We base our estimates on historical experiences and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management.
Trends and Uncertainties
On July 28, 2017, we closed the reverse acquisition transaction under the Securities Exchange Agreement dated March 16, 2017, as reported in our Current Report on Form 8-K filed with the Commission on August 3, 2017. Following the closing, our business has been that of OXYS, Inc. and HereLab, Inc., our wholly owned subsidiaries. Our operations have varied significantly following the closing since, prior to that time, we were an inactive shell company.
Impact of COVID-19
The global COVID-19 pandemic continues to present uncertainty and unforeseeable risks to the Company’s operations and business plan. The Company has closely monitored recent developments, including the lifting of COVID-19 safety measures, the spread of new strains or variants of the coronavirus (such as the Delta and Omicron variants), and supply chain and labor shortages. Thus, the full impact of the COVID-19 pandemic on the business and operations remains uncertain and will vary depending on the pandemic’s future impact on the third parties with whom the Company does business, as well as any legal or regulatory consequences resulting therefrom. The Company has been following the recommendations of health authorities to minimize exposure risk for its team members and may take further actions that alter our operations, including any required by federal, state or local authorities, or that it determines are in the best interests of its employees and other third parties with whom the Company does business.
| 25 |
Historical Background
We were incorporated in the State of New Jersey on October 1, 2003 under the name of Creative Beauty Supply of New Jersey Corporation and subsequently changed our name to Gotham Capital Holdings, Inc. on May 18, 2015. We commenced operations in the beauty supply industry as of January 1, 2004. On November 30, 2007, our Board of Directors approved a plan to dispose of our wholesale and retail beauty supply business. From January 1, 2009 until July 28, 2017, we had no operations and were a shell company.
On March 16, 2017, our Board of Directors adopted resolutions, which were approved by shareholders holding a majority of our outstanding shares, to change our name to “IIOT-OXYS, Inc.”, to authorize a change of domicile from New Jersey to Nevada, to authorize a 2017 Stock Awards Plan, and to approve the Securities Exchange Agreement (the “OXYS SEA”) between the Company and OXYS Corporation (“OXYS”), a Nevada corporation incorporated on August 4, 2016.
Under the terms of the OXYS SEA we acquired 100% of the issued voting shares of OXYS in exchange for 34,687,244 shares of our Common Stock. We also cancelled 1,500,000 outstanding shares of our Common Stock and changed our management to Mr. DiBiase who also served in management of OXYS. Also, one of our principal shareholders entered into a consulting agreement with OXYS to provide consulting services during the transition. The OXYS SEA was effective on July 28, 2017, and our name was changed to “IIOT-OXYS, Inc.” at that time. Effective October 26, 2017, our domicile was changed from New Jersey to Nevada.
At the present time, we have two, wholly-owned subsidiaries which are OXYS Corporation and HereLab, Inc. (an entity immaterial to our operations), through which our operations are conducted.
General Overview
IIOT-OXYS, Inc., a Nevada corporation (the “Company”), and OXYS, were originally established for the purposes of designing, building, testing, and selling Edge Computing systems for the Industrial Internet. Both companies were, and presently are, early-stage technology startups that are largely pre-revenue in their development phase. HereLab (an entity immaterial to our operations) is also an early-stage technology development company. We received our first revenues in the last quarter of 2017, continued to realize revenues until 2020 when the pandemic hit, and we realized nominal revenues through 2021, and have shown increased revenues in 2022, and 2023 year-to-date.
We develop hardware, software and algorithms that monitor, measure and predict conditions for energy, structural, agricultural and medical applications. We use domain-specific Artificial Intelligence to solve industrial and environmental challenges. Our engineered solutions focus on common sense approaches to machine learning, algorithm development and hardware and software products.
We use off the shelf components, with reconfigurable hardware architecture that adapts to a wide range of customer needs and applications. We use open-source software tools, while still creating proprietary content for customers, thereby reducing software development time and cost. The software works with the hardware to collect data from the equipment or structure that is being monitored.
We focus on developing insights. We develop algorithms that help our customers create insights from vast data streams. The data collected is analyzed and reports are created for the customer. From these insights, the customer can act to improve their process, product or structure.
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Results of Operations for the Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022
For the three months ended June 30, 2023, we earned revenues of $35,289 and incurred related cost of sales of $8,495. Our operating expenses were $130,080 which included professional fees of $61,505, payroll costs of $54,151, amortization of intangible assets of $12,342, and general and administrative expenses of $2,082. We recorded net other expenses of $163,473 consisting of interest expense of $13,996, a loss due to change in fair market value of derivative liability of $155,398, offset by interest income on note receivable of $5,921. We also recorded $16,299 as preferred stock dividend on convertible preferred stock for the three months ended June 30, 2023. As a result, we incurred a net loss of $283,058 for the three months ended June 30, 2023.
Comparatively, for the three months ended June 30, 2022, we earned revenues of $16,500 and incurred related cost of sales of $510. Our operating expenses were $229,962 which included professional fees of $68,184, payroll costs of $130,290, amortization of intangible assets of $12,341, and general and administrative expenses of $19,147. We recorded net other income of $25,399, consisting of interest expense of $16,319 on notes payable due to amortization of debt discount and interest payable on notes payable, offset by gain on change in the fair market value of derivative liability of $36,057, and interest income on note receivable of $5,661. We also recorded $12,280 as preferred stock dividend on convertible preferred stock for the three months ended June 30, 2022. As a result, we incurred a net loss of $200,853 for the three months ended June 30, 2022.
During the current and prior period, we did not record an income tax benefit due to the uncertainty associated with the Company’s ability to utilize the deferred tax assets.
Results of Operations for the Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022
For the six months ended June 30, 2023, we earned revenues of $78,572 and incurred related cost of sales of $25,459. Our operating expenses were $308,485 which included professional fees of $124,167, payroll costs of $140,258, amortization of intangible assets of $24,547, and general and administrative expenses of $19,513. We recorded net other expenses of $173,437 consisting of interest expense of $28,524, and a loss due to change in fair market value of derivative liability of $156,690, offset by interest income on note receivable of $11,777. We also recorded $32,419 as preferred stock dividend on convertible preferred stock for the six months ended June 30, 2023. As a result, we incurred a net loss of $461,228 for the six months ended June 30, 2023.
Comparatively, for the six months ended June 30, 2022, we earned revenues of $16,500 and related cost of sales of $510. Our operating expenses were $409,177 which included professional fees of $107,739, payroll costs of $240,948, amortization of intangible assets of $24,547, and general and administrative expenses of $35,943. We recorded net other expenses of $308,117, consisting of interest expense of $263,691 on notes payable due to amortization of debt discount and interest payable on notes payable, loss on derivates of $201,943, offset by gain on change in the fair market value of derivative liability of $151,856 and interest income on note receivable of $5,661. We also recorded $24,708 as preferred stock dividend on convertible preferred stock for the six months ended June 30, 2022. As a result, we incurred a net loss of $726,012 for the six months ended June 30, 2022.
During the current and prior period, we did not record an income tax benefit due to the uncertainty associated with the Company’s ability to utilize the deferred tax assets.
The first half year of revenue in 2023 was a significant improvement over the same period in 2022 (an increase of 376%) and sustained the revenue momentum achieved throughout 2022. We expect this momentum achieved in the first half of 2023 will continue through the remainder of 2023 – given adequate funding to fuel sales & marketing efforts. Our strong six months revenue and our confidence this momentum will continue through 2023, and beyond, are based on the following factors:
| - | Our current DOT Bridge Monitoring Contract and overall Structural Health Monitoring (“SHM”) vertical is the foundation of our revenue momentum. The current monitoring revenue will continue through the second half of 2023, with the previously approved expansion to continue beyond June. We believe that discussions with our main contractor to the DOT for extensions and expansions have been favorable. We also believe that prospects with our current DOT state, and DOT contacts in two other northeast states bode well for future business in mid-2024. There is still potential for local municipalities in our current northeast state to contribute revenue in the second half of 2023 and into 2024. |
| 27 |
| - | Our Smart Manufacturing vertical is benefiting from the progress on our CNC Proof of Concept (“POC”), that successfully concluded in May 2023, and has resulted in a signed Software-as-a-Service (“SaaS”) contract in June 2023. Public endorsements and promotional videos are forthcoming featuring this Smart Manufacturing customer. We believe these endorsements and promotional videos will lead to other paid CNC POCs and additional SaaS contracts, which would contribute to revenue in the second half of 2023 and beyond. It is expected these endorsements will also strengthen our position to secure additional POCs for other discrete manufacturing processes, including metal stamping, plastic injection molding, plastic extrusion, and automated assembly and test. |
| - | We have re-evaluated our Indoor Air Quality (“IAQ”) vertical and our business arrangement with Aretas Sensor Networks (“Aretas”). We have decided to discontinue our efforts in this vertical and re-direct those resources to our better performing verticals of Structural Health Monitoring and Smart Manufacturing. In addition to discontinuing our business arrangement with Aretas, on October 4, 2022, Aretas failed to make the required $20,000 interest payment under the 10% Unsecured Convertible Promissory Note issued to us by Aretas on April 4, 2022. A notice of default was sent to Aretas on June 8, 2023 and we are currently pursuant all legal remedies. |
| - | Our Strategic Partnership development continues to be a “force multiplier” for us. The strength of our Aingura IIoT, S.L. partnership provides supplemental expertise, equipment and software, which ensures we continue to bring value to our customers. We will also continue to develop our other previously announced partnerships, (with the exception of Aretas). |
We believe that our business development in these industries has high potential for success, due to the strength of their size and growth. The global smart manufacturing (also known as Industry 4.0) was $97.6 billion in 2022 and will reach $228.3 billion by 2027 (CAGR 18.5%),1 and the worldwide SHM industry was $2.0 billion in 2021 and will reach $4.0 billion by 2027 (CAGR of 14.6%).2
Among our many tailwinds, we do face a significant headwind. Since February, we have been unable to raise funds for ongoing operations through our existing financing agreements due to market conditions. Our CEO and COO have not received any compensation since mid-April (their salaries have accrued), and the lack of funds have significantly limited sales and marketing efforts. Our management is working to secure funding from our lead investor to pay for ongoing expenses and the leadership team is considering many options for both the short and long term. These options will depend largely upon our ability to continue to raise funds and implement a marketing and sales plan. In the event we are unable to raise adequate funds, management may need to consider other options such as pursuing suitable companies to merge with or acquire us.
It is anticipated that revenue momentum will continue through the second quarter of 2023 and that overall total revenue for 2023 will exceed that of 2022. Revenue in Q3 2023 may be less than in the same period in 2022 due to reduced available funds for sales and marketing efforts. However, given the valuable real-world data we have collected, our Artificial Intelligence (“AI”) Machine Learning algorithms we’ve developed, compelling use cases and marketing collateral developed from our data and algorithms, combined with our experienced leadership, savvy technological talent, and operational execution excellence, we believe these goals are achievable, if adequate funding for sales and marketing efforts is secured.
Liquidity and Capital Resources for the Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022
At June 30, 2023, we had a cash balance of $7,896, which represents a $25,440 reduction from the $33,336 cash balance at December 31, 2022. This decrease was primarily as a result of net cash used in operating activities of $78,551, and net cash provided by financing activities of $53,111.
Operating Activities
Net cash flows used in operating activities for the six months ended June 30, 2023 was $78,551, primarily attributed to the net loss of $461,228, stock compensation expense of $825, discount received on note receivable of $1,860, and amortization of intangible assets of $24,547. The Company recorded changes in operating assets and liabilities of $359,166 primarily attributable to decrease in accounts receivable of $3,588, increase in prepaid expenses and other current assets of $4,987, increase in accounts payable of $81,559, increase in accrued liabilities of $80,574, increase in derivative liabilities of $156,690, decrease in unearned interest of $2,932, increase in shares payable to related parties of $3,006, and increase in salaries payable to related parties of $41,667.
[1] https://www.marketsandmarkets.com/Market-Reports/industry-4-market-102536746.html
[2] https://www.marketsandmarkets.com/Market-Reports/structural-health-monitoring-market-101431220.html
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Net cash flows used in operating activities for the six months ended June 30, 2022 was $346,823, primarily attributable to net loss of $726,012, stock compensation expense of $900, discount on note receivable of $6,606, amortization of debt discount on notes payable and preferred stock of $37,400, and amortization of intangible assets of $24,547. The Company recorded a net change in operating assets and liabilities of $309,736 attributable to net increase in accounts receivable of $16,500, net decrease in accounts payable of $4,371, net increase in accrued liabilities of $53,280, net increase in derivative liabilities of $241,591, increase in unearned interest of $15,233, net increase in shares payable to related parties of $8,604, and increase in salaries payable to related parties of $11,899.
Investing Activities
Net cash used in investing activities for the six months ended June 30, 2023 was $0. Net cash used in investing activities for the six months ended June 30, 2022 resulted due to cash advanced for a promissory note totaling $200,000.
Financing activities
Net cash provided by financing activities for the six months ended June 30, 2023 was $53,111, primarily due to sales of our common stock of $54,195 and paying $1,084 in costs incurred in raising capital. Net cash provided by financing activities for the six months ended June 30, 2022 was $573,498 primarily due to cash received from sale of common stock of $393,365 and paying $7,867 in costs for raising capital, and cash received from sale of Series B Preferred Stock of $188,000.
As a result of the above activities, the Company recorded a decrease of $25,440 in cash for the six months ended June 30, 2023, and an increase of $26,675 for the six months ended June 30, 2022, respectively.
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has suffered continuing operating losses, has a working capital deficit of $1,931,009, used cash flows in operating activities of $78,551, and has an accumulated deficit of $9,768,365 as of June 30, 2023. These factors, among others, raise a substantial doubt about the Company’s ability to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity capital expenditures or capital resources.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, the Company has elected not to provide the disclosure required by this item.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
The Company has established disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and, as such, is accumulated and communicated to the Company’s Chief Executive Officer, Clifford L. Emmons, who serves as our principal executive officer, and to the Company’s Interim Chief Financial Officer, Karen McNemar, who serves as our principal financial and accounting officer, as appropriate to allow timely decisions regarding required disclosure. Mr. Emmons and Ms. McNemar, evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, as of June 30, 2023. Based on their evaluation, Mr. Emmons and Ms. McNemar concluded that the Company’s disclosure controls and procedures were not effective as of June 30, 2023.
Changes in Internal Control Over Financial Reporting
There has been no change in the Company’s internal control over financial reporting, as defined in Rules 13a-15(f) of the Exchange Act, during the Company’s quarter ended June 30, 2023, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 6. Exhibits
| SEC Ref. No. | Title of Document |
| 10.1* | Extension No. 4 to the Convertible Promissory Note issued July 29, 2020 with GHS Investments LLC |
| 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.
| 30 |
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: August 18, 2023 | By | /s/ Clifford L. Emmons |
| Clifford L. Emmons, Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: August 18, 2023 | By | /s/ Karen McNemar |
| Karen McNemar, Interim Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
| 31 |
Exhibit 10.1
Extension No. 4 TO CONVERTIBLE PROMISSORY NOTE
This Extension No. 4 (this “Extension”) to the Convertible Promissory Note, issued July 29, 2020 (the “Issuance Date”), as amended, in the original principal amount of $75,000, is by and between IIOT-OXYS, Inc., a Nevada corporation (the “Borrower”), on the one hand, and GHS Investments LLC, a Nevada limited liability company (the “Holder”), on the other hand. The Borrower and the Holder will be referred to individually as a “Party” and collectively as the “Parties.” Any capitalized terms not defined in this Extension will have the meaning set forth in the Convertible Promissory Note issued July 29, 2020, as amended, issued to the Holder by the Borrower (the “Note”), attached hereto as Exhibit A.
RECITALS
WHEREAS, on July 29, 2020, the Borrower issued to the Holder the Note in the original principal amount of $75,000 (the “Principal Amount”);
WHEREAS, on April 29, 2021, the Borrower and the Holder entered into Extension No. 1 to the Convertible Promissory Note extending the maturity date to October 29, 2021;
WHEREAS, on November 4, 2021, the Borrower and the Holder entered into Extension No. 2 to the Convertible Promissory Note extending the maturity date to April 29, 2022 (the “Maturity Date”);
WHEREAS, on April 29, 2022, the Borrower and the Holder entered into Extension No. 3 to the Convertible Promissory Note extending the maturity date to April 29, 2023; and
WHEREAS, the Parties wish to amend the Note to extend the Maturity Date to April 29, 2025 (the “Maturity Date”).
THEREFORE, in consideration of the foregoing recitals, mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as set forth below.
| 1 |
AGREEMENT
1. Extended Maturity Date. Pursuant to 4.3 of the Note, the definition of “Maturity Date” in the Note shall be April 29, 2025.
2. Waiver of Prior Defaults. Upon entering into this Extension, the Holder hereby waives all Events of Default, known or unknown to the Holder, by Borrower prior to the Effective Date.
3. No Other Changes. Except as extended hereby, the Note will continue to be, and will remain, in full force and effect. Except as provided herein, this Extension will not be deemed (i) to be a waiver of, or consent to, or a modification or amendment of, any other term or condition of the Note or (ii) to prejudice any right or rights which the Parties may now have or may have in the future under or in connection with the Note or any of the instruments or agreements referred to therein, as the same may be amended, restated, supplemented or otherwise modified from time to time.
4. Authority; Binding on Successors. The Parties represent that they each have the authority to enter into this Extension. This Extension will be binding on, and will inure to the benefit of, the Parties to it and their respective heirs, legal representatives, successors, and assigns.
5. Governing Law and Venue. This Extension and the rights and duties of the Parties hereto will be construed and determined in accordance with the terms of the Note.
6. Incorporation by Reference. The terms of the Note, except as amended by this Extension, are incorporated herein by reference and will form a part of this Extension as if set forth herein in their entirety.
7. Counterparts; Facsimile Execution. This Extension may be executed in any number of counterparts and all such counterparts
taken together will be deemed to constitute one instrument. Delivery of an executed counterpart of this Extension by facsimile or email
will be equally as effective as delivery of a manually executed counterpart of this Extension.
| 2 |
IN WITNESS WHEREOF, each of the undersigned has executed this Extension the respective day and year set forth below:
| BORROWER: | IIOT-OXYS, Inc. | |
| Date: May 1, 2023 | By | /s/ Clifford L. Emmons |
| Clifford L. Emmons, CEO | ||
| HOLDER: | ||
| Date: May 1, 2023 | By | /s/ Sarfraz Hajee |
| Sarfraz Hajee, Member | ||
| 3 |
EXHIBIT A
Convertible Promissory Note issued July 29, 2020
[See Attached]
| 4 |
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 June 30, 2023; |
| 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: August 18, 2023 | |||
| /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 June 30, 2023; |
| 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: August 18, 2023 | |||
| /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 June 30, 2023, 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: August 18, 2023 | |||
| /s/ Clifford L. Emmons | |||
| Clifford L. Emmons, Chief Executive Officer | |||
| (Principal Executive 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 June 30, 2023, 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: August 18, 2023 | |||
| /s/ Karen McNemar | |||
| Karen McNemar, Interim Chief Financial Officer | |||
| (Principal Financial and Accounting Officer) | |||