IIOT-OXYS, Inc 10-K for FY2022
IIOT-OXYS, Inc. (ITOX)
About this 10-K
IIOT-OXYS, Inc filed this 10-K on April 13, 2023, covering the fiscal year ended December 31, 2022 (FY2022).
Headline figures
Fiscal year ended December 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $88.9K
- up 688.2% from $11.28K a year earlier
- Net loss
- $1.02M
- compared with a net loss of $1.04M a year earlier
- Diluted EPS
- $0.00
- compared with -$0.01 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the fiscal year ended
For the transition period from __________ to __________
Commission File Number:
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Securities registered pursuant to Section 12(b) of the Act:
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| ☒ . | Smaller reporting company | ||
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The aggregate market value of the voting and non-voting
common equity held by non-affiliates of the registrant as of the last business day of its most recently completed second fiscal quarter
based upon the price at which the common equity was last sold was $
As of April 13, 2023, there were shares of the registrant’s Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
TABLE OF CONTENTS
| i |
Forward-Looking Statements
The statements contained in this report that are not historical facts are forward-looking statements that represent management’s beliefs and assumptions based on currently available information. Forward-looking statements include the information concerning possible or assumed future operations, business strategies, need for financing, competitive position, potential growth opportunities, ability to retain and recruit personnel, the effects of competition and the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believes,” “intends,” “may,” “should,” “anticipates,” “expects,” “could,” “plans,” or comparable terminology or by discussions of strategy or trends. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that these expectations will prove to be correct. Such statements by their nature involve risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such forward-looking statements.
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, 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 acquire new customers; | |
| · | our ability to maintain and grow our business with our current customers; | |
| · | our ability to meet the volume and service requirements of our customers; | |
| · | industry consolidation, including acquisitions by us or our competitors; | |
| · | capacity utilization and the efficiency of manufacturing operations; | |
| · | success in developing new products; | |
| · | timing of our new product introductions; | |
| · | new product introductions by competitors; | |
| · | the ability of competitors to more fully leverage low cost geographies for manufacturing or distribution; | |
| · | product pricing, including the impact of currency exchange rates; | |
| · | effectiveness of sales and marketing resources and strategies; | |
| · | adequate manufacturing capacity and supply of components and materials; | |
| · | strategic relationships with our suppliers; | |
| · | product quality and performance; | |
| · | protection of our products and brand by effective use of intellectual property laws; | |
| · | the financial strength of our competitors; | |
| · | the outcome of any future litigation or commercial dispute; | |
| · | barriers to entry imposed by competitors with significant market power in new markets; | |
| · | government actions throughout the world; and | |
| · | our ability to service debt, when due. |
Although the forward-looking statements in this Annual Report on Form 10-K (the “Annual Report”) are based on our beliefs, assumptions and expectations, taking into account all information currently available to us, we cannot guarantee future transactions, results, performance, achievements or outcomes. No assurance can be made by anyone that the expectations reflected in our forward-looking statements will be attained, or that deviations from them will not be material and adverse. We undertake no obligation, other than as maybe be required by law, to update this Annual Report or otherwise make public statements updating our forward-looking statements.
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.
| ii |
PART I
| Item 1. | Business |
Historical Background
We were incorporated in the State of New Jersey on October 1, 2003 under the name of Creative Beauty Supply of New Jersey Corporation, and subsequently changed our name to Gotham Capital Holdings, Inc. on May 18, 2015. We commenced operations in the beauty supply industry as of January 1, 2004. On November 30, 2007, our Board of Directors approved a plan to dispose of our wholesale and retail beauty supply business. From January 1, 2009 until July 28, 2017, we had no operations and were a shell company.
On March 16, 2017, our Board of Directors adopted resolutions, which were approved by shareholders holding a majority of our outstanding shares, to change our name to “IIOT-OXYS, Inc.”, to authorize a change of domicile from New Jersey to Nevada, to authorize a 2017 Stock Awards Plan, and to approve the Securities Exchange Agreement (the “OXYS SEA”) between the Company and OXYS Corporation (“OXYS”), a Nevada corporation incorporated on August 4, 2016.
Under the terms of the OXYS SEA we acquired 100% of the issued voting shares of OXYS in exchange for 34,687,244 shares of our Common Stock. We also cancelled 1,500,000 outstanding shares of our Common Stock and changed our management to Mr. DiBiase who also served in management of OXYS. Also, one of our principal shareholders entered into a consulting agreement with OXYS to provide consulting services during the transition. The OXYS SEA was effective on July 28, 2017, and our name was changed to “IIOT-OXYS, Inc.” at that time. Effective October 26, 2017, our domicile was changed from New Jersey to Nevada.
At the present time, we have two, wholly-owned subsidiaries which are OXYS Corporation and HereLab, Inc. (an entity immaterial to our operations), through which our operations are conducted.
General Overview
IIOT-OXYS, Inc., a Nevada corporation (the “Company”), and OXYS, were originally established for the purposes of designing, building, testing, and selling Edge Computing systems for the Industrial Internet. Both companies were, and presently are, early stage technology startups that are largely pre-revenue in their development phase. The Company received its first revenues in the last quarter of 2017, has continued to realize revenues in 2022, and expects to realize revenue growth in 2023 due to its business development pipeline.
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 design a system of hardware and software, assemble, install, monitor data and apply our algorithms to help provide the customer insights.
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.
| 1 |
OUR SOLUTIONS ACHIEVE TWO OBJECTIVES
ADD VALUE
| · | We show clear path to improved asset reliability, machine uptime, machine utilization, energy consumption, and quality. | |
| · | We provide advanced algorithms and insights as a service. |
RISK MINIMIZATION
| · | We use simple measurements which are minimally invasive. | |
| · | We do not interfere with command and control of critical equipment. | |
| · | We do not interfere with machine control networks. |
HOW WE DO IT
Our location in Cambridge, Massachusetts is ideal since market-leading Biotech, Medtech, and Pharma multinational firms have offices, manufacturing plants and/ or R&D centers in Cambridge or the Greater Boston area, which gives us easier access to potential sales which, in turn, lowers our cost of sales. Additionally, we continue to gain traction in the structural health monitoring, indoor air quality, and smart manufacturing industries. We, therefore, have a range of opportunities as we continue to expand our customer base.
Our goals are to augment visual bridge inspection with instrumentation and predictive algorithms for structural health monitoring; improve indoor air quality with our partner’s proprietary sensors and our predictive analytics; and help Biotech, Pharma, and Medical Device companies realize the next wave of performance, productivity, and quality gains for their organizations, through our Smart Manufacturing/Industry 4.0technology and Artificial Intelligence (AI) and Machine Learning algorithms.
We have a unique value proposition in a fast-growing worldwide multi-billion USD market, and have positioned our business with strategic partners for accelerated growth. We are therefore well-poised for growth in 2023 and beyond, as we execute our plans and acquire additional customers.
WHAT MARKETS WE SERVE
SMART MANUFACTURING – MEDICAL DEVICES, BIOTECH, AND PHARMACEUTICAL SUPPLY CHAIN
We help our customers maintain machine uptime and maximize operational efficiency. We also enable then to do energy monitoring, predictive maintenance that anticipates problems before they happen, and improve part and process quality. We are on the operations side, not the patient-facing side. In this market vertical, our customers must provide high-quality products that must also pass rigorous review by governing bodies such as the FDA. Here again, we focus on machine uptime, operational efficiency, and predictive maintenance to avoid unplanned downtime.
| 2 |
SMART INFRASTRUCTURE
For bridges and other civil infrastructure, local, state and federal agencies have limited resources. We help our clients prioritize how to spend limited funds by addressing those fixes which need to be made first.
SMART BUILDINGS
Our Indoor Air Quality partner provides sensor technology that is augmented by our AI and Machine Learning algorithms. These systems allow commercial landlords to ensure safe healthy air quality for their properties and tenants.
OUR UNIQUE VALUE PROPOSITION
EDGE COMPUTING AS A COMPLIMENT TO CLOUD COMPUTING
Within the Internet of Things (“IoT”) and Industrial Internet of Things (“IIoT”), most companies right now are adopting an approach which sends all sensor data to the cloud for processing. We specialize in edge computing, where the data processing is done locally right where the data is collected. We also have advanced cloud-based algorithms that implement various machine learning and artificial intelligence algorithms.
ADVANCED ALGORITHMS
We have sought to differentiate from our competitors by developing advanced algorithms on our own and in collaboration with strategic partners These algorithms are an essential part of the edge computing strategy that convert raw data into actionable knowledge right where the data is collected without having to send the data to the cloud first.
RECONFIGURABLE HARDWARE AND SOFTWARE
Instead of focusing on creating tools, we use open-source tools to create proprietary content.
Marketing
Our marketing and sales efforts are divided into several distinct categories:
| 1) | We work with partners to leverage their sales and marketing channels. | |
| 2) | Direct business development and discussions with end use customers by company management; and | |
| 3) | Trade shows and international technical, sales and marketing meetings. |
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Competition
We have two principal sources of competition. The first comes from large companies such as Siemens, PTC, IBM, GE, Amazon, Google, etc., who all have their efforts in IIoT. However, these large companies are cloud – computing centric and they are trying to move towards edge devices from their present position of being solely cloud computing based. We will be starting in edge computing from day one as opposed to force-fitting a cloud-based solution into the limited computational capability and storage space of an edge device. We believe our systems will be more computationally efficient as compared to a cloud-based solution which requires more computational resources.
The second source of competition is from startups who are in the edge computing space. Examples are FogHorn Systems Inc., Tulip Interfaces, and MachineSense. There will be additional startups that will specifically target the edge computing space as the investor awareness and the technical focus shifts from cloud computing to edge computing. Whereas other startups focus on development of proprietary tools for edge computing, our solutions will use open source tools but will still create proprietary algorithms and software content for clients and customers. We feel this methodology of creating proprietary solutions using open source tools will allow us to rapidly address current and future customer needs.
Government Regulation
At present, we do not require any governmental approvals of any of our products or services.
Environmental Laws
At present, we are not regulated by any environmental laws.
Research and Development
We work with our partners and universities to develop IP; we will further develop this IP in house into products and services.
Other than expenses for legal, accounting, audit, tax preparation, intellectual property (IP), and other overhead expenses such rent, most of our funds are spent on technology development, product development, and research and development.
The efforts in research and development have already resulted in significant customer interest in various market verticals including industrial, automotive, aerospace, agricultural, infrastructure, and power generation.
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Intellectual Property
On February 5, 2018, we entered into a Non-Exclusive Patent License Agreement with MIT. The agreement, which was effective February 1, 2018, granted to us a royalty-bearing non-exclusive license under U.S. Patent Nos. 8344724 (“Non-Intrusive Monitoring of Power and Other Parameters” issued January 1, 2013), 14/263407 (“Non-Intrusive Monitoring” filed April 28, 2014), and Patent Cooperation Treaty Serial No. PCT/US2016/057165 (“Noncontact Power Sensing” filed October 14, 2016) during the term of the agreement. The term of the agreement was from the effective date until the expiration or abandonment of all issued patents and filed patent applications licensed pursuant to the agreement, unless terminated earlier in accordance with the agreement.
Under the agreement, we were required to make a first commercial sale of a “LICENSED PRODUCT” and/or a first commercial performance of a “LICENSED PROCESS,” as defined in the agreement, on or before September 30, 2018. We had negotiated revenue targets with MIT which would determine annual royalty payments. The 2018 minimum revenue target for the sale of products and services incorporating the MIT technology was $100,000. This minimum revenue amount would increase in subsequent years.
Within 30 days of invoicing, a non-refundable license issue fee of $10,000 was paid by us to MIT. Pursuant to the agreement, we were required to pay to MIT additional patent maintenance fees in years beyond 2018.
Pursuant to the agreement, we were required to pay to MIT a running royalty of 2% of “NET SALES,” as defined in the agreement made in the calendar years 2018, 2019, and 2020. For “NET SALES” made in the calendar year 2021 and every calendar year thereafter through the term of the agreement, we were required to pay to MIT a running royalty of 4%.
On October 31, 2018, we sent written notice of our intent to terminate the agreement with an effective date of termination of April 30, 2019. Since none of the technology licensed to us by MIT had been used by us in any of our products and we had been investing in the development of our own intellectual property, we determined the technology that was licensed from MIT wasn’t necessary in the near term. Due to this, the written notice sent by us expressed a desire by our management to renegotiate the terms of the agreement with MIT.
MIT declined to renegotiate the terms of the agreement and, on December 6, 2018, we received a notice of termination from MIT due to non-payment of fees. As of December 6, 2018, the agreement was terminated, fees are no longer accruing, interest is accruing and $76,284 in fees owed to MIT are still owing as of the date of this Annual Report. Despite the termination of the Agreement, we remain active with MIT as a member of the MIT Startup Exchange (STEX). The purpose of STEX is to promote collaboration and partnerships between MIT-connected startups and members of MIT’s Industrial Liaison Program. We remain open to future mutually acceptable agreements with MIT.
Our common stock is quoted on the OTC Pink under the symbol “ITOX.” The table below sets forth for the periods indicated the quarterly high and low bid prices as reported by OTC Markets. Limited trading volume has occurred during these periods. These quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions.
Customers
Due to our status of a start-up, at the moment, we depend on a few major customers. This should change as we implement plans for future growth.
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Employees
As of April 13, 2023, we have two full-time W-2 employees, including the CEO (and Interim CTO) and Interim CFO (and COO).
At the present time, except for the funding received from Cambridge MedSpace LLC and Vidhyadhar Mitta in the form of secured notes, there are no conflicts of interest between the Company and any of our officers and directors. This was determined as follows: i) none of their outside activities are soliciting business from our customers or business contacts; ii) they are not soliciting our investors to invest in other ventures; and iii) they are not soliciting our contract employees to leave us and join other efforts. At present, all our business services are provided by outside contractors.
Legal Proceedings
We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results. From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
| Item 1A. | Risk Factors |
Risks Related to Our Business
A pandemic, epidemic or outbreak of an infectious disease in the markets in which we operate or that otherwise impacts our facilities or suppliers could adversely impact our business.
If a pandemic, epidemic, or outbreak of an infectious disease including the recent outbreak of respiratory illness caused by a novel coronavirus (COVID-19) first identified in Wuhan, Hubei Province, China, or other public health crisis were to affect our markets or facilities, our business could be adversely affected. Consequences of the coronavirus outbreak are resulting in disruptions in or restrictions on our ability to travel. If such an infectious disease broke out at our office, facilities or work sites, our operations may be affected significantly, our productivity may be affected, our ability to complete projects in accordance with our contractual obligations may be affected, and we may incur increased labor and materials costs. If the customers with which we contract are affected by an outbreak of infectious disease, service work may be delayed or cancelled, and we may incur increased labor and materials costs. If our subcontractors with whom we work were affected by an outbreak of infectious disease, our labor supply may be affected and we may incur increased labor costs. In addition, we may experience difficulties with certain suppliers or with vendors in their supply chains, and our business could be affected if we become unable to procure essential equipment, supplies or services in adequate quantities and at acceptable prices. Further, infectious outbreak may cause disruption to the U.S. economy, or the local economies of the markets in which we operate, cause shortages of materials, increase costs associated with obtaining materials, affect job growth and consumer confidence, or cause economic changes that we cannot anticipate. Overall, the potential impact of a pandemic, epidemic or outbreak of an infectious disease with respect to our market or our facilities is difficult to predict and could adversely impact our business. In response to the COVID-19 situation, federal, state and local governments (or other governments or bodies) are considering placing, or have placed, restrictions on travel and conducting or operating business activities. At this time those restrictions are very fluid and evolving. We have been and will continue to be impacted by those restrictions. Given that the type, degree and length of such restrictions are not known at this time, we cannot predict the overall impact of such restrictions on us, our customers, our subcontractors and supply chain, others that we work with or the overall economic environment. As such, the impact these restrictions may have on our financial position, operating results and liquidity cannot be reasonably estimated at this time, but the impact may be material. In addition, due to the speed with which the COVID-19 situation is developing and evolving, there is uncertainty around its ultimate impact on public health, business operations and the overall economy; therefore, the negative impact on our financial position, operating results and liquidity cannot be reasonably estimated at this time, but the impact may be material.
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Escalating global tensions, including the conflict between Russia and Ukraine, could negatively impact us.
The ongoing conflict between Russia and Ukraine could lead to disruption, instability and volatility in global markets and industries that could negatively impact our operations. The U.S. government and other governments in jurisdictions in which we operate have imposed severe sanctions and export controls against Russia and Russian interests and threatened additional sanctions and controls. The impact of these measures, as well as potential responses to them by Russia, is currently unknown and they could adversely affect our business, partners or customers.
Because of our continued losses, there is substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.
Our financial statements as of and for the years ended December 31, 2022 and 2021 were prepared assuming that we would continue as a going concern. Our significant cumulative losses from operations as of December 31, 2022, raised substantial doubt about our ability to continue as a going concern. If the going-concern assumption were not appropriate for our financial statements, then adjustments would be necessary to the carrying values of the assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used. Since December 31, 2022, we have continued to experience losses from operations. We have continued to fund operations primarily through the sales of equity securities. Nevertheless, we will require additional funding to complete much of our planned operations. Our ability to continue as a going concern is subject to our ability to generate a profit (i.e. through partnerships such as our current partnerships with Aingura and Aretas) and/or obtain necessary additional funding from outside sources, including obtaining additional funding from the sale of our securities. Except for potential proceeds from the sale of equity in offerings by us and minimal revenues, we have no other source for additional funding. Our continued net operating losses and stockholders’ deficiency increase the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.
We have debt which is secured by all our assets. If there is an occurrence of an uncured event of default, the lenders can foreclose on all our assets, which would make any stock in the Company worthless.
We have entered into several secured loan transactions with investors (as disclosed herein), pursuant to which the outstanding debt was secured by all our assets. In the event we are unable to make payments, when due, on our secured debt, the lenders may foreclose on all our assets. In the event the lenders foreclose on our assets, any stock in the Company would have no value. Our ability to make payments on secured debt, when due, will depend upon our ability to make profit from operations and to raise additional funds through equity or debt financings. At the moment, we have no funding commitments that have not been previously disclosed, and we may not obtain any in the future.
Our future success is dependent upon the success of partnerships with other similarly-situated entities.
Effective March 18, 2020, we entered into the Collaboration Agreement with Aingura IIoT, S.L. (“Aingura”) pursuant to which Aingura appointed and authorized us to act as the sales network of Aingura’s services and products. Aingura delivers engineered, high-tech solutions by implementing Smart Factory Operational Architectures. The agreement has an initial term of one year from the execution date. Unless terminated prior, the agreement automatically renews for successive annual periods, unless either party notifies the other in writing of its express intention not to renew the agreement at least two months prior to the date of termination of the agreement. There are restrictive provisions in the agreement that may prevent us from pursuing other business opportunities during the term of the agreement. In addition, if we are unable to make sales under the agreement, we will not collect any sales commissions and our business could fail.
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On October 3, 2022, we entered into an Agency Agreement with Aretas Sensor Networks Inc., a company incorporated under the laws of the Province of British Columbia (“Aretas”), pursuant to which Aretas appointed and authorized us to act as a sales representative for Aretas’ products. Aretas combines IoT sensor technology, cloud-based platform, and machine learning/ AI for an end-to-end solution to ingest, collect, display, and analyze IoT data to allow companies to make better decisions. The agreement has an initial term of one year from the execution date. Unless terminated prior, the agreement automatically renews for successive annual periods, unless either party notifies the other in writing of its express intention not to renew the agreement at least two months prior to the date of termination of the agreement. If we are unable to make sales under the agreement, we will not collect any sales commissions and our business could fail.
On December 28, 2022, we entered a non-exclusive Distributor Agreement with Denmark based ElastiSense ApS ("ElastiSense") for their proprietary sensor technology. ElastiSense's sensor technology is ideal for structural health monitoring, off-road machinery, factory automation and many other sensing purposes. If we are unable to make distributions under the agreement, we will not collect any revenues and our business could fail.
We have been issued an unsecured promissory note by Aretas. In the event Aretas defaults on the note, it could have a material adverse effect on our business.
On April 4, 2022 we were issued a 10% Unsecured Convertible Promissory Note in the principal amount of $200,000 by Aretas. The purchase price of the note was $192,500 with a discount of $7,500. The Note matures on April 4, 2024 at which time we have the option to either receive the principal amount or shares of Aretas representing 3.23% of the fully-diluted share capital of Aretas. Interest payments are to be made under the Note. In the event that Aretas defaults on the Note, it could have an adverse material effect on our business.
Most of our sales have historically come from a small number of customers and a reduction in demand or loss of one or more of our significant customers would adversely affect our business.
Historically, we have been dependent on a small number of direct customers for most of our business, revenue and results of operations. In the past, we had contracts with customers in the civil infrastructure sector, and the pharmaceutical sector. Our prior customers constituted a state government and a large pharmaceutical company. Historically, those customers generated all our revenue. We expect to continue to experience significant customer concentration in future periods.
This customer concentration increases the risk of quarterly fluctuations in our operating results and sensitivity to any material, adverse developments experienced by our significant customers. In the past, although our relationships with our major customers was good, we generally did not have long-term contracts with any of them, which is typical of our industry. In the future, the loss of, or any substantial reduction in sales to, any of our major direct or end customers could have a material adverse effect on our business, financial condition and results of operations.
Our operating subsidiaries have limited operating history and have generated very limited revenues thus far.
The limited operating history of OXYS and HereLab in the IIoT field, makes evaluating our business and future prospects difficult. OXYS was incorporated on August 4, 2016 and HereLab was incorporated on February 27, 2017. We have not yet generated substantial income from OXYS or HereLab’s operations and we only anticipate doing so if we are able to successfully implement our business plan. During the twelve months ended December 31, 2022, we generated $88,904 in sales from business operations, none of which was generated from HereLab in 2019 through the present, as we have focused solely on OXYS from 2019 through the present and plan on continuing to do so in 2023. We intend in the longer term to derive further revenues from partnerships, consulting services, product sales, and software licensing. Development of our services, products, and software will require significant investment prior to commercial introduction, and we may never be able to successfully develop or commercialize the services, products, or software in a material way.
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We will require additional funding to develop and commercialize our services, products, and software. If we are unable to secure additional financing on acceptable terms, or at all, we may be forced to modify our current business plan or to curtail or cease our planned operations.
We anticipate incurring significant operating losses and using significant funds for product development and operating activities. Our existing cash resources are insufficient to finance even our immediate operations. Accordingly, we will need to secure additional sources of capital to develop our business and product candidates, as planned. We intend to seek substantial additional financing through public and/or private financing, which may include equity and/or debt financings, and through other arrangements, including collaborative arrangements. As part of such efforts, we may seek loans from certain of our executive officers, directors and/or current shareholders.
If we are unable to secure additional financing in the near term, we may be forced to:
| · | curtail or abandon our existing business plans; | |
| · | default on any debt obligations; | |
| · | file for bankruptcy; | |
| · | seek to sell some or all our assets; and/or | |
| · | cease our operations. |
If we are forced to take any of these steps our Common Stock may be worthless.
Any future financing may result in ownership dilution to our existing shareholders and may grant rights to investors more favorable than the rights currently held by our existing shareholders.
If we raise additional capital by issuing equity, equity-related or convertible securities, the economic, voting and other rights of our existing shareholders may be diluted, and those newly-issued securities may be issued at prices that are at a significant discount to current and/or then prevailing market prices. In addition, any such newly issued securities may have rights superior to those of our common stock. If we obtain additional capital through collaborative arrangements, we may be required to relinquish greater rights to our technologies or product candidates than we might otherwise have or become subject to restrictive covenants that may affect our business.
Uncertain global economic conditions could materially adversely affect our business and results of operations.
Our operations and performance are sensitive to fluctuations in general economic conditions, both in the U.S. and globally. The ongoing uncertainty created by the COVID-19 pandemic, volatile currency markets, the anticipated weakness in all sectors, alone or in combination, may continue to have a material adverse effect on our net sales and the financial results of our operations. In addition, we remain concerned about the geopolitical and fiscal instability in the Middle East and some emerging markets as well as the continued volatility of the equity markets. The upcoming U.S. election may also create additional domestic and global economic uncertainty. These factors could have a material adverse effect on the spending patterns of businesses including our current and potential customers which could have a material adverse effect on our net sales and our results of operations. Other factors that could adversely influence demand for our products include unemployment, labor and healthcare costs, access to credit, consumer and business confidence, and other macroeconomic factors that could have a negative impact on capital investment and spending behavior.
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We are subject to various risks associated with international operations and foreign economies.
Our international sales are subject to inherent risks, including:
| · | global pandemics such as the COVID-19 pandemic; | |
| · | 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; | |
| · | fluctuations in foreign currencies relative to the U.S. dollar; | |
| · | unexpected changes to currency policy or currency restrictions in foreign jurisdictions; | |
| · | delays in collecting trade receivable balances from customers in developing economies; | |
| · | unexpected changes in regulatory requirements; | |
| · | difficulties and the high tax costs associated with the repatriation of earnings; | |
| · | fluctuations in local economies; | |
| · | disparate and changing employment laws in foreign jurisdictions; | |
| · | difficulties in staffing and managing foreign operations; | |
| · | costs and risks of localizing products for foreign countries; | |
| · | unexpected changes in regulatory requirements; | |
| · | government actions throughout the world; | |
| · | tariffs and other trade barriers; and | |
| · | the burdens of complying with a wide variety of foreign laws. |
| 10 |
Moreover, there can be no assurance that our international sales will continue at existing levels or grow in accordance with our efforts to increase foreign market penetration.
In many foreign countries, particularly in those with developing economies, it is common to engage in business practices that are prohibited by U.S. regulations applicable to us such as the Foreign Corrupt Practices Act. Although we have policies and procedures designed to ensure compliance with these laws, there can be no assurance that all of our employees, contractors and agents, including those based in or from countries where practices which violate such U.S. laws may be customary, will not take actions in violation of our policies. Any violation of foreign or U.S. laws by our employees, contractors or agents, even if such violation is prohibited by our policies, could have a material adverse effect on our business. We must also comply with various import and export regulations. The application of these various regulations depends on the classification of our products which can change over time as such regulations are modified or interpreted. As a result, even if we are currently in compliance with applicable regulations, there can be no assurance that we will not have to incur additional costs or take additional compliance actions in the future. Failure to comply with these regulations could result in fines or termination of import and export privileges, which could have a material adverse effect on our operating results. Additionally, the regulatory environment in some countries is very restrictive as their governments try to protect their local economy and value of their local currency against the U.S. dollar.
Any future product revenues are dependent on certain industries, and contractions in these industries could have a material adverse effect on our results of operations.
Sales of our products are dependent on customers in certain industries. As we have experienced in the past, and as we may continue to experience in the future, downturns characterized by diminished product demand in any one or more of these industries may result in decreased sales and a material adverse effect on our operating results. We cannot predict when and to what degree contractions in these industries may occur; however, any sharp or prolonged contraction in one or more of these industries could have a material adverse effect on our business and results of operations.
We intend to make significant investments in new products that may not be successful or achieve expected returns.
We plan to continue to make significant investments in research, development, and marketing for new and existing products and technologies. These investments involve a number of risks as the commercial success of such efforts depend on many factors, including our ability to anticipate and respond to innovation, achieve the desired technological fit, and be effective with our marketing and distribution efforts. If our existing or potential customers do not perceive our latest product offerings as providing significant new functionality or value, or if we are late to market with a new product or technology, we may not achieve our expected return on our investments or be able recover the costs expended to develop new product offerings, which could have a material adverse effect on our operating results. Even if our new products are profitable, our operating margins for new products may not be as high as the margins we have experienced historically.
Our success depends on new product introductions and market acceptance of our products.
The market for our products is characterized by technological change, evolving industry standards, changes in customer needs and frequent new product introductions, and is therefore highly dependent upon timely product innovation. Our success is dependent on our ability to successfully develop and introduce new and enhanced products on a timely basis to replace declining revenues from older products, and on increasing penetration in domestic and international markets. Any significant delay in releasing new products could have a material adverse effect on the ultimate success of a product and other related products and could impede continued sales of predecessor products, any of which could have a material adverse effect on our operating results. There can be no assurance that we will be able to introduce new products, that our new products will achieve market acceptance or that any such acceptance will be sustained for any significant period. Failure of our new products to achieve or sustain market acceptance could have a material adverse effect on our operating results.
Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the U.S.
We prepare our financial statements in conformity with accounting principles generally accepted in the U.S. These accounting principles are subject to interpretation by the Financial Accounting Standards Board (“FASB”) and the Securities and Exchange Commission. A change in these policies or interpretations could have a significant effect on our reported financial results, may retroactively affect previously reported results, could cause unexpected financial reporting fluctuations, and may require us to make costly changes to our operational processes and accounting systems.
| 11 |
We operate in intensely competitive markets.
The markets in which we operate are characterized by intense competition from numerous competitors, some of which are divisions of large corporations having far greater resources than we have, and we may face further competition from new market entrants in the future. Some examples of large and small competitors include, but are not limited to:
| · | General Electric with its GE Predix product for IoT; | |
| · | IBM with its IBM BlueMix and IBM IoT Watson products; | |
| · | Siemens with its MindSphere IoT product; | |
| · | Microsoft with its Microsoft Azure IoT Suite; | |
| · | FogHorn Systems; | |
| · | Tulip.io; and | |
| · | MachineSense. |
Our financial results are subject to fluctuations due to various factors that may adversely affect our business and result of operations.
Our operating results have fluctuated in the past and may fluctuate significantly in the future due to several factors, including:
| · | global pandemics such as the COVID-19 pandemic; | |
| · | 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; | |
| · | fluctuations in foreign currency exchange rates; | |
| · | changes in global economic conditions; | |
| · | changes in the mix of products sold; | |
| · | the availability and pricing of components from third parties (especially limited sources); | |
| · | the difficulty in maintaining margins, including the higher margins traditionally achieved in international sales; | |
| · | changes in pricing policies by us, our competitors or suppliers; | |
| · | the timing, cost or outcome of any future intellectual property litigation or commercial disputes; | |
| · | delays in product shipments caused by human error or other factors; or | |
| · | disruptions in transportation channels. |
| 12 |
Any future acquisitions made by us will be subject to several related costs and challenges that could have a material adverse effect on our business and results of operations.
We plan to make more acquisitions in the future. Achieving the anticipated benefits of an acquisition depends upon whether the integration of the acquired business, products or technology is accomplished efficiently and effectively. In addition, successful acquisitions generally require, among other things, integration of product offerings, manufacturing operations and coordination of sales and marketing and R&D efforts. These difficulties can become more challenging due to the need to coordinate geographically separated organizations, the complexities of the technologies being integrated, and the necessities of integrating personnel with disparate business backgrounds and combining different corporate cultures. The integration of operations following an acquisition also requires the dedication of management resources, which may distract attention from our day-to-day business and may disrupt key R&D, marketing or sales efforts. Our inability to successfully integrate any of our acquisitions could harm our business. The existing products previously sold by entities we have acquired may be of a lesser quality than our products or could contain errors that produce incorrect results on which users rely or cause failure or interruption of systems or processes that could subject us to liability claims that could have a material adverse effect on our operating results or financial position. Furthermore, products acquired in connection with acquisitions may not gain acceptance in our markets, and we may not achieve the anticipated or desired benefits of such transactions.
We may experience component shortages that may adversely affect our business and result of operations.
We have experienced difficulty in securing certain types of high-power connectors for one of our projects and anticipate that supply shortages of components used in our products, including limited source components, can result in significant additional costs and inefficiencies in manufacturing. If we are unsuccessful in resolving any such component shortages in a timely manner, we will experience a significant impact on the timing of revenue, a possible loss of revenue, or an increase in manufacturing costs, any of which would have a material adverse impact on our operating results.
We rely on management information systems. interruptions in our information technology systems or cyber-attacks on our systems could adversely affect our business.
We rely on the efficient and uninterrupted operation of complex information technology systems and networks to operate our business. We rely on a primary global center for our management information systems and on multiple systems in branches not covered by our global center. As with any information system, unforeseen issues may arise that could affect our ability to receive adequate, accurate and timely financial information, which in turn could inhibit effective and timely decisions. Furthermore, it is possible that our global center for information systems or our branch operations could experience a complete or partial shutdown. A significant system or network disruption could be the result of new system implementations, computer viruses, cyber-attacks, security breaches, facility issues or energy blackouts. Threats to our information technology security can take a variety of forms and individuals or groups of hackers or sophisticated organizations including state-sponsored organizations, may take steps that pose threats to our customers and our infrastructure. If we were to experience a shutdown, disruption or attack, it would adversely impact our product shipments and net sales, as order processing and product distribution are heavily dependent on our management information systems. Such an interruption could also result in a loss of our intellectual property or the release of sensitive competitive information or partner, customer or employee personal data. Any loss of such information could harm our competitive position, result in a loss of customer confidence, and cause us to incur significant costs to remedy the damages caused by the disruptions or security breaches. In addition, changing laws and regulations governing our responsibility to safeguard private data could result in a significant increase in operating or capital expenditures needed to comply with these new laws or regulations. Accordingly, our operating results in such periods would be adversely impacted.
We are continually working to maintain reliable systems to control costs and improve our ability to deliver our products in our markets worldwide. Our efforts include, but are not limited to the following: firewalls, antivirus protection, patches, log monitors, routine backups with offsite retention of storage media, system audits, data partitioning and routine password modifications. Our internal information technology systems environment continues to evolve, and our business policies and internal security controls may not keep pace as new threats emerge. No assurance can be given that our efforts to continue to enhance our systems will be successful.
| 13 |
We are subject to risks associated with our website.
We devote resources to maintaining our website, www.oxyscorp.com, as a key marketing, sales and support tool and expect to continue to do so in the future. Failure to properly maintain our website may interrupt normal operations, including our ability to run and market our business which would have a material adverse effect on our results of operations. We host our website internally. Any failure to successfully maintain our website or any significant downtime or outages affecting our website could have a material adverse impact on our operating results.
Our products are complex and may contain bugs or errors.
As has occurred in the past and as may be expected to occur in the future, our new software products or new operating systems of third parties on which our products are based often contain bugs or errors that can result in reduced sales or cause our support costs to increase, either of which could have a material adverse impact on our operating results.
Compliance with sections 302 and 404 of the Sarbanes-Oxley Act of 2002 is costly and challenging.
As required by Section 302 of the Sarbanes-Oxley Act of 2002, our periodic reports contain our management’s certification of adequate disclosure controls and procedures, a report by our management on our internal control over financial reporting including an assessment of the effectiveness of our internal control over financial reporting, and an attestation and report by our external auditors with respect to the effectiveness of our internal control over financial reporting under Section 404. While these assessments and reports have not revealed any material weaknesses in our internal control over financial reporting, compliance with Sections 302 and 404 is required for each future fiscal year end. We expect that the ongoing compliance with Sections 302 and 404 will continue to be both very costly and very challenging and there can be no assurance that material weaknesses will not be identified in future periods. Any adverse results from such ongoing compliance efforts could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.
Our business depends on our proprietary rights and we have been subject to intellectual property litigation.
Our success depends on our ability to obtain and maintain patents and other proprietary rights relative to the technologies used in our principal products. Despite our efforts to protect our proprietary rights, unauthorized parties may have in the past infringed or violated certain of our intellectual property rights. We from time to time may engage in litigation to protect our intellectual property rights. In monitoring and policing our intellectual property rights, we may be required to spend significant resources. We from time to time may be notified that we are infringing certain patent or intellectual property rights of others. There can be no assurance that any future intellectual property dispute or litigation will not result in significant expense, liability, injunction against the sale of some of our products, and a diversion of management’s attention, any of which may have a material adverse effect on our operating results.
We are subject to the risk of product liability claims.
Our products are designed to provide information upon which users may rely. Our products are also used in “real time” applications requiring extremely rapid and continuous processing and constant feedback. Such applications give rise to the risk that a failure or interruption of the system or application could result in economic damage, bodily harm or property damage. We attempt to assure the quality and accuracy of the processes contained in our products, and to limit our product liability exposure through contractual limitations on liability, limited warranties, express disclaimers and warnings as well as disclaimers contained in our “shrink wrap” and electronically displayed license agreements with end-users. If our products contain errors that produce incorrect results on which users rely or cause failure or interruption of systems or processes, customer acceptance of our products could be adversely affected. Further, we could be subject to liability claims that could have a material adverse effect on our operating results or financial position. Although we maintain liability insurance for product liability matters, there can be no assurance that such insurance or the contractual limitations used by us to limit our liability will be sufficient to cover or limit any claims which may occur.
| 14 |
Each of our current product candidates and services is in an early stage of development and we may never succeed in developing and/or commercializing them. If we are unable to commercialize our services, products, or software, or if we experience significant delays in doing so, our business may fail.
We intend to invest a significant portion of our efforts and financial resources in our software and we will depend heavily on its success. This software is currently in the beta stage of development. We need to devote significant additional research and development, financial resources and personnel to develop additional commercially viable products, establish intellectual property rights, if necessary, and establish a sales and marketing infrastructure. We are likely to encounter hurdles and unexpected issues as we proceed in the development of our software and our other product candidates. There are many reasons that we may not succeed in our efforts to develop our product candidates, including the possibility that our product candidates will be deemed undesirable; our product candidates will be too expensive to develop or market or will not achieve broad market acceptance; others will hold proprietary rights that will prevent us from marketing our product candidates; or our competitors will market products that are perceived as equivalent or superior.
We depend on third parties to assist us in the development of our software and other product candidates, and any failure of those parties to fulfill their obligations could result in costs and delays and prevent us from successfully commercializing our software and product candidates on a timely basis, if at all.
We may engage consultants and other third parties to help our software and product candidates. We may face delays in our commercialization efforts if these parties do not perform their obligations in a timely or competent fashion or if we are forced to change service providers. Any third parties that we hire may also provide services to our competitors, which could compromise the performance of their obligations to us. If these third parties do not successfully carry out their duties or meet expected deadlines, the commercialization of our software and product candidates may be extended, delayed or terminated or may otherwise prove to be unsuccessful. Any delays or failures as a result of the failure to perform by third parties would cause our development costs to increase, and we may not be able to commercialize our product candidates. In addition, we may not be able to establish or maintain relationships with these third parties on favorable terms, if at all. If we need to enter into replacement arrangements because a third party is not performing in accordance with our expectations, we may not be able to do so without undue delays or considerable expenditures or at all.
The loss of or inability to retain key personnel could materially adversely affect our operations.
Our management includes a select group of experienced technology professionals, particularly Clifford Emmons and Karen McNemar, who will be instrumental in the development of our software and product candidates. The success of our operations will, in part, depend on the successful continued involvement of these individuals. If these individuals leave the employment of or engagement with us, OXYS, or HereLab, then our ability to operate will be negatively impacted. Although we have consulting agreements with these individuals, we do not have any employment agreements with these parties and do not maintain any “key-man” insurance for them.
Risks Related to Our Intellectual Property
Patents acquired by us may not be valid or enforceable and may be challenged by third parties.
We do not intend to seek a legal opinion or other independent verification that any patents issued or licensed to us would be held valid by a court or administrative body or that we would be able to successfully enforce our patents against infringers, including our competitors. The issuance of a patent is not conclusive as to its validity or enforceability, and the validity and enforceability of a patent is susceptible to challenge on numerous legal grounds. Challenges raised in patent infringement litigation brought by or against us may result in determinations that patents that have been issued or licensed to us or any patents that may be issued to us or our licensors in the future are invalid, unenforceable or otherwise subject to limitations. In the event of any such determinations, third parties may be able to use the discoveries or technologies claimed in these patents without paying licensing fees or royalties to us, which could significantly diminish the value of our intellectual property and our competitive advantage. Even if our patents are held to be enforceable, others may be able to design around our patents or develop products similar to our products that are not within the scope of any of our patents.
In addition, enforcing any patents that may be issued to us in the future against third parties may require significant expenditures regardless of the outcome of such efforts. Our inability to enforce our patents against infringers and competitors may impair our ability to be competitive and could have a material adverse effect on our business.
| 15 |
If we are not able to protect and control our unpatented trade secrets, know-how and other technological innovation, we may suffer competitive harm.
We rely on unpatented technology, trade secrets, confidential information and proprietary know-how to protect our technology and maintain any future competitive position, especially when we do not believe that patent protection is appropriate or can be obtained. Trade secrets are difficult to protect. In order to protect proprietary technology and processes, we rely in part on confidentiality and intellectual property assignment agreements with our employees, consultants and others. These agreements generally provide that the individual must keep confidential and not disclose to other parties any confidential information developed or learned by the individual during the course of the individual’s relationship with us except in limited circumstances. These agreements generally also provide that we shall own all inventions conceived by the individual in the course of rendering services to us. These agreements may not effectively prevent disclosure of confidential information or result in the effective assignment to us of intellectual property and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information or other breaches of the agreements. In addition, others may independently discover trade secrets and proprietary information that have been licensed to us or that we own, and in such case, we could not assert any trade secret rights against such party.
Enforcing a claim that a party illegally obtained and is using trade secrets that have been licensed to us or that we own is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets. Costly and time-consuming litigation could be necessary to seek to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could have a material adverse effect on our business. Moreover, some of our academic institution licensors, collaborators and scientific advisors have rights to publish data and information to which we have rights. If we cannot maintain the confidentiality of our technologies and other confidential information in connection with our collaborations, our ability to protect our proprietary information or obtain patent protection in the future may be impaired, which could have a material adverse effect on our business.
Risks Related to Our Common Stock
The public trading market for our common stock is volatile and will likely result in higher spreads in stock prices.
Our common stock is trading in the over-the-counter market and is quoted on the OTC Pink. The over-the-counter market for securities has historically experienced extreme price and volume fluctuations during certain periods. These broad market fluctuations and other factors, such as our ability to implement our business plan, as well as economic conditions and quarterly variations in our results of operations, may adversely affect the market price of our common stock. In addition, the spreads on stock traded through the over-the-counter market are generally unregulated and higher than on stock exchanges, which means that the difference between the price at which shares could be purchased by investors on the over-the-counter market compared to the price at which they could be subsequently sold would be greater than on these exchanges. Significant spreads between the bid and asked prices of the stock could continue during any period in which a sufficient volume of trading is unavailable or if the stock is quoted by an insignificant number of market makers. We cannot ensure that our trading volume will be sufficient to significantly reduce this spread, or that we will have sufficient market makers to affect this spread. These higher spreads could adversely affect investors who purchase the shares at the higher price at which the shares are sold, but subsequently sell the shares at the lower bid prices quoted by the brokers. Unless the bid price for the stock increases and exceeds the price paid for the shares by the investor, plus brokerage commissions or charges, shareholders could lose money on the sale. For higher spreads such as those on over-the-counter stocks, this is likely a much greater percentage of the price of the stock than for exchange listed stocks. There is no assurance that at the time the shareholder wishes to sell the shares, the bid price will have sufficiently increased to create a profit on the sale.
| 16 |
Because our shares are designated as “penny stock”, broker-dealers will be less likely to trade in our stock due to, among other items, the requirements for broker-dealers to disclose to investors the risks inherent in penny stocks and to make a determination that the investment is suitable for the purchaser.
Our shares are designated as “penny stock” as defined in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and thus may be more illiquid than shares not designated as penny stock. The SEC has adopted rules which regulate broker-dealer practices in connection with transactions in “penny stocks.” Penny stocks are defined generally as: non-Nasdaq equity securities with a price of less than $5.00 per share; not traded on a “recognized” national exchange; or in issuers with net tangible assets less than $2,000,000, if the issuer has been in continuous operation for at least three years, or $10,000,000, if in continuous operation for less than three years, or with average revenues of less than $6,000,000 for the last three years. The penny stock rules require a broker-dealer to deliver a standardized risk disclosure document prepared by the SEC, to provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, monthly account statements showing the market value of each penny stock held in the customer’s account, to make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a stock that is subject to the penny stock rules. Since our securities are subject to the penny stock rules, investors in the shares may find it more difficult to sell their shares. Many brokers have decided not to trade in penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. The reduction in the number of available market makers and other broker-dealers willing to trade in penny stocks may limit the ability of purchasers in this offering to sell their stock in any secondary market. These penny stock regulations, and the restrictions imposed on the resale of penny stocks by these regulations, could adversely affect our stock price.
Our Board of Directors can, without shareholder approval, cause preferred stock to be issued on terms that adversely affect common shareholders.
Under our Articles of Incorporation, our board of directors is authorized to issue up to 10,000,000 shares of preferred stock, of which 26,299 are issued and outstanding as of the date of this Annual Report. Also, our board of directors, without shareholder approval, may determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares. If our board of directors causes any additional shares of preferred stock to be issued, the rights of the holders of our common stock could be adversely affected. Our board of directors’ ability to determine the terms of preferred stock and to cause its issuance, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock. Additional preferred shares issued by our board of directors could include voting rights, or even additional super voting rights (above those pertaining to the Series A Super Voting Preferred Stock), which could shift the ability to control our company to the holders of our preferred stock. Additional preferred shares could also have conversion rights into shares of our common stock at a discount to the market price of the common stock which could negatively affect the market for our common stock. In addition, preferred shares would have preference in the event of our liquidation, which means that the holders of preferred shares would be entitled to receive the net assets of our company distributed in liquidation before the common stock holders receive any distribution of the liquidated assets.
We have not paid, and do not intend to pay in the near future, dividends on our common shares and therefore, unless our common stock appreciates in value, our shareholders may not benefit from holding our common stock.
We have not paid any cash dividends on our common stock since inception. Therefore, any return on the investment made in our shares of common stock will likely be dependent initially upon the shareholder’s ability to sell our common shares in the open market, at prices in excess of the amount paid for our common shares and broker commissions on the sales.
| 17 |
Because we became public by means of a reverse merger, we may not be able to attract the attention of brokerage firms.
Additional risks may exist because we became public through a “reverse merger.” Securities analysts of brokerage firms may not provide coverage of our company since there is little incentive for brokerage firms to recommend the purchase of our common stock. No assurance can be given that brokerage firms will want to conduct secondary offerings on our behalf in the future.
Shares of our common stock that have not been registered under federal securities laws are subject to resale restrictions imposed by Rule 144, including those set forth in Rule 144(i) which apply to a former “shell company.”
Prior to the closing of the SEA, we were deemed a “shell company” under applicable SEC rules and regulations because we had no or nominal operations and either no or nominal assets, assets consisting solely of cash and cash equivalents, or assets consisting of any amount of cash and cash equivalents and nominal other assets. Pursuant to Rule 144 promulgated under the Securities Act sales of the securities of a former shell company, such as us, under that rule are not permitted (i) until at least 12 months have elapsed from the date on which Form 10-type information reflecting our status as a non-shell company, is filed with the SEC and (ii) unless at the time of a proposed sale, we are subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and have filed all reports and other materials required to be filed by Section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months, other than Form 8-K reports. Without registration under the Securities Act, our shareholders will be forced to hold their shares of our common stock for at least that 12-month period after the filing of the report on Form 8-K following the closing of the reverse merger before they are eligible to sell those shares pursuant to Rule 144, and even after that 12-month period, sales may not be made under Rule 144 unless we are in compliance with other requirements of Rule 144. Further, it will be more difficult for us to raise funding to support our operations through the sale of debt or equity securities unless we agree to register such securities under the Securities Act, which could cause us to expend significant time and cash resources. The lack of liquidity of our securities as a result of the inability to sell under Rule 144 for a longer period of time than a non-former shell company could negatively affect the market price of our securities.
| Item 1B. | Unresolved Staff Comments |
Not applicable.
| Item 2. | Properties |
We currently do not own any properties. We entered into a lease agreement for our principal office located in Cambridge, Massachusetts on August 1, 2017 which began on January 1, 2018 and terminated on December 31, 2018. We entered into a new lease agreement on March 12, 2019, which began on January 1, 2019, and terminated on June 30, 2019. Pursuant to the lease, we are obligated to pay the landlord monthly installments of $2,000 for a total lease payment of $12,000 in 2019. We secured a 2nd lease for July – December 2019 at $2,000/month for an additional $12,000 in 2019. As of 2020, we reduced the amount of space required and have renegotiated the lease terms to $250/month.
| Item 3. | Legal Proceedings |
We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results. From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
| Item 4. | Mine Safety Disclosures |
Not Applicable.
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PART II
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Market Information
Our common stock is quoted on the OTC Pink under the symbol “ITOX.” The table below sets forth for the periods indicated the quarterly high and low bid prices as reported by OTC Markets. Limited trading volume has occurred during these periods. These quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions.
| Quarter | High | Low | ||||||||||
| FISCAL YEAR ENDING DECEMBER 31, 2023 | First | $ | 0.0087 | $ | 0.0013 | |||||||
| Quarter | High | Low | ||||||||||
| FISCAL YEAR ENDED DECEMBER 31, 2022 | First | $ | 0.0195 | $ | 0.0049 | |||||||
| Second | $ | 0.0219 | $ | 0.005 | ||||||||
| Third | $ | 0.0071 | $ | 0.0031 | ||||||||
| Fourth | $ | 0.0048 | $ | 0.0018 | ||||||||
| Quarter | High | Low | ||||||||||
| FISCAL YEAR ENDED DECEMBER 31, 2021 | First | $ | 0.045 | $ | 0.0062 | |||||||
| Second | $ | 0.024 | $ | 0.0119 | ||||||||
| Third | $ | 0.0249 | $ | 0.011 | ||||||||
| Fourth | $ | 0.0168 | $ | 0.0032 | ||||||||
Our common stock is considered to be penny stock under rules promulgated by the SEC. Under these rules, broker-dealers participating in transactions in these securities must first deliver a risk disclosure document which describes risks associated with these stocks, broker-dealers’ duties, customers’ rights and remedies, market and other information, and make suitability determinations approving the customers for these stock transactions based on financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing, provide monthly account statements to customers, and obtain specific written consent of each customer. With these restrictions, the likely effect of designation as a penny stock is to decrease the willingness of broker-dealers to make a market for the stock, to decrease the liquidity of the stock and increase the transaction cost of sales and purchases of these stocks compared to other securities.
Holders
As of the close of business on April 13, 2023, we had approximately 154 holders of our common stock. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. We have appointed Issuer Direct, 1981 East 4800 South, Suite 100, Salt Lake City, UT 84117, to act as transfer agent for the common stock.
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Dividends
We have never declared a cash dividend on our common stock and our Board of Directors does not anticipate that we will pay cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our board of directors and will depend upon our financial condition, operating results, capital requirements, restrictions contained in our agreements and other factors which our Board of Directors deems relevant.
We are obligated to pay dividends to certain holders of our preferred stock which we pay out of legally available funds from time to time or reach arrangements with our holders of preferred stock to convert limited quantities of preferred stock at favorable conversion prices in lieu of dividend payments.
Securities Authorized for Issuance under Equity Compensation Plans
Equity Compensation Plan Information
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||||||||
| (a) | (b) | (c) | ||||||||||
| Equity compensation plans approved by security holders | – | – | – | |||||||||
| Equity compensation plans not approved by security holders | 4,380,727 | $ | 0.003340 | 24,522,212 | (1) | |||||||
| Total | 4,380,727 | 0.003340 | 24,522,212 | |||||||||
| (1) | Of the 24,522,212 shares remaining for future issuance under equity compensation plans, 15,100,000 shares of Common Stock have been awarded but are unvested. |
2017 Stock Incentive Plan
On March 16, 2017, our board of directors assumed the 2017 Stock Awards Plan adopted by the Company while domiciled in New Jersey. No awards were made under this plan. On December 14, 2017, the Board of Directors terminated this plan and adopted a new 2017 Stock Incentive Plan (the “2017 Plan”). The purposes of the 2017 Plan are (a) to enhance our ability to attract and retain the services of qualified employees, officers, directors, consultants, and other service providers upon whose judgment, initiative and efforts the successful conduct and development of our business largely depends, and (b) to provide additional incentives to such persons or entities to devote their utmost effort and skill to the advancement and betterment of our company, by providing them an opportunity to participate in the ownership of our Company and thereby have an interest in the success and increased value of our Company.
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There are 4,500,000 shares of common stock authorized for non-qualified and incentive stock options, restricted stock units, restricted stock grants, and stock appreciation rights under the 2017 Plan, which are subject to adjustment in the event of stock splits, stock dividends, and other situations.
The 2017 Plan is administered by our board of directors; however, the board of directors may designate administration of the 2017 Plan to a committee consisting of at least two independent directors. Only employees of our Company or of an “Affiliated Company”, as defined in the 2017 Plan, (including members of the board of directors if they are employees of our Company or of an Affiliated Company) are eligible to receive incentive stock options under the Plan. Employees of our Company or of an Affiliated Company, members of the board of directors (whether or not employed by our company or an Affiliated Company), and “Service Providers”, as defined in the 2017 Plan, are eligible to receive non-qualified options, restricted stock units, and stock appreciation rights under the 2017 Plan. All awards are subject to Section 162(m) of the Internal Revenue Code.
No option awards may be exercisable more than ten years after the date it is granted. In the event of termination of employment for cause, the options terminate on the date of employment is terminated. In the event of termination of employment for disability or death, the optionee or administrator of optionee’s estate or transferee has six months following the date of termination to exercise options received at the time of disability or death. In the event of termination for any other reason other than for cause, disability or death, the optionee has 30 days to exercise his or her options.
The 2017 Plan will continue in effect until all the stock available for grant or issuance has been acquired through exercise of options or grants of shares, or until ten years after its adoption, whichever is earlier. Awards under the 2017 Plan may also be accelerated in the event of certain corporate transactions such as a merger or consolidation or the sale, transfer or other disposition of all or substantially all our assets.
As of December 31, 2022, there were 3,547,788 shares of Common Stock issued with 952,212 remaining for awards under the 2017 Plan.
2019 Stock Incentive Plan
On March 11, 2019, the Board of Directors adopted the 2019 Stock Incentive Plan (the “2019 Plan”). The purposes of the 2019 Plan are (a) to enhance our ability to attract and retain the services of qualified employees, officers, directors, consultants, and other service providers upon whose judgment, initiative and efforts the successful conduct and development of our business largely depends, and (b) to provide additional incentives to such persons or entities to devote their utmost effort and skill to the advancement and betterment of our company, by providing them an opportunity to participate in the ownership of our Company and thereby have an interest in the success and increased value of our Company.
The 2019 Plan is administered by our board of directors; however, the board of directors may designate administration of the 2019 Plan to a committee consisting of at least two independent directors. Awards may be made under the Plan for up to 5,000,000 shares of common stock of the Company. Only employees of our Company or of an “Affiliated Company”, as defined in the 2019 Plan, (including members of the board of directors if they are employees of our Company or of an Affiliated Company) are eligible to receive incentive stock options under the 2019 Plan. Employees of our Company or of an Affiliated Company, members of the board of directors (whether or not employed by our company or an Affiliated Company), and “Service Providers”, as defined in the 2019 Plan, are eligible to receive non-qualified options, restricted stock units, and stock appreciation rights under the 2019 Plan. All awards are subject to Section 162(m) of the Internal Revenue Code.
No option awards may be exercisable more than ten years after the date it is granted. In the event of termination of employment for cause, the options terminate on the date of employment is terminated. In the event of termination of employment for disability or death, the optionee or administrator of optionee’s estate or transferee has six months following the date of termination to exercise options received at the time of disability or death. In the event of termination for any other reason other than for cause, disability or death, the optionee has 30 days to exercise his or her options.
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The 2019 Plan will continue in effect until all the stock available for grant or issuance has been acquired through exercise of options or grants of shares, or until ten years after its adoption, whichever is earlier. Awards under the 2019 Plan may also be accelerated in the event of certain corporate transactions such as a merger or consolidation or the sale, transfer or other disposition of all or substantially all our assets.
As of December 31, 2022, there were 3,630,000 shares of shares Common Stock awarded (including 3,080,000 shares issued and 550,000 shares awarded but unvested) with 1,370,000 shares remaining for awards under the 2019 Plan.
2022 Stock Incentive Plan
On March 18, 2022, the Board of Directors adopted the 2022 Stock Incentive Plan (the “2022 Plan”). The purposes of the 2022 Plan are (a) to enhance our ability to attract and retain the services of qualified employees, officers, directors, consultants, and other service providers upon whose judgment, initiative and efforts the successful conduct and development of our business largely depends, and (b) to provide additional incentives to such persons or entities to devote their utmost effort and skill to the advancement and betterment of our company, by providing them an opportunity to participate in the ownership of our Company and thereby have an interest in the success and increased value of our Company.
The 2022 Plan is administered by our board of directors; however, the board of directors may designate administration of the 2022 Plan to a committee consisting of at least two independent directors. Awards may be made under the Plan for up to 20,000,000 shares of common stock of the Company. Only employees of our Company or of an “Affiliated Company”, as defined in the 2022 Plan, (including members of the board of directors if they are employees of our Company or of an Affiliated Company) are eligible to receive incentive stock options under the 2022 Plan. Employees of our Company or of an Affiliated Company, members of the board of directors (whether or not employed by our company or an Affiliated Company), and “Service Providers”, as defined in the 2022 Plan, are eligible to receive non-qualified options, restricted stock units, and stock appreciation rights under the 2022 Plan. All awards are subject to Section 162(m) of the Internal Revenue Code.
No option awards may be exercisable more than ten years after the date it is granted. In the event of termination of employment for cause, the options terminate on the date of employment is terminated. In the event of termination of employment for disability or death, the optionee or administrator of optionee’s estate or transferee has six months following the date of termination to exercise options received at the time of disability or death. In the event of termination for any other reason other than for cause, disability or death, the optionee has 30 days to exercise his or her options.
The 2022 Plan will continue in effect until all the stock available for grant or issuance has been acquired through exercise of options or grants of shares, or until ten years after its adoption, whichever is earlier. Awards under the 2022 Plan may also be accelerated in the event of certain corporate transactions such as a merger or consolidation or the sale, transfer or other disposition of all or substantially all our assets.
As of December 31, 2022, there were 14,300,000 shares of Common Stock awarded (including 14,300,000 shares awarded but unvested) with 5,700,000 shares remaining for awards under the 2022 Plan.
Stock Options
We currently have no outstanding stock options.
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Recent Sales of Unregistered Securities
Equity Financing Agreement
On November 1, 2021, we entered into an Equity Financing Agreement with GHS Investments, LLC (“GHS”) for an equity line. Although we are not required to sell shares under the Equity Financing Agreement, the Equity Financing Agreement gives us the option to sell to GHS up to $2,500,000 worth of our common stock, in increments, beginning on the first trading day after the effective date of this Registration Statement and ending on the earlier of (i) the date GHS has purchased an aggregate of $2,500,000 of our common stock pursuant to the Equity Financing Agreement, (ii) November 1, 2023, twenty-four months from the date of execution of the Equity Financing Agreement, or (iii) upon mutual termination of the Equity Financing Agreement (the “Open Period”).
During the Open Period, we may, in our sole discretion, deliver a put notice (“Put Notice”) to GHS which shall state the dollar amount requested by us (the “Put Amount”) and number of shares intends to sell to GHS on a designated closing date. The purchase price (the “Purchase Price”) of the common stock sold pursuant to a Put Notice will be set at 90% of the lowest volume-weighted average price of our common stock during the ten consecutive trading day period immediately preceding the date on which we deliver the Put Notice to GHS. We are obligated to deliver a number of shares to GHS equal to Put Amount divided by the Purchase Price in consideration of the payment of the Put Amount.
Below is a table of all puts made by the Company under the Equity Financing Agreement during the quarter ended December 31, 2022:
| Date of Put | Number of Shares Sold | Total Proceeds, Net of Discounts | Effective Price per Share | Net Proceeds |
| 10/16/22 | 6,130,677 | $12,039 | $0.0019636 | $11,798 |
| 11/1/22 | 6,364,961 | $10,937 | $0.0017182 | $10,718 |
| 11/25/22 | 8,404,844 | $13,754 | $0.0016364 | $13,479 |
| 12/12/22 | 10,320,834 | $18,578 | $0.0018 | $18,206 |
| 12/29/22 | 11,869,845 | $20,104 | $0.0016936 | $19,702 |
The shares issued in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D under the Securities Act, based in part on the representations of the investor. There were $1,509 in sales commissions paid to J.H. Darbie & Co., Inc. (“J.H. Darbie”) pursuant to these transactions.
| Item 6. | [Reserved] |
| Item 7. | 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 above and in “Risk Factors.” 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
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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 periods ended December 31, 2022 and 2021 gives effect to our acquisition of OXYS Corporation (“OXYS”) on July 28, 2017. In accordance with the accounting reporting requirements for the recapitalization related to the “reverse merger” of OXYS, the financial statements for OXYS have been adjusted to reflect the change in the shares outstanding and the par value of the common stock of OXYS. Additionally, all intercompany transactions between the Company and OXYS have been eliminated.
Forward-Looking Statements
Statements in this management’s discussion and analysis of financial condition and results of operations contain certain forward-looking statements. To the extent that such statements are not recitations of historical fact, such statements constitute forward looking statements which, by definition involve risks and uncertainties. Where in any forward-looking statements, if we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result or be achieved or accomplished.
Factors that may cause differences between actual results and those contemplated by forward-looking statements include those discussed in “Risk Factors” and are not limited to the following:
| · | the unprecedented impact of COVID-19 pandemic on our business, customers, employees, subcontractors and supply chain, consultants, service providers, stockholders, investors and other stakeholders; | |
| · | the impact of conflict between the Russian Federation and Ukraine on our operations; | |
| · | geo-political events, such as the crisis in Ukraine, government responses to such events and the related impact on the economy both nationally and internationally; | |
| · | general market and economic conditions; | |
| · | our ability to maintain and grow our business with our current customers; | |
| · | our ability to meet the volume and service requirements of our customers; | |
| · | industry consolidation, including acquisitions by us or our competitors; | |
| · | capacity utilization and the efficiency of manufacturing operations; | |
| · | success in developing new products; | |
| · | timing of our new product introductions; | |
| · | new product introductions by competitors; | |
| · | the ability of competitors to more fully leverage low-cost geographies for manufacturing or distribution; | |
| · | product pricing, including the impact of currency exchange rates; | |
| · | effectiveness of sales and marketing resources and strategies; | |
| · | adequate manufacturing capacity and supply of components and materials; | |
| · | strategic relationships with our suppliers; | |
| · | product quality and performance; | |
| · | protection of our products and brand by effective use of intellectual property laws; | |
| · | the financial strength of our competitors; | |
| · | the outcome of any future litigation or commercial dispute; | |
| · | barriers to entry imposed by competitors with significant market power in new markets; | |
| · | government actions throughout the world; and | |
| · | our ability to service secured debt, when due. |
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You should not rely on forward-looking statements in this document. This management’s discussion contains forward looking statements that involve risks and uncertainties. We use words such as “anticipates,” “believes,” “plans,” “expects,” “future,” “intends,” and similar expressions to identify these forward-looking statements. Prospective investors should not place undue reliance on these statements, which apply only as of the date of this document. Our actual results could differ materially from those anticipated in these forward-looking statements.
Critical Accounting Policies
The following discussions are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. These financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingencies. We continually evaluate the accounting policies and estimates used to prepare the financial statements. We base our estimates on historical experiences and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management.
Trends and Uncertainties
On July 28, 2017, we closed the reverse acquisition transaction under the Securities Exchange Agreement dated March 16, 2017, as reported in our Current Report on Form 8-K filed with the Commission on August 3, 2017. Following the closing, our business has been that of OXYS, Inc. and HereLab, Inc., our wholly owned subsidiaries. Our operations have varied significantly following the closing since, prior to that time, we were an inactive shell company.
Impact of COVID-19
During the year 2020, the effects of a new coronavirus (“COVID-19”) and related actions to attempt to control its spread began to impact our business. The impact of COVID-19 on our operating results for the year ended December 31, 2020 was limited, in all material respects, due to the government mandated numerous measures, including closures of businesses, limitations on movements of individuals and goods, and the imposition of other restrictive measures, in its efforts to mitigate the spread of COVID-19 within the country.
On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. Governments around the world have mandated, and continue to introduce, orders to slow the transmission of the virus, including but not limited to shelter-in-place orders, quarantines, significant restrictions on travel, as well as work restrictions that prohibit many employees from going to work. Uncertainty with respect to the economic effects of the pandemic has introduced significant volatility in the financial markets.
Historical Background
We were incorporated in the State of New Jersey on October 1, 2003 under the name of Creative Beauty Supply of New Jersey Corporation and subsequently changed our name to Gotham Capital Holdings, Inc. on May 18, 2015. We commenced operations in the beauty supply industry as of January 1, 2004. On November 30, 2007, our Board of Directors approved a plan to dispose of our wholesale and retail beauty supply business. From January 1, 2009 until July 28, 2017, we had no operations and were a shell company.
On March 16, 2017, our Board of Directors adopted resolutions, which were approved by shareholders holding a majority of our outstanding shares, to change our name to “IIOT-OXYS, Inc.”, to authorize a change of domicile from New Jersey to Nevada, to authorize a 2017 Stock Awards Plan, and to approve the Securities Exchange Agreement (the “OXYS SEA”) between the Company and OXYS Corporation (“OXYS”), a Nevada corporation incorporated on August 4, 2016.
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Under the terms of the OXYS SEA we acquired 100% of the issued voting shares of OXYS in exchange for 34,687,244 shares of our Common Stock. We also cancelled 1,500,000 outstanding shares of our Common Stock and changed our management to Mr. DiBiase who also served in management of OXYS. Also, one of our principal shareholders entered into a consulting agreement with OXYS to provide consulting services during the transition. The OXYS SEA was effective on July 28, 2017, and our name was changed to “IIOT-OXYS, Inc.” at that time. Effective October 26, 2017, our domicile was changed from New Jersey to Nevada.
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 is also an early-stage technology development company. We received our first revenues in the last quarter of 2017, continued to realize revenues until 2020 when the pandemic hit, and we realized nominal revenues through 2021.
We develop hardware, software and algorithms that monitor, measure and predict conditions for energy, structural, agricultural and medical applications. We use domain-specific Artificial Intelligence to solve industrial and environmental challenges. Our engineered solutions focus on common sense approaches to machine learning, algorithm development and hardware and software products.
We use off the shelf components, with reconfigurable hardware architecture that adapts to a wide range of customer needs and applications. We use open-source software tools, while still creating proprietary content for customers, thereby reducing software development time and cost. The software works with the hardware to collect data from the equipment or structure that is being monitored.
We focus on developing insights. We develop algorithms that help our customers create insights from vast data streams. The data collected is analyzed and reports are created for the customer. From these insights, the customer can act to improve their process, product or structure.
Results of Operations for the Year Ended December 31, 2022 compared to the year ended December 31, 2021
For the year ended December 31, 2022, we earned revenues of $88,904 and incurred related cost of sales of $10,499. Our operating expenses were $733,071 which included professional fees of $268,837, payroll costs of $373,774, amortization of intangible assets of $49,500, and general and administrative expenses of $40,960. We recorded net other expenses of $369,560 consisting of recording loss on derivatives of $200,519, interest expense of $377,138 offset by gain on change in fair market value of derivative liability of $190,462 and interest income on note receivable of $17,634. We also recorded $52,654 as preferred stock dividend on convertible preferred stock for the year ended December 31, 2022. As a result, we incurred a net loss of $1,076,881 for the year ended December 31, 2022.
Comparatively, for the year ended December 31, 2021, we earned revenues of $11,280 and incurred related cost of sales of $2,040. Our Operating expenses were $889,141 which included professional fees of $508,153, payroll costs of $301,707, amortization of intangible assets of $49,771, and general and administrative expenses of $29,510. We recorded net other expenses of $161,333, consisting of interest expense of $430,999 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 $102,966, gain on extinguishment of debt of $120,000, other income of $46,700 consisting of forgiveness of PPP Loan of $36,700 and EIDL advance of $10,000, We also recorded $22,320 as preferred stock dividend on convertible preferred stock for the year ended December 31, 2021. As a result, we incurred a net loss of $1,063,554 for the year ended December 31, 2021.
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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.
Year over Year (YoY) revenue increased significantly in 2022 over 2021, by 7.9X (688% increase). This YoY growth was anticipated by our leadership team in our 2021 Annual Report on Form 10-K, and we’re pleased to deliver this growth for our shareholders. We had a strong finish to 2022, with fourth quarter revenue exceeding that in the third quarter, also as promised. It marked three consecutive quarters of quarter-over-quarter revenue growth. While our Quarterly Report on Form 10-Q for the period ended September 30, 2022 disclosed risks of ongoing concerns (and those concerns still exist), there are several factors that led to this strong growth in 2022 which are as follows:
| - | Our DOT Bridge Monitoring contract: We were awarded a six-figure sub-contract from a major northeast state's DOT for bridge monitoring, in addition to the extension that was given on the previous contract. This enabled us to deliver consistent revenue beginning in the second quarter, continuing through the remainder of the year, and will continue through June of 2023. We believe this substantiates the strength of our Structural Health Monitoring (SHM) solutions and bolsters our ability to gain new business in this vertical with both current and new customers. |
| - | Our continued focus on our Smart Manufacturing vertical enabled us to secure a CNC Proof of Concept (POC) contract in December 2022. The POC successfully kicked off in January 2023. |
| - | Our partnership with the Canadian Indoor Air Quality Sensor and IIoT Platform company, Aretas Sensor Networks, with whom we entered into an NDA in the first quarter, progressed well through the year. In addition to the initial collaborative agreement signed in the first quarter, we signed an algorithm development contract in the second quarter and recorded revenue from that contract in the third quarter. We also signed a co-marketing and co-selling agreement with Aretas in the third quarter and began selling in the fourth quarter of 2022. |
| - | We secured and retained key talent. The full time Machine Learning Engineer, hired in the first quarter, expanded our focus on the Artificial Intelligence (AI) and Machine Learning (ML) aspects of our business. Our CEO, Cliff Emmons, and COO, Karen McNemar, both renewed their employment contracts in June, ensuring stable experienced leadership focused on long-term growth. |
These accomplishments are proof that our successful pilots in our key industry verticals have resulted in new business and will continue to do so in 2023 and beyond. Also, the strength of the Aingura IIoT, S.G. collaboration agreement has bolstered financial stability, added talent breadth and depth, and provides complimentary industry segment experience. Furthermore, liquidity of our stock has attracted funding that gives us access to additional capital. This capital will enable the funding of business development, staff augmentation, and inorganic growth opportunities.
It is anticipated that 2023 YoY revenue growth will meet or exceed that of 2022. This is due to these aforementioned reasons: the strength of the Aingura IIoT, S.G. collaboration, successful pilots in all three of our key target industries, use cases and marketing collateral from the pilots’ data and algorithms, experienced leadership, savvy technological talent, and operational execution excellence. Our continued focus on high potential growth markets, has yielded numerous prospects for future growth. Furthermore, the strength of our target markets continues, the global smart manufacturing (also known as Industry 4.0) was $97.6 B USD in 2022 and will reach $228.3 B USD by 2027 (CAGR 18.5%);1 the worldwide Structural Health Monitoring (SHM) industry was $2.0 billion USD in 2021 and will reach $4.0 billion USD by 2027 (CAGR of 14.6%).2 Through our collaborations with Aretas Sensor Networks, we have access to a third market, Indoor Air Quality Monitors, which was estimated at $3.7 billion USD in 2020 and projected to reach $6.4 billion USD in 2027, growing at 8.2% CAGR.3 We believe our strengths in these markets will yield breakthroughs in additional new contracts with current customers, as well as new customers in all targeted industry segments. By combining the resulting organic growth with strong strategic partnerships, we believe these revenue goals are achievable.
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1 https://www.marketsandmarkets.com/Enquiry_Before_BuyingNew.asp?id=105448439&utm_source=SE-NA&utm_medium=Email
2 https://www.marketsandmarkets.com/Market-Reports/structural-health-monitoring-market-101431220.html
3 https://www.reportlinker.com/p05957040/Global-Indoor-Air-Quality-Monitors-Industry.html
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Liquidity and Capital Resources for the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021
At December 31, 2022, we had a cash balance of $33,336, which represents a $13,485 decrease from the $46,821 cash balance at December 31, 2021. This decrease was primarily as a result of net cash used in operating activities of $657,009, cash paid for note receivable of $200,000, and cash received from convertible notes payable of $545,924 and cash received from the sale of Series B Preferred Stock of $297,600. Our working capital deficit at December 31, 2022 was $1,606,828, as compared to a working capital deficit of $1,108,786 at December 31, 2021, respectively.
For the year ended December 31, 2022, we incurred a net loss of $1,076,881. Net cash flows used in operating activities was $657,009 for the year ended December 31, 2022.
For the year ended December 31, 2021, we incurred a net loss of $1,063,554. Net cash flows used in operating activities was $628,103 for the year ended December 31, 2021.
For the year ended December 31, 2022, cash used in investing activities was $200,000 payment towards a note receivable.
For the year ended December 31, 2022, net cash flows provided by financing activities were $843,534, consisting of cash received from the issuance of Convertible Notes payable of $545,924 and cash proceeds from sale of Series B Preferred Stock of $297,600, respectively.
For the year ended December 31, 2021, net cash flows provided by financing activities were $571,850, consisting of cash received from the issuance of Convertible Notes payable of $470,850 and cash proceeds from sale of Series B Preferred Stock of $101,000, respectively.
The accompanying consolidated financial statements have been prepared assuming we will continue as a going concern. As shown in the accompanying financial statements, we have incurred net loss from operations of $1,076,881 for the year ended December 31, 2022, and net loss of $1,063,554 for the year ended December 31, 2021, and have an accumulated deficit of $9,307,137 as of December 31, 2022, which raises substantial doubt about our ability to continue as a going concern.
Recently Issued Accounting Standards
In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
Effective January 1, 2022, we early adopted ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” using the modified retrospective method of adoption. ASU 2020-06 simplifies the accounting for convertible instruments by removing certain separation models in Subtopic 470- 20, Debt—Debt with Conversion and Other Options, for convertible instruments. Under ASU 2020-06, the embedded conversion features no longer are separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the interest rate of convertible debt instruments typically will be closer to the coupon interest rate when applying the guidance in Topic 835, Interest. We now account for our Convertible Notes as single liabilities measured at amortized cost.
Other accounting standards that have been issued or proposed by FASB and do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying financial statements.
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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 7A. | Quantitative And Qualitative Disclosures About Market Risk |
As a Smaller Reporting Company, we are not required to furnish information under this Item 7A.
| Item 8. | Financial Statements |
The financial statements and supplementary data required by this item are included following the signature page of this Annual Report.
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures |
None.
| Item 9A. | Controls and Procedures |
Disclosure Controls and Procedures
We have 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 our Chief Executive Officer and Interim Chief Financial Officer, Clifford Emmons and Karen McNemar, respectively, who serve as our principal executive officer and principal financial and accounting officer, respectively, as appropriate, to allow timely decisions regarding required disclosure. Mr. Emmons and Ms. McNemar, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, as of December 31, 2022. Based on their evaluation, Mr. Emmons and Ms. McNemar concluded that, due to a material weakness in our internal control over financial reporting as described below, our disclosure controls and procedures were not effective as of December 31, 2022. In light of the material weakness in internal control over financial reporting, we completed substantive procedures, including validating the completeness and accuracy of the underlying data used for accounting prior to filing this Annual Report.
These additional procedures have allowed us to conclude that, notwithstanding the material weakness in our internal control over financial reporting, the consolidated financial statements included in this report fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.
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Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed 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.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2022 based upon Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
During its evaluation, management noted certain matters involving internal control and its operation that we consider to be significant deficiencies or material weaknesses under standards of the Public Company Accounting Oversight Board (“PCAOB”). A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.
We noted deficiencies involving lack of segregation of duties, lack of governance/oversight, and lack of internal control documentation that we believe to be material weaknesses.
Because of this material weaknesses, management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2022, based on criteria described in Internal Control – Integrated Framework (2013) issued by COSO.
Remediation of the Material Weakness
We are evaluating the material weaknesses and developing a plan of remediation to strengthen our overall internal control over financial reporting. The remediation plan will include the following actions:
| · | Separation of corporate responsibilities, e.g. CEO, CFO, Secretary, etc. to different key management individuals; and | |
| · | Creation and adoption of a formal policy manual specifically dealing with financial controls. |
Due to a material weakness as disclosed in the 2021 Annual Report on Form 10-K, we committed to the same remediation plan, as disclosed above; however, due to lack of resources, we were unable to execute the contemplated remediation plan. If we are unable to increase our workforce, we may never be able to implement the remediation plan proposed above.
We are committed to maintaining a strong internal control environment and we believe that these remediation efforts will represent significant improvements in our controls. We have started to implement these steps, as disclosed above; however, some of these steps will take time to be fully integrated and confirmed to be effective and sustainable. Additional controls may also be required over time. Until the remediation steps set forth above are fully implemented and tested, the material weakness described above will continue to exist.
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Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting, as defined in Rules 13a-15(f) of the Exchange Act, during our most recent fiscal quarter ended December 31, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| Item 9B. | Other Information |
None.
| Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
Not applicable to the Company.
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PART III
| Item 10. | Directors, Executive Officers and Corporate Governance |
Current Management
The following table sets forth information concerning our directors and executive officers:
| Name | Position | Age | ||
| Executive Officers: | ||||
| Clifford L. Emmons | Chief Executive Officer, President, and Interim Chief Technical Officer | 61 | ||
| Karen McNemar | Chief Operating Officer and Interim Chief Financial Officer | 53 | ||
| Directors: | ||||
| Clifford L. Emmons | Director | 61 | ||
| Vidhyadhar Mitta | Director | 51 |
Directors are elected to serve until the next annual meeting of stockholders and until their successors are elected and qualified. Directors are elected by a plurality of the votes cast at the annual meeting of stockholders and hold office until the expiration of the term for which he or she was elected and until a successor has been elected and qualified.
A majority of the authorized number of directors constitutes a quorum of the Board of Directors for the transaction of business. The directors must be present at the meeting to constitute a quorum. However, any action required or permitted to be taken by the Board of Directors may be taken without a meeting if all members of the Board of Directors individually or collectively consent in writing to the action.
Business Experience of Executive Officers and Directors
The principal occupation and business experience during the past five years for our executive officers and directors is as follows:
Clifford L. Emmons: Mr. Emmons has served as our Chief Executive Officer, President, and director since June 4, 2018 and as our Interim Chief Technology Officer since June 2, 2022. From 1995 to 2017, Mr. Emmons worked for Medtronic, a global leader in medical technology, services, and solutions, where he served in various capacities including several Vice President and Director positions. Mr. Emmons is also the founder of AHI, LLC, a consultancy firm. Mr. Emmons received an Executive Certificate in Strategy & Innovation from MIT, a Master’s of Science in Management Engineering from the University of Bridgeport, a Bachelor of Science in Electrical Engineering from the University of New Haven, and a Bachelor of Science in Mechanical Engineering from the University of Connecticut.
Karen McNemar: Ms. McNemar has served as our Chief Operating Officer since September 20, 2018 and as our Interim Chief Financial Officer since June 2, 2022. From 1998 until August 2017, Ms. McNemar served in many capacities for Medtronic which included as a Senior Director of R&D Operations. Ms. McNemar is a collaborative strategic global business leader with extensive experience in New Product Development and Operations, building strong and effective diverse teams across organizations at all levels. Ms. McNemar is also a trusted advisor, recognized for successful process and program management, with a focus on leading complex initiatives and analyzing data and processes to identify solutions to increase organizational productivity and performance. Ms. McNemar received her Bachelor of Science in Industrial Engineering and Operations Research.
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Vidhyadhar Mitta: Mr. Mitta has served as a director of the Company since the closing of the reverse acquisition on July 28, 2017. Mr. Mitta has also served as a director of OXYS since its inception on August 4, 2016. Since 2000, he has been the founder and President of Synergic Solutions Inc., a software development company that designs custom software for a variety of industries including radio-medicine and associate allied health fields. In his position as President, Mr. Mitta has responsibility for all aspects of Synergic Solutions including technical program guidance, employee supervision, business development, and profit and loss responsibility. Mr. Mitta received a BS in Information Science & Technology from BMS College of Engineering in 1995.
Legal Proceedings
During the past ten years there have been no events under any bankruptcy act, no criminal proceedings and no judgments, injunctions, orders or decrees material to the evaluation of the ability and integrity of any of our directors or executive officers, and none of these persons has been involved in any judicial or administrative proceedings resulting from involvement in mail or wire fraud or fraud in connection with any business entity, any judicial or administrative proceedings based on violations of federal or state securities, commodities, banking or insurance laws or regulations, or any disciplinary sanctions or orders imposed by a stock, commodities or derivatives exchange or other self-regulatory organization.
Family Relationships
There are no family relationships between any of our directors and executive officers.
Director Independence
We are not currently subject to listing requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the board of directors be “independent” and, as a result, we are not at this time required to have our Board of Directors comprised of a majority of “independent directors.”
We currently have not established any committees of the Board of Directors. Our Board of Directors may designate from among its members an executive committee and one or more other committees in the future. We do not have a nominating committee or a nominating committee charter. Further, we do not have a policy with regard to the consideration of any director candidates recommended by security holders. To date, other than as described above, no security holders have made any such recommendations. The entire Board of Directors performs all functions that would otherwise be performed by committees. Given the present size of our board it is not practical for us to have committees. If we are able to grow our business and increase our operations, we intend to expand the size of our board and allocate responsibilities accordingly.
Delinquent Section 16(a) Reports
Under U.S. securities laws, directors, certain officers and persons holding more than 10% of our common stock must report their initial ownership of our common stock and any changes in their ownership to the SEC. The SEC has designated specific due dates for these reports and we must identify in this Annual Report those persons who did not file these reports when due. Based solely on our review of copies of the reports filed with the SEC and the written representations of our directors and executive officers, we believe that all reporting requirements for fiscal year 2022 were complied with by each person who at any time during the 2022 fiscal year was a director or an executive officer or held more than 10% of our common stock.
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Code of Ethics
On March 9, 2018, the Board of Directors adopted a Code of Ethics (the “Code”). The purpose of the Code of Ethics is to deter wrongdoing and to promote:
| · | honest and ethical conduct; | |
| · | full, fair, accurate, timely, and understandable disclosure in reports and documents that a registrant files with, or submits to, the SEC and in other public communications made by the Company; | |
| · | avoidance and ethical handling of actual or apparent conflicts of interest, including disclosure to an appropriate person of any material transaction or relationship that reasonably could be expected to give rise to such a conflict; | |
| · | confidentiality of corporate information; | |
| · | protection and proper use of corporate assets and opportunities; | |
| · | compliance with applicable governmental laws, rules, and regulations; | |
| · | prompt internal reporting of any violations of this Code to an appropriate person; and | |
| · | accountability for adherence to the Code. |
The Code of Ethics applies to all directors, officers, and employees of the Company and its subsidiaries, including, but not limited to, the Company’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Code of Ethics is available at www.oxyscorp.com and is included as an exhibit to this Annual Report. The Company will provide any person, without charge and upon request through our website, a copy of the Code of Ethics.
| Item 11. | Executive Compensation |
The following table sets forth information concerning the annual compensation awarded to, earned by, or paid to the following named executive officers for all services rendered in all capacities to our company and its subsidiaries for the years ended December 31, 2022 and 2021.
Summary Compensation Table
| Name and principal position | Year | Salary ($) | Stock Awards ($) | Total ($) | ||||||||||||
| Clifford Emmons(1) | 2022 | 100,000(2) | 0 | 100,000 | ||||||||||||
| 2021 | 38,366(3) | 450,000(4) | 488,366 | |||||||||||||
| Karen McNemar(5) | 2022 | 100,000(6) | 0 | 100,000 | ||||||||||||
| 2021 | 124,813(7) | 360,000(5) | 484,813 | |||||||||||||
________________________
| (1) | Mr. Emmons was appointed as our CEO, President, and interim CFO on June 4, 2018. |
| (2) | As of December 31, 2022, Mr. Emmons was owed $139,575 in accrued and unpaid consulting fees and $2,849 in reimbursable expenses. |
| (3) | As of December 31, 2021, Mr. Emmons was owed $145,844 in accrued and unpaid consulting fees and $0 in reimbursable expenses. |
| (4) | On June 4, 2021, 1,500,000 shares of Common Stock previously granted to Mr. Emmons vested. |
| (5) | Ms. McNemar was appointed as our COO effective as of September 20, 2018. |
| (6) | As of December 31, 2022, Ms. McNemar was owed $134,849 in accrued and unpaid consulting fees. |
| (7) | As of December 31, 2021, Ms. McNemar was owed $121,092 in accrued and unpaid consulting fees. |
| (8) | On October 1, 2021, 1,200,000 shares of Common Stock previously granted to Ms. McNemar vested. |
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Emmons Consulting Agreement
On March 11, 2019, the Company’s Board of Directors (with Mr. Emmons abstaining) approved the Consulting Agreement dated effective June 4, 2018 with Clifford Emmons, the Company’s Chief Executive Officer, Interim Chief Financial Officer, and director (the “Emmons Agreement”). The term of the Emmons Agreement is for three years beginning as of the effective date, unless terminated earlier pursuant to the agreement and is automatically renewable for one-year terms upon the consent of the parties. The services to be provided by Mr. Emmons pursuant to the Emmons Agreement are those customary for the positions in which he is serving.
Mr. Emmons shall receive a monthly fee of $15,000 which accrues unless converted into shares of Common Stock of the Company at a conversion rate specified in the Emmons Agreement. Until the Company closes a minimum $500,000 capital raise, the monthly fee accrues and, upon the closing of such a capital raise, $5,000 of the monthly fee will be paid to Mr. Emmons in cash and the remainder will continue to accrue. Upon the closing of a capital raise of at least $2,000,000, the entire monthly fee will be paid to Mr. Emmons in cash and all accrued and unpaid monthly fees will be paid by the Company within one year of the closing of such a capital raise.
As of the effective date, the Company shall issue to Mr. Emmons an aggregate of 3,060,000 shares of the Company’s Common Stock which vest as follows:
| 1. | 560,000 shares on the first-year anniversary of the effective date; | |
| 2. | 1,000,000 shares on the second-year anniversary of the effective date; and | |
| 3. | 1,500,000 shares on the third-year anniversary of the effective date. |
The shares are granted under the 2019 Plan. 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 Emmons Agreement) or the listing of the Company’s Common Stock on a senior exchange.
On June 12, 2020, the Company entered into an amendment effective January 1, 2020 (the “Emmons Amendment”) to the Emmons Agreement, pursuant to which, Sections 7(a) and 7(b) of the Emmons Agreement were amended to read as follows:
Fees. From January 1, 2020 until April 23, 2020, the Consultant shall be paid an hourly wage of $12.75 per hour for Services performed. From April 24, 2020 onward, the Consultant shall be paid an hourly wage of $48.08 an hour for Services performed (the “Fees”). Fees may accrue at the discretion of management.
Conversion of Accrued and Unpaid Fees. At any time, the Consultant shall have the right to convert any accrued and unpaid Fees into shares of Common Stock of the Company (the “Conversion Shares”). The conversion price shall equal 90% multiplied by the Market Price (as defined herein) (representing a discount rate of 10%) (the “Conversion Price”). “Market Price” means the average of the Trading Prices (as defined below) for the shares of Common Stock of the Company during the thirty (30) day period ending on the latest complete trading day prior to the Conversion Date. “Trading Price” and “Trading Prices” means, for any security as of any date, the closing trade price of the Company’s Common Stock on the OTC Pink, OTCQB or applicable trading market as reported by a reliable reporting service (“Reporting Service”) designated by the Consultant or, if the OTC Pink is not the principal trading market for such security, the trading price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no trading price of such security is available in any of the foregoing manners, the average of the trading prices of any market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc. “Conversion Date” shall mean the date of receipt by the Company of the completed and executed Notice of Conversion, the form of which is attached hereto as Exhibit A.
Pursuant to the Emmons Amendment, Section 11 was also eliminated from the Emmons Agreement.
On June 4, 2021, the Emmons Agreement terminated pursuant to its terms.
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Emmons Employment Contract
On June 2, 2022, the Board of Directors (with Mr. Emmons abstaining) approved the Employment Contract dated effective April 1, 2022 with Mr. Emmons (the “Emmons Contract”). The term of the Emmons Contract is from the effective date until the Emmons Contract is terminated pursuant to its terms. The services to be provided by Mr. Emmons pursuant to the Emmons Contract are those customary for the positions in which he is serving.
Pursuant to the Emmons Contract, Mr. Emmons shall receive an annual salary of $100,000 which accrues unless converted into shares of Common Stock of the Company at a conversion rate specified in the Emmons Contract. 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.
As of the effective date, the Company will award to Mr. Emmons an aggregate of 7,000,000 shares of the Company’s Common Stock which will vest as follows (the “Emmons Contract Shares”):
| 1. | 1,500,000 shares on the first-year anniversary of the effective date; | |
| 2. | 2,500,000 shares on the second-year anniversary of the effective date; and | |
| 3. | 3,000,000 shares on the third-year anniversary of the effective date. |
The Emmons Contract Shares are awarded under the 2022 Plan. Vesting of the Emmons Contract Shares is subject to acceleration of vesting upon the occurrence of certain events such as a Change of Control (as defined in the Emmons Contract) or the listing of the Company’s Common Stock on a senior exchange.
McNemar Consulting Agreement
On March 11, 2019, the Company’s Board of Directors approved the Consulting Agreement dated effective October 1, 2018 with Karen McNemar, the Company’s Chief Operating Officer (the “McNemar Agreement”). The term of the McNemar Agreement is for three years beginning as of the effective date, unless terminated earlier pursuant to the agreement and is automatically renewable for one-year terms upon the consent of the parties. The services to be provided by Ms. McNemar pursuant to the McNemar Agreement are those customary for the position in which she is serving.
Ms. McNemar shall receive a monthly fee of $12,750 which accrues unless converted into shares of Common Stock of the Company at a conversion rate specified in the McNemar Agreement. Until the Company closes a minimum $500,000 capital raise, the monthly fee accrues and, upon the closing of such a capital raise, $4,250 of the monthly fee will be paid to Ms. McNemar in cash and the remainder will continue to accrue. Upon the closing of a capital raise of at least $2,000,000, the entire monthly fee will be paid to Ms. McNemar in cash and all accrued and unpaid monthly fees will be paid by the Company within one year of the closing of such a capital raise.
As of the effective date, the Company shall issue to Ms. McNemar an aggregate of 2,409,000 shares of the Company’s Common Stock which vest as follows:
| 1. | 409,000 shares on the first-year anniversary of the effective date; | |
| 2. | 800,000 shares on the second-year anniversary of the effective date; and | |
| 3. | 1,200,000 shares on the third-year anniversary of the effective date. |
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The shares are granted under the 2017 Stock Incentive Plan. 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 McNemar Agreement) or the listing of the Company’s Common Stock on a senior exchange.
On June 12, 2020, the Company entered into an amendment effective January 1, 2020 (the “McNemar Amendment”) to the McNemar Agreement, pursuant to which, Sections 7(a) and 7(b) of the McNemar Agreement were amended to read as follows:
Fees. From January 1, 2020 until April 23, 2020, the Consultant shall be paid an hourly wage of $12.75 per hour for Services performed. From April 24, 2020 onward, the Consultant shall be paid an hourly wage of $48.08 an hour for Services performed (the “Fees”). Fees may accrue at the discretion of management.
Conversion of Accrued and Unpaid Fees. At any time, the Consultant shall have the right to convert any accrued and unpaid Fees into shares of Common Stock of the Company (the “Conversion Shares”). The conversion price shall equal 90% multiplied by the Market Price (as defined herein) (representing a discount rate of 10%) (the “Conversion Price”). “Market Price” means the average of the Trading Prices (as defined below) for the shares of Common Stock of the Company during the thirty (30) day period ending on the latest complete trading day prior to the Conversion Date. “Trading Price” and “Trading Prices” means, for any security as of any date, the closing trade price of the Company’s Common Stock on the OTC Pink, OTCQB or applicable trading market as reported by a reliable reporting service (“Reporting Service”) designated by the Consultant or, if the OTC Pink is not the principal trading market for such security, the trading price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no trading price of such security is available in any of the foregoing manners, the average of the trading prices of any market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc. “Conversion Date” shall mean the date of receipt by the Company of the completed and executed Notice of Conversion, the form of which is attached hereto as Exhibit A.
Pursuant to the McNemar Amendment, Section 11 was also eliminated from the McNemar Agreement.
On October 1, 2021, the McNemar Agreement terminated pursuant to its terms.
McNemar Employment Contract
On June 2, 2022, the Board of Directors of Company approved the Employment Contract dated effective April 1, 2022 with Ms. McNemar (the “McNemar Contract”). The term of the McNemar Contract is from the effective date until the McNemar Contract is terminated pursuant to its terms. The services to be provided by Ms. McNemar pursuant to the McNemar Contract are those customary for the positions in which she is serving.
Pursuant to the McNemar Contract, Ms. McNemar shall receive an annual salary of $100,000 which accrues unless converted into shares of Common Stock of the Company at a conversion rate specified in the McNemar Contract. 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.
As of the effective date, the Company will award to Ms. McNemar an aggregate of 7,000,000 shares of the Company’s Common Stock which will vest as follows (the “McNemar Contract Shares”):
| 1. | 1,500,000 shares on the first-year anniversary of the effective date; | |
| 2. | 2,500,000 shares on the second-year anniversary of the effective date; and | |
| 3. | 3,000,000 shares on the third-year anniversary of the effective date. |
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The McNemar Contract Shares are awarded under the 2022 Plan. Vesting of the McNemar Contract Shares is subject to acceleration of vesting upon the occurrence of certain events such as a Change of Control (as defined in the McNemar Contract) or the listing of the Company’s Common Stock on a senior exchange.
Debt Forgiveness Agreements
On June 11, 2020, the Company entered into Debt Forgiveness Agreements with Mr. Emmons and Ms. McNemar, pursuant to which:
| · | Mr. Emmons forgave $185,000 of accrued and unpaid consulting fees owed to him pursuant to his consulting agreement with the Company; and | |
| · | Ms. McNemar forgave $103,250 of accrued and unpaid consulting fees owed to her pursuant to her current and previous consulting agreement with the Company. |
Share Exchange Agreements
As of November 9, 2020, we entered into a Share Exchange Agreements (the “Exchange Agreements”) with Mr. Emmons, Vidhyadhar Mitta, our director, and Ms. McNemar pursuant to which:
| · | we agreed to sell Mr. Emmons 7,800 shares of Series A Preferred Stock (as defined below) in exchange for 780,000 unissued, vested shares of our Common Stock; | |
| · | we agreed to sell Mr. Mitta 12,000 shares of Series A Preferred in exchange for 1,000,000 unissued, awarded shares of our Common Stock and $168 in accrued and unpaid interest pursuant to a note issued to Mr. Mitta; and | |
| · | we agreed to sell Ms. McNemar 6,045 shares of Series A Preferred Stock in exchange for 604,500 unissued, vested shares of our Common Stock. |
Equity Awards
The following table provides information on stock and option awards held by the named executive officers as of December 31, 2022:
| Stock Awards | Market Value of | ||||||||||
| Number of Shares | Shares of Units of | ||||||||||
| or Units of Stock that | Stock that Have Not | ||||||||||
| Grant | Have Not Vested | Vested | |||||||||
| Name | Date | (#) | ($) | ||||||||
| Clifford L. Emmons | 6/2/22 | 7,000,000 | (1) | 65,800 | |||||||
| Karen McNemar | 6/2/22 | 7,000,000 | (1) | 65,800 | |||||||
| (1) | 1,500,000 shares on the first-year anniversary of the grant date; 2,500,000 shares on the second-year anniversary of the grant date; and 3,000,000 shares on the third-year anniversary of the grant date |
Compensation of Directors
Besides Mr. Emmons’ compensation (whose compensation is disclosed above), no compensation was awarded to, earned by, or paid to any remaining directors for services rendered in all capacities to our Company and its subsidiaries for the year ended December 31, 2022.
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| Item 12. | Security Ownership of Certain Beneficial Owners and Management |
The following table and footnotes thereto sets forth information regarding the number of shares of common stock beneficially owned by (i) each director and named executive officer of our company, (ii) each person known by us to be the beneficial owner of 5% or more of its issued and outstanding shares of common stock, and (iii) named executive officers, executive officers, and directors of the Company as a group as of March 30, 2023. In calculating any percentage in the following table of common stock beneficially owned by one or more persons named therein, the following table assumes 401,865,786 shares of common stock outstanding. Unless otherwise further indicated in the following table, the footnotes thereto and/or elsewhere in this report, the persons and entities named in the following table have sole voting and sole investment power with respect to the shares set forth opposite the shareholder’s name, subject to community property laws, where applicable. Unless as otherwise indicated in the following table and/or the footnotes thereto, the address of our named executive officers and directors in the following tables is: 705 Cambridge Street, Cambridge, MA 02141.
| Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership(1) | Percent of Class (1) | ||||||
| Named Executive Officers and Directors | ||||||||
| Clifford Emmons | 97,536,982 (2) | 19.62% | ||||||
| Karen McNemar | 63,226,582 (3) | 13.65% | ||||||
| Vidhyadhar Mitta | 226,184,343 (4) | 36.11% | ||||||
| Executive Officers, Named Executive Officers, and Directors as a Group (3 Persons) | 386,947,907 | 49.42% | ||||||
| 5% Beneficial Holders (Not Named Above) | ||||||||
| Cambridge MedSpace LLC 705 Cambridge Street Cambridge, MA 02141 | 83,176,667 (5) | 17.15% | ||||||
______________________
*Less than 1%
| (1) | Under Rule 13d-3 of the Exchange Act, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the number of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in the above table does not necessarily reflect the person’s actual ownership or voting power with respect to the number of shares of common stock actually outstanding on the March 30, 2023. |
| (2) | Includes 13,333 shares issuable upon the exercise of warrants issued to Cambridge MedSpace LLC, an entity of which Mr. Emmons is a 36.36% owner. Also includes 30,229,704 shares issuable upon the conversion of a note issued to Cambridge MedSpace LLC. Includes 64,233,945 shares of Common Stock issuable upon the conversion of $142,424 in accrued and unpaid consulting fees. Lastly, includes 780,000 shares issuable upon the conversion of shares of Series A Preferred Stock owned by Mr. Emmons. |
| (3) | Includes 60,817,582 shares of Common Stock issuable upon the conversion of $134,849 in accrued and unpaid consulting fees. Also includes 604,500 shares issuable upon the conversion of shares of Series A Preferred Stock owned by Ms. McNemar. |
| (4) | Includes 1,562,500 shares issuable upon the exercise of warrants. Also includes 221,685,000 shares issuable upon the conversion of a note issued to Mr. Mitta. Lastly, includes 1,200,000 shares issuable upon the conversion of shares of Series A Preferred Stock owned by Mr. Mitta. |
| (5) | Includes 36,667 shares issuable upon the exercise of warrants issued to Cambridge MedSpace LLC, an entity of which Mr. Emmons is an owner. Also includes 83,140,000 shares issuable upon the conversion of a note issued to Cambridge MedSpace LLC. |
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The following table sets forth information known to us regarding the beneficial ownership of our Series A Supervoting Preferred Stock as of March 30, 2023.
| Title of Class | Name and address of beneficial owner |
Amount and nature of beneficial ownership |
Percent of Class | |||
| Series A Supervoting Preferred Stock | Vidhyadhar Mitta | 12,000 | 46.43% | |||
| Clifford L. Emmons | 7,800 | 30.18% | ||||
| Karen McNemar | 6,045 | 23.39% |
The following table sets forth information known to us regarding the beneficial ownership of our Series B Convertible Preferred Stock as of March 30, 2023.
| Title of Class | Name and address of beneficial owner (1) |
Amount and nature of beneficial ownership |
Percent of Class | |||
| Series B Convertible Preferred Stock | GHS Investments, LLC | 454 | 100% |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence |
Certain Relationships and Related Transactions
For transactions with our executive officers, please see the disclosure under “Item 11. Executive Compensation.” above.
Coufal Amended and Restated Consulting Agreement
On March 11, 2019, the Company’s Board of Directors approved the Amended and Restated Consulting Agreement dated effective April 23, 2018 with Antony Coufal, the Company’s Chief Technology Officer (the “Coufal Agreement”). The term of the Coufal Agreement is for three years beginning as of the effective date, unless terminated earlier pursuant to the agreement and is automatically renewable for one-year terms upon the consent of the parties. The services to be provided by Mr. Coufal pursuant to the Coufal Agreement are those customary for the position in which he is serving.
Mr. Coufal shall receive a monthly fee of $9,375 which accrues unless converted into shares of Common Stock of the Company at a conversion rate specified in the Coufal Agreement. Until the Company closes a minimum $500,000 capital raise, the monthly fee accrues and, upon the closing of such a capital raise, $3,125 of the monthly fee will be paid to Mr. Coufal in cash and the remainder will continue to accrue. Upon the closing of a capital raise of at least $2,000,000, the entire monthly fee will be paid to Mr. Coufal in cash and all accrued and unpaid monthly fees will be paid by the Company within one year of the closing of such a capital raise.
As of the effective date, the Company shall issue to Mr. Coufal an aggregate of 1,800,000 shares of the Company’s Common Stock which vest as follows:
| 1. | 300,000 shares on the first-year anniversary of the effective date; | |
| 2. | 600,000 shares on the second-year anniversary of the effective date; and | |
| 3. | 900,000 shares on the third-year anniversary of the effective date. |
| 40 |
The shares are granted under the 2017 Stock Incentive Plan. 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 Coufal Agreement) or the listing of the Company’s Common Stock on a senior exchange.
On June 12, 2020, the Company entered into an amendment effective January 1, 2020 (the “Coufal Amendment”) to the Coufal Agreement, pursuant to which, Sections 7(a) and 7(b) of the Coufal Agreement were amended to read as follows:
Fees. From January 1, 2020 until April 23, 2020, the Consultant shall be paid an hourly wage of $12.75 per hour for Services performed. From April 24, 2020 onward, the Consultant shall be paid an hourly wage of $48.08 an hour for Services performed (the “Fees”). Fees may accrue at the discretion of management.
Conversion of Accrued and Unpaid Fees. At any time, the Consultant shall have the right to convert any accrued and unpaid Fees into shares of Common Stock of the Company (the “Conversion Shares”). The conversion price shall equal 90% multiplied by the Market Price (as defined herein) (representing a discount rate of 10%) (the “Conversion Price”). “Market Price” means the average of the Trading Prices (as defined below) for the shares of Common Stock of the Company during the thirty (30) day period ending on the latest complete trading day prior to the Conversion Date. “Trading Price” and “Trading Prices” means, for any security as of any date, the closing trade price of the Company’s Common Stock on the OTC Pink, OTCQB or applicable trading market as reported by a reliable reporting service (“Reporting Service”) designated by the Consultant or, if the OTC Pink is not the principal trading market for such security, the trading price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no trading price of such security is available in any of the foregoing manners, the average of the trading prices of any market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc. “Conversion Date” shall mean the date of receipt by the Company of the completed and executed Notice of Conversion, the form of which is attached hereto as Exhibit A.
Pursuant to the Coufal Amendment, Section 11 was also eliminated from the Coufal Agreement.
Coufal Debt Forgiveness Agreement
On June 11, 2020, the Company entered into Debt Forgiveness Agreements with Mr. Coufal pursuant to which Mr. Coufal forgave $82,475 of accrued and unpaid consulting fees owed to him pursuant to his consulting agreement with the Company.
Coufal Termination Agreement
Effective March 31, 2021, the Company entered into a Termination Agreement (the “Termination Agreement”) with Mr. Coufal, pursuant to which Mr. Coufal resigned and from all positions within the Company and any of its subsidiaries. In addition, the Termination Agreement provided for the payment of $11,144.42 in reimbursable expenses and $130,451 in accrued and unpaid consulting fees to Mr. Coufal within five business days of the effective date. The Termination Agreement also provided for the issuance to Mr. Coufal 843,288 shares of the Company’s Common Stock within five business days of the effective date.
| 41 |
Cambridge MedSpace Note
On January 22, 2019, we entered into a Securities Purchase Agreement with Cambridge MedSpace, LLC, a Massachusetts limited liability company for the purchase of a 5% Secured Convertible Note in the principal amount of $55,000. The note was convertible, in whole or in part, into shares of our Common Stock, at any time at a rate of $0.65 per share with fractions rounded up to the nearest whole share, unless paid in cash at our election. The note bears interest at a rate of 5% per annum and interest payments will be made on an annual basis. The original maturity date of the note was January 22, 2020. The note is governed by the SPA and is secured by all our assets (but is not a senior secured note) pursuant to the Security Agreement. In addition to the issuance of the note, we issued to Cambridge MedSpace warrants to purchase one share of our Common Stock for 50% of the number of shares of Common Stock issuable upon conversion of the note. Each warrant was originally immediately exercisable at $0.75 per share and expires on January 22, 2024. The lender is owned by shareholders of the Company, or their affiliates, including Clifford L. Emmons, our Chief Executive Officer, Interim Chief Financial Officer, and director.
On June 12, 2020, the Company entered into Amendment No. 1 to the note with Cambridge MedSpace pursuant to which the note was amended to extend the maturity date to March 1, 2021.
On April 6, 2022, the Company entered into Amendment No. 2 to the note with Cambridge MedSpace pursuant to which the maturity date as extended to March 1, 2024.
Due to adjustments to the conversion price of the note, the conversion price is currently $0.0008.
Mitta Note
On August 2, 2019, we entered into a Securities Purchase Agreement with Vidhyadhar Mitta, a director of the Company, for the purchase of a 12% Secured Convertible Note in the principal amount of up to $125,000. The note was originally convertible, in whole or in part, into shares of our Common Stock, at any time at a rate of $0.08 per share with fractions rounded up to the nearest whole share, unless paid in cash at our election. The note bears interest at a rate of 12% per annum and interest payments were originally to be made on a quarterly basis. The note originally matured August 2, 2021. On August 2, 2019, the first closing of the note occurred pursuant to which we received $75,000. On September 6, 2019, the second closing occurred pursuant to which the Company received $25,000. On October 16, 2019, the third closing occurred pursuant to which the Company received $25,000.
The note is governed by the SPA and is secured by all the assets of the Company (but is not a senior secured note) pursuant to the Security Agreement. In addition to the issuance of the note, we issued to the Mr. Mitta warrants to purchase one share our Common Stock for 50% of the number of shares of Common Stock issuable upon conversion of the funds received. Each warrant was originally immediately exercisable at $0.12 per share and expires on August 2, 2024.
On August 2, 2021, the Company entered into Amendment No. 1 to the note with Vidhyadhar Mitta pursuant to which the note was amended to extend the maturity date to August 2, 2022.
Effective August 2, 2022, the Company entered into Amendment No. 1 to the note with Vidhyadhar Mitta pursuant to which the note was amended to extend the maturity date to August 2, 2024.
Due to adjustments to the conversion price of the note, the conversion price is currently $0.0008.
| 42 |
Director Independence
We are not currently subject to listing requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the board of directors be “independent” and, as a result, we are not at this time required to have our Board of Directors comprised of a majority of “independent directors.” Although we have not have adopted the independence standards any national securities exchange to determine the independence of directors, the NYSE MKT LLC provides that a person will be considered an independent director if he or she is not an officer of the company and is, in the view of our board of directors, free of any relationship that would interfere with the exercise of independent judgment. Under this standard, our board of directors has determined that Mr. Mitta would meet this standard, and therefore, would be considered to be independent.
| Item 14. | Principal Accountant Fees and Services |
Fees Paid
Audit Fees
The aggregate fees billed for professional services rendered by our principal accountants for the audit of our annual financial statements, review of financial statements included in the quarterly reports and other fees that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the year ended December 31, 2022 were $50,250 and $49,000 for the period ended December 31, 2021.
Audit-Related Fees
There were no fees billed for assurance and related services by our principal accountants that are reasonably related to the performance of the audit or review of the financial statements, other than those reported above, for the years ended December 31, 2022 and 2021.
Tax Fees
The aggregate fees billed for professional services rendered by our principal accountants for tax compliance, tax advice and tax planning in the years ended December 31, 2022 were $3,500 and $2,000 in 2021.
All Other Fees
There were no other fees billed for products or services provided by the principal accountants, other than those previously reported above, for the years ended December 31, 2022 and 2021.
Audit Committee
We do not have an Audit Committee; therefore, the Board of Directors has considered whether the non-audit services provided by our auditors to us are compatible with maintaining the independence of our auditors and concluded that the independence of our auditors is not compromised by the provision of such services. Our Board of Directors pre-approves all auditing services and permitted non-audit services, including the fees and terms of those services, to be performed for us by our independent auditor prior to engagement.
| 43 |
PART IV
| Item 15. | Exhibits, Financial Statement Schedules |
Financial Statements
The following financial statements are filed with this Annual Report:
Report of Independent Registered Public Accounting Firm
Audited Consolidated Balance Sheets at December 31, 2022 and 2021
Audited Consolidated Statements of Operations for the years ended December 31, 2022 and 2021
Audited Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021
Notes to Audited Consolidated Financial Statements
Exhibits
The following exhibits are included with this Annual Report:
| 44 |
| 45 |
| 46 |
| 10.57 | Settlement and Mutual Release Agreement dated July 29, 2020 | 10-Q | 000-50773 | 10.1 | 11/16/2020 | |||||
| 10.58* | Exchange Agreement Dated November 9, 2020 with Clifford L. Emmons | S-1 | 333-252887 | 10.55 | 2/9/2021 | |||||
| 10.59* | Exchange Agreement Dated November 9, 2020 with Vidhyadhar Mitta | S-1 | 333-252887 | 10.56 | 2/9/2021 | |||||
| 10.60* | Exchange Agreement Dated November 9, 2020 with Karen McNemar | S-1 | 333-252887 | 10.57 | 2/9/2021 | |||||
| 10.61* | Employment Contract dated April 1, 2021 with Chandran Seshagiri | 10-Q | 000-50773 | 10.1 | 8/13/2021 | |||||
| 10.62 | Common Stock Purchase Agreement dated February 24, 2021 with GHS Investments, LLC | 10-Q | 000-50773 | 10.4 | 5/17/2021 | |||||
| 10.63 | Termination Agreement with Antony Coufal dated effective March 31, 2021 | 10-Q | 000-50773 | 10.5 | 5/17/2021 | |||||
| 10.64* | Employment Contract dated Effective April 1, 2022 with Clifford L. Emmons | S-1 | 333-266351 | 10.63 | 7/27/2022 | |||||
| 10.65* | Employment Contract dated Effective April 1, 2022 with Karen McNemar | S-1 | 333-266351 | 10.64 | 7/27/2022 | |||||
| 14.1 | Code of Ethics | 10-K | 000-50773 | 14.1 | 4/17/2018 | |||||
| 21.1 | List of Subsidiaries | 10-K | 000-50773 | 21.1 | 4/17/2018 | |||||
| 31.1 | Rule 13a-14(a) Certification by Principal Executive Officer | X | ||||||||
| 31.2 | Rule 13a-14(a) Certification by Principal Financial and Accounting Officer | X | ||||||||
| 32.1 | Section 1350 Certification of Principal Executive Officer | X | ||||||||
| 32.2 | Section 1350 Certification of Principal Financial and Accounting Officer | X | ||||||||
| 101.INS | Inline XBRL Instance Document. | X | ||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | X | ||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | X | ||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | X | ||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | X | ||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | X | ||||||||
| 104 | Cover Page Interactive Data File (formatted in iXBRL, and included in exhibit 101) | X |
_________________
*Management contract or compensatory plan or arrangement.
| Item 16 | Form 10-K Summary |
None.
SIGNATURE PAGE FOLLOWS
| 47 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: April 13, 2023 | By: | /s/ Clifford L. Emmons |
| Clifford L. Emmons, Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: April 13, 2023 | By: | /s/ Karen McNemar |
| Karen McNemar, Interim Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
| NAME | TITLE | DATE | ||
|
/s/ Clifford L. Emmons Clifford L. Emmons |
Director and Chief Executive Officer (Principal Executive Officer) | April 13, 2023 | ||
|
/s/ Karen McNemar Karen McNemar |
Interim Chief Financial Officer (Principal Financial and Accounting Officer | April 13, 2023 | ||
| /s/ Vidhyadhar Mitta | Director | April 13, 2023 | ||
| Vidhyadhar Mitta |
| 48 |
INDEX TO FINANCIAL STATEMENTS
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of IIOT-OXYS, Inc
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of IIOT-OXYS, Inc. (the Company) as of December 31, 2022, and 2021, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2022, and the related consolidated notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2022, and 2021 and the results of its consolidated operations and its cash flows for each of the years in the two-year period ended December 31, 2022 and 2021, in conformity with accounting principles generally accepted in the United States of America.
Consideration of the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1 to the consolidated financial statements, the Company has incurred net losses since inception and has negative cash flows from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
| F-2 |
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Complex Debt and Equity Transactions
Description of the Matter
As discussed in Note 9, the Company holds Series B Convertible Preferred Stock that qualifies for derivative treatment under ASC 815, Derivatives and Hedging. Management uses the Black Scholes Model to value their derivatives. This model requires management to make assumptions, use judgment, and can be complex.
How We Addressed the Matter in Our Audit
We gained an understanding of management’s processes and methodology to develop the estimates. We reviewed the underlying agreement. We evaluated management’s selection of a valuation method, tested the inputs used in the Black-Scholes calculation by agreeing terms of the underlying agreements and market information to third-party sites, and recalculated the value of the derivatives. We also evaluated the adequacy of the disclosures related to these fair value measurements and related gains and losses.
/s/ Haynie & Company
April 13, 2023
PCAOB ID:
We have served as auditors for the company since 2018.
| F-3 |
IIOT-OXYS, Inc. and Subsidiaries
Consolidated Balance Sheets
| December 31, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Note receivable, net of discount of $ | ||||||||
| Intangible assets, net | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Deferred revenue | ||||||||
| Unearned interest | ||||||||
| Notes payable - current, net of discounts of $ | ||||||||
| 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 and shares issued and outstanding at December 31, 2022 and 2021, respectively. Liquidation preference $ | ||||||||
| Stockholders' Equity (Deficit) | ||||||||
| Series A Preferred Stock, $ par value, Shares authorized; shares issued and outstanding at December 31, 2022 and 2021, respectively | ||||||||
| Common Stock $ Par Value, shares authorized; shares and shares issued and outstanding at December 31, 2022 and 2020, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders' Equity (Deficit) | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders' Equity (Deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
IIOT-OXYS, Inc. and Subsidiaries
Consolidated Statements of Operations
| For The Years Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| 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 | ( | ) | ||||||
| Gain (loss) on extinguishment of debt | ||||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other income | ||||||||
| 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 consolidated financial statements.
| F-5 |
IIOT-OXYS, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
For the Years Ended December 31, 2022 and 2021
| Preferred Stock | Common Stock | Additional Paid-In | Accumulated | Total Stockholders’ Equity | ||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||
| Balance - December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||
| Common stock issued for conversion of convertible note payable | – | |||||||||||||||||||||||||
| Common stock sold for cash | – | |||||||||||||||||||||||||
| Common stock issued for extension of notes payable | – | |||||||||||||||||||||||||
| Common stock issued for financing commitment | – | ( | ) | |||||||||||||||||||||||
| Beneficial conversion feature discount on notes payable | – | – | ||||||||||||||||||||||||
| Commission paid for raising capital | – | – | ( | ) | ( | ) | ||||||||||||||||||||
| Common stock issued for accrued compensation | – | |||||||||||||||||||||||||
| Common stock issued for services | – | |||||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||
| Balance - December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||
| Common stock issued for conversion of convertible note payable | – | |||||||||||||||||||||||||
| Common stock issued for financing commitment | – | |||||||||||||||||||||||||
| Sales commissions paid on capital raise | – | – | ( | ) | ( | ) | ||||||||||||||||||||
| Common stock issued for services | – | |||||||||||||||||||||||||
| Beneficial Conversion Feature Associated with Discounts | – | – | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||
| Balance - December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
IIOT-OXYS, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
| For The Years Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| 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 | ||||||||
| Forgiveness of PPP Loan | ( | ) | ||||||
| Debt discount on notes payable | ( | ) | ||||||
| Amortization of beneficial conversion feature | ||||||||
| Amortization of Intangible Assets | ||||||||
| Changes in Operating Assets and Liabilities | ||||||||
| (Increase) Decrease in: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expense | ( | ) | ||||||
| Increase (Decrease) in: | ||||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued liabilities | ||||||||
| Derivative liability | ( | ) | ||||||
| Unearned interest | ||||||||
| Deferred revenue | ( | ) | ||||||
| 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 Convertible Note Payable | ||||||||
| Proceeds from sale of Series B Preferred Stock | ||||||||
| Net Cash Provided By Financing Activities | ||||||||
| Net Decrease in Cash and Cash Equivalents | ( | ) | ( | ) | ||||
| Cash and Cash Equivalents - Beginning of Period | ||||||||
| Cash and Cash Equivalents - End of Period | $ | $ | ||||||
| Supplement Disclosures of Cash Flow Information | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Supplemental Disclosures of Non-Cash Investing and Financing Activities | ||||||||
| Discount on notes payable | $ | $ | ||||||
| Conversion of convertible notes payable and derivative liabilities | $ | $ | ||||||
| Warrant anti-dilution issuance | $ | $ | ||||||
| Discount on Series B Convertible Preferred Stock | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-7 |
IIOT-OXYS, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 1 - NATURE OF OPERATIONS, BASIS OF PRESENTATION AND GOING CONCERN
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.
IIOT-OXYS, Inc., a Nevada corporation (the “Company”) was originally 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.
We were incorporated in the state of New Jersey on October 1, 2003 under the name of Creative Beauty Supply Corporation and commenced operations as of January 1, 2004. On November 30, 2007, our Board of Directors approved a plan to dispose of our wholesale and retail beauty supply business. On May 18, 2015, we changed our name to Gotham Capital Holdings. From January 1, 2009 until July 28, 2017, we had no operations. On March 16, 2017, our Board of Directors approved to change our name to “IIOT-OXYS, Inc.” and authorized a change of domicile from New Jersey to Nevada.
Impact of COVID-19
During the year ended December 31, 2022, the effects of a new coronavirus (“COVID-19”) and related actions to attempt to control its spread began to impact our business. The impact of COVID-19 on our operating results for the year ended December 31, 2022 was limited, in all material respects, due to the government mandated numerous measures, including closures of businesses, limitations on movements of individuals and goods, and the imposition of other restrictive measures, in its efforts to mitigate the spread of COVID-19 within the country.
On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. Governments around the world have mandated, and continue to introduce, orders to slow the transmission of the virus, including but not limited to shelter-in-place orders, quarantines, significant restrictions on travel, as well as work restrictions that prohibit many employees from going to work. Uncertainty with respect to the economic effects of the pandemic has introduced significant volatility in the financial markets.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company. The financial statements and accompanying notes are the representations of the Company’s management, who is responsible for their integrity and objectivity. In the opinion of the Company’s management, the financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.
| F-8 |
Principles of Consolidation
The consolidated financial statements for the years ended December 31, 2022 and 2021, respectively, include the accounts of Company, and its wholly-owned subsidiaries OXYS Corporation and HereLab, Inc. All significant intercompany balances and transactions have been eliminated.
Reclassifications
Certain amounts in the prior periods presented have been reclassified to conform to the current period financial statement presentation. These reclassifications have no effect on previously reported net income.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of accounts payable, accrued liabilities and payable to related party. 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.
Going Concern
The accompanying 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 and reported a net loss 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 12 months by generating cash through additional borrowings and/or sale of equity securities, as needed. However, there can be no assurance that the Company will be able to generate sufficient liquidity to maintain its operations. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following summary of significant accounting policies of the Company is presented to assist in the understanding of the Company’s financial statements. These accounting policies conform to GAAP in all material respects and have been consistently applied in preparing the accompanying financial statements.
| F-9 |
Cash and Cash Equivalents
The Company considers all highly liquid instruments
with maturity of three months or less at the time of issuance to be cash equivalents. The Company reported a cash balance of $
Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are carried at original
invoice amount less an estimate made for doubtful accounts. The Company determines the allowance for doubtful accounts by identifying
potential troubled accounts and by using historical experience and future expectations applied to an aging of accounts. Trade accounts
receivable are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are recorded as income
when received. There was
Long-Lived Assets
The Company regularly reviews the carrying value and estimated lives of its long-lived assets to determine whether indicators of impairment may exist that warrant adjustments to the carrying value or estimated useful lives. The determinants used for this evaluation include management’s estimate of the asset’s ability to generate positive income from operations and positive cash flow in future periods as well as the strategic significance of the assets to the Company’s business objectives.
Definite-lived intangible assets are amortized on a straight-line basis over the estimated periods benefited and are reviewed when appropriate for possible impairment.
The Company computes earnings (loss) per share in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”), ASC 260, “Earnings per Share”. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible note and preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.
Revenue Recognition
The Company’s revenue is derived primarily from providing services under contractual agreements. The Company recognizes revenue in accordance with ASC Topic No. 606, Revenue from Contracts with Customers (“ASC 606”) which was adopted on January 1, 2018.
According to ASC 606, the Company recognizes revenue based on the following criteria:
| · | Identification of a contract or contracts, with a customer. | |
| · | Identification of 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. |
| F-10 |
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.
Concentration of Credit Risk
Financial instruments that potentially expose
the Company to concentrations of risk consist primarily of cash and cash equivalents which are generally not collateralized. The Company’s
policy is to place its cash and cash equivalents with high quality financial institutions, in order to limit the amount of credit exposure.
Accounts at each institution are insured by the Federal Deposit Insurance Corporation (FDIC), up to $250,000. At December 31, 2022 and
December 31, 2021, the Company had
Fair Value of Financial Instruments and Fair Value Measurements
ASC 820, “Fair Value Measurements and Disclosures”, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s consolidated financial instruments consist principally of cash, accounts receivable, prepaid expenses, note receivable, accounts payable, accrued liabilities, notes payable and related parties payable. The Company believes that the recorded values of all the financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
| F-11 |
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Income Taxes”. The asset and liability method provide that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The Company follows the provisions of ASC 740-10, “Accounting for Uncertain Income Tax Positions.” When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
Convertible Debt and Convertible Preferred Stock
When the Company issues convertible debt or convertible preferred stock, it first evaluates the balance sheet classification of the convertible instrument in its entirety to determine whether the instrument should be classified as a liability under ASC 480, Distinguishing Liabilities from Equity, and second whether the conversion feature should be accounted for separately from the host instrument. A conversion feature of a convertible debt instrument or certain convertible preferred stock would be separated from the convertible instrument and classified as a derivative liability if the conversion feature, were it a standalone instrument, meets the definition of an “embedded derivative” in ASC 815, Derivatives and Hedging. Generally, characteristics that require derivative treatment include, among others, when the conversion feature is not indexed to the Company’s equity, as defined in ASC 815-40, or when it must be settled either in cash or by issuing stock that is readily convertible to cash. When a conversion feature meets the definition of an embedded derivative, it would be separated from the host instrument and classified as a derivative liability carried on the consolidated balance sheet at fair value, with any changes in its fair value recognized currently in the consolidated statements of operations.
Effective January 1, 2022, we early adopted ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” using the modified retrospective method of adoption. ASU 2020-06 simplifies the accounting for convertible instruments by removing certain separation models in Subtopic 470- 20, Debt—Debt with Conversion and Other Options, for convertible instruments. Under ASU 2020-06, the embedded conversion features no longer are separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the interest rate of convertible debt instruments typically will be closer to the coupon interest rate when applying the guidance in Topic 835, Interest. We now account for our Convertible Notes as single liabilities measured at amortized cost. As a result, the adoption of the guidance had a material impact on the consolidated financial statements and accompanying notes, resulting in adjustments of $371,125, $313,976 and $57,149 to the opening balance of additional paid-in capital, retained earnings, and long-term debt, respectively, as of January 1, 2022. We have updated our debt note (Note 5) with additional and modified disclosures as required by the standard upon adoption.
| F-12 |
Recent Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, with early adoption permitted. The Company has adopted this guidance and it does not have any material impact on its consolidated financial statements.
Other accounting standards that have been issued or proposed by FASB and do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
NOTE 3 - INTANGIBLE ASSETS
The Company’s intangible assets comprise
of intellectual property revolving around their field tests, sensor integrations, and board designs. Intangible assets, net of amortization
at December 31, 2022 and 2021, amounted to $
| Schedule of intangible assets | ||||||||
| December 31, 2022 | December 31, 2021 | |||||||
| Intangible Assets | $ | $ | ||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| Intangible Assets, net | $ | $ | ||||||
The Company determined that none of its intangible
assets were impaired at December 31, 2022 and 2021, respectively. Amortizable intangible assets are amortized using the straight-line
method over their estimated useful lives of ten years. Amortization expense of finite-lived intangibles was $
The following table summarizes the Company’s estimated future amortization expense of intangible assets with finite lives as of December 31, 2022:
| Schedule of future amortization | ||||
Amortization expense | ||||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ | |||
| F-13 |
NOTE 4 - 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 December 31, 2022 and 2021, respectively, and shares and shares were vested and issued per the Company’s 2019 Stock Incentive Plan as of December 31, 2022 and 2021, 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.
Employment Agreement - CEO
On
June 2, 2022, the Board approved an Employment Agreement with the CEO 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. The Company recorded $
Consulting Agreement – CTO
Effective March 31, 2021, the Company entered
into a Termination Agreement (the “Termination Agreement”) with the CTO, pursuant to which the CTO resigned and from
all positions within the Company and any of its subsidiaries. In addition, the Termination Agreement provided for the payment of $
| F-14 |
NOTE 5 - CONVERTIBLE NOTES PAYABLE
The following table summarizes the outstanding balance of convertible notes payable, interest and conversion rates as of December 31, 2022 and December 31, 2021, respectively.
| Schedule of convertible notes payable | ||||||||
| December 31, 2022 | December 31, 2021 | |||||||
| A. Convertible note payable to an investor with interest at 12% per annum, convertible at any time into shares of common stock at $0.008 per share. Interest is payable quarterly with the balance of principal and interest due on maturity on March 1, 2023. 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 $0.0008 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, principal and interest convertible into shares of common stock at $0.008 per share. Interest is payable quarterly with the balance of principal and interest due on maturity on March 1, 2023. The note is secured by substantially all the assets of the Company. | ||||||||
| E. Convertible note payable to a related party with interest at 12% per annum, convertible at any time into shares of common stock at $0.0008 per share. Interest is payable quarterly with the balance of principal and interest due on maturity on August 2, 2024. The note is secured by substantially all the assets of the Company. | ||||||||
| F. Convertible note payable to an investor with interest at 10% per annum, convertible at any time into shares of common stock at $0.01 per share. Principal and interest due on maturity on April 29, 2023. | ||||||||
| G. Convertible note payable to an investor with interest at 10% per annum, convertible at any time into shares of common stock at $0.0099 per share. Note was issued as payment for future fees to be incurred under the related Equity Financing Agreement. Principal and interest due on maturity on April 29, 2023. | ||||||||
| Less deferred financing costs | ( |
) | ( |
) | ||||
| Less Unamortized discount | ( |
) | ||||||
| Net balance | ||||||||
| Less current portion | ( |
) | ( |
) | ||||
| Long term portion | $ | $ | ||||||
| F-15 |
| A. | January 18, 2018 Convertible Note and Warrants (“Note A”) |
On January 28, 2021, the noteholder of Note A
agreed to extend the maturity date of the Senior Secured Convertible Promissory Note to March 1, 2022, in exchange for the reduction of
the conversion price to $0.01 per share, and all prior Events of Default (as defined in the Note A) including penalties of $100,000 were
waived, and all future Events of Default (as defined in the Note A) pertaining to the future payment of interest were waived through maturity.
On December 14, 2021, the Company entered into amendment to the Note A which limits the respective
holder to conversions resulting in beneficial ownership by the holder and its affiliates of no more than 4.99% of the outstanding shares
of common stock of the Company. The Company recorded $100,000 as extinguishment of debt in its statements of operations for the
year ended December 31, 2021. The Company recorded $
On February 4, 2021,
the noteholder A converted the principal balance of $
The conversion shares totaled and
shares of common stock, upon conversion of the total principal and accrued interest of $
The Company amortized the beneficial conversion
feature discount to 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 the Senior Secured Convertible Promissory Note to March 1, 2022, and all prior Events of Default (as defined in the Note B) including penalties were waived, and all other terms of the Note B remain the same (Note 9). On April 6, 2022, the Noteholder of Note B agreed to extend the maturity date of the Note B to March 1, 2024.
The unpaid principal balance of the Note B and
accrued interest is $
| F-16 |
| D. | March 2019 Convertible Note and Warrants (“Note D”) |
On January 28, 2021, the noteholder of Note D
agreed to extend the maturity date of the Senior Secured Convertible Promissory Note to March 1, 2022 in exchange for the reduction of
the conversion price to $0.01 per share, and all prior Events of Default (as defined in the Note D) including penalties of $10,000 were
waived, and all future Events of Default (as defined in the Note D) pertaining to the future payment of interest were waived through maturity.
On December 14, 2021, the Company entered into amendment to the Note D which limits the respective
holder to conversions resulting in beneficial ownership by the holder and its affiliates of no more than 4.99% of the outstanding shares
of common stock of the Company. The Company recorded $10,000 as extinguishment of debt in its statements of operations for the
year ended December 31, 2021. The Company recorded $
On March 14, 2022, the noteholder of Note D, effective
March 1, 2022, agreed to extend the maturity date of the Senior Secured Convertible Note to March 1, 2023 in exchange for the reduction
of the conversion price to $
The conversion shares of Note D totaled
shares and shares of common stock upon the conversion of the total principal and accrued interest of $
| E. | August 2019 Convertible Note and Warrants (“Note E”) |
On August 2, 2021, the noteholder of Note E agreed
to extend the maturity date of the Senior Secured Convertible Promissory Note to August 2, 2024. All other terms and conditions of the
Note E remain the same. The Company adopted ASU 2020-06 in 2022 eliminating the use of beneficial conversion feature, hence no beneficial
conversion feature expense was recorded for 2022 extensions. The Company amortized the debt discount on Note E to interest expense of
$
| F. | August 29, 2019 Convertible Note and Warrants (“Note F”) |
On February 1, 2021, the noteholder of Note F
converted the principal balance of $
| F-17 |
| G . | July 2020 Equity Financing Arrangement (“Note G”) |
As of December 31, 2022 and 2021, the unpaid principal
balance of Note G was $
The following table sets forth the computation of basic and diluted net loss per share of common stock for the years ended December 31, 2022 and 2021:
| Schedule of earnings per share | ||||||||
| Year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Net loss attributable to common stockholders (basic) | $ | ( | ) | $ | ( | ) | ||
| Shares used to compute net loss per common share, basic and diluted | ||||||||
| Net loss per share attributable to common stockholders, basic and diluted | $ | ) | $ | ) | ||||
Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted-average number of common shares and common share equivalents outstanding for the period. Common stock equivalents are only included when their effect is dilutive. The Company’s potentially dilutive securities which include stock options, convertible debt, convertible preferred stock and common stock warrants have been excluded from the computation of diluted net loss per share as they would be anti-dilutive. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares outstanding due to the Company’s net loss position.
The following outstanding common stock equivalents have been excluded from diluted net loss per common share for the years ended December 31, 2022 and 2021, respectively, because their inclusion would be anti-dilutive:
| Schedule of antidilutive shares | ||||||||
| As of December 31, | ||||||||
| 2022 | 2021 | |||||||
| Warrants to purchase common stock | ||||||||
| Potentially issuable shares related to convertible notes payable | ||||||||
| Total anti-dilutive common stock equivalents | ||||||||
NOTE 7 - PAYCHECK PROTECTION PROGRAM LOAN
The Company applied for and received funding from
the Payroll Protection Program (the “PPP Loan”) in the amount of $
| F-18 |
Supplemental Target Advance
On July 7, 2021 and July 8, 2021, a commercial
bank granted to the Company two payments of $5,000 each, under the authority and regulations of the U. S. Small Business Administration
Supplemental Target Advance of the Coronavirus Aid, Relief, and Economic Security Act (The “CARES Act”). Such advances amounted
to $10,000 and does not need to be repaid. The Company recorded $
NOTE 8 - RELATED PARTIES
At December 31, 2022 and 2021, the amount due
to two stockholders was $
The Company leases its current office facility
on a month-to-month basis at a monthly rent of $250 starting January 1, 2020. For the year ended December 31, 2022 and 2021, rent expense
earned by the stockholder amounted to $
The Company awarded shares payable to officers
and a director valued at $
NOTE 9 - STOCKHOLDERS' EQUITY
Common Stock
The Company has an authorized capital of 1,000,000,000 shares of $ par value common stock and shares of $par value preferred stock at December 31, 2022. The Company had shares and shares of common stock, and shares of preferred stock, issued and outstanding as of December 31, 2022 and 2021, respectively.
On January 4, 2021, pursuant to the authorization and approval previously provided by the stockholders, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of Nevada to increase its authorized shares of common stock, $0.001 par value per share, from 190,000,000 shares to 1,000,000,000 shares, which filing became effective on January 18, 2021.
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.
| F-19 |
On January 28, 2021, the noteholder of Note C
converted the principal balance of $
On February 1, 2021, the noteholder of Note F
converted the principal balance of $
On February 4, 2021, the noteholder of Note A
converted the principal balance of $
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 February 26, 2021 to December 31, 2021, the investor purchased shares of
common stock for a cash consideration of $
On April 1, 2021, the Company’s Chief Technology
Officer resigned from his employment with the Company. In settlement of the Company’s total obligations with the officer upon separation,
the Company issued shares of its common stock valued at $
On April 15, 2021, the noteholder of Note A converted
the principal balance of $
On May 20, 2021, the Company issued to a consultant
for services rendered, pursuant to a consulting agreement, shares of common stock valued at the fair market price on the date
of issuance of $
On May 20, 2021, the Company issued to a consultant
for services, pursuant to a consulting agreement, shares of common stock valued at the fair market price on the date of issuance
of $
On June 15, 2021, the Company issued shares of common stock valued at $ to Company’s Chief Executive Officer in satisfaction of accrued shares payable compensation (Note 8).
On July 28, 2021, the noteholder of Note A converted
the principal balance of $
On November 23, 2021, the noteholders of Notes
F and G agreed to extend the maturity date of their Convertible Promissory Notes in exchange of receiving shares of common stock
valued at the fair market price of $
On December 21, 2021, the Company issued
shares of common stock to the noteholder of Note F as commitment fee for making equity financing available to the Company. The Company
recorded the fair value of such common stock issued at the fair market price of $
| F-20 |
On December 21, 2021, the Company issued shares of common stock to its Chief Operating Officer valued at $, and issued shares of common stock to a consultant valued at $ in satisfaction of accrued shares payable compensation (Note 8).
On February 23, 2022, the Company issued to
a consultant for services rendered, pursuant to a consulting agreement,
shares of common stock valued at the fair market price on the date of issuance of $
On May 23, 2022, the noteholder of Note A converted
$
As a result of all common stock issuances, the Company recorded shares and shares of common stock issued and outstanding at December 31, 2022 and December 31, 2021, respectively.
Stock Incentive Plans
On December 14, 2017 (the “Effective Date”), the Board of Directors of the Company approved the 2017 Stock Inventive 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 Effective Date 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 “Effective Date”) the Board of Directors of the Company approved the 2019 Stock Incentive Plan (the “2019 Plan”). Awards may be made under the 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 Plan after the expiration of 10 years from the Effective Date 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 at December 31, 2022 and the shares remain unvested as of that date.
For the year ended December 31, 2022, under the 2022 Plan, the Company recorded stock compensation expense of $ for shares payable to an officer, an advisor and a director that remain unvested as of December 31, 2022. The shares earned are valued at the 90% of the average market price of the shares of 30 trading days at the end of each quarter.
Shares earned and issued related to the consulting agreements are issued under the 2017 Plan and the 2019 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.
| F-21 |
A summary of the status of the Company’s non-vested shares at December 31, 2022 and 2021 and changes during the year then ended, is presented below:
| Summary of non-vested shares | ||||||||
| 2017 Stock Incentive Plan | Shares of Common Stock | Weighted Average Fair Value | ||||||
| Authorized Shares | $ | – | ||||||
| Balance – December 31, 2020 | $ | |||||||
| Awarded and issued | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ||||||||
| Balance at December 31, 2021 | ||||||||
| Awarded and issued | ||||||||
| Vested | ||||||||
| Forfeited | ||||||||
| Balance at December 31, 2022 | $ | |||||||
| Unvested common shares - December 31, 2022 | ||||||||
| 2019 Stock Incentive Plan | Shares of Common Stock | Weighted Average Fair Value | ||||||
| Authorized Shares | $ | – | ||||||
| Balance - December 31, 2020 | $ | |||||||
| Awarded and issued | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ||||||||
| Balance at December 31, 2021 | ||||||||
| Awarded and issued | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ||||||||
| Balance at December 31, 2022 | $ | |||||||
| Unvested common shares - December 31, 2022 |
| 2022 Stock Incentive Plan | Shares of Common Stock | Weighted Average Fair Value | ||||||
| Authorized Shares | $ | – | ||||||
| Balance at December 31, 2021 | $ | |||||||
| Awarded | ||||||||
| Vested | ||||||||
| Forfeited | ||||||||
| Balance at December 31, 2022 | $ | |||||||
| Unvested common shares - December 31, 2022 |
| F-22 |
Preferred Stock
Series A Supervoting Convertible Preferred Stock
On July 2, 2020, the Board of Directors of the Corporation had authorized issuance of shares of preferred stock, $ par value per share, designated as Series A Supervoting Preferred Stock.
Dividends: Initially, there will be no dividends due or payable on the Series A Supervoting Preferred Stock. Any future terms with respect to dividends shall be determined by the Board consistent with the Corporation’s Articles of Incorporation.
Liquidation and Redemption Rights: Upon the occurrence of a Liquidation Event (as defined below), the holders of Series A Supervoting Preferred Stock are entitled to receive net assets on a pro-rata basis. Each holder of Series A Supervoting Preferred Stock is entitled to receive ratably any dividends declared by the Board, if any, out of funds legally available for the payment of dividends. Liquidation Event means (i) the liquidation, dissolution or winding-up, whether voluntary or involuntary, of the corporation, (ii) the purchase or redemption by the corporation of the shares of any class of stock or the merger or consolidation of the corporation with or into any other corporation or corporations, or (iii) the sale, license or lease of all or substantially all, or any material part of, the Corporation’s assets.
Conversion: Each holder of Series A Supervoting Preferred Stock may voluntarily convert its shares into shares of common stock of the Corporation at a rate of 1:100 (as may be adjusted for any combinations or splits with respect to such shares).
Rank: All shares of the Series A Supervoting Preferred Stock shall rank senior to the Corporation’s (A) common stock, par value $0.001 per share, and any other class or series of capital stock of the Corporation hereafter created.
Voting Rights:
| 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] |
| F-23 |
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 total fair value of shares compensation recognized during the years ended December 31, 2022 and 2021, was $0 and $351,457, respectively.
On October 1, 2022, the Company cancelled shares
of Series A Preferred stock valued at $
The Company did not issue any Series A Supervoting Convertible Preferred Stock during the years ended December 31, 2022 and 2021, respectively. The Company reported 25,845 shares of Series A Supervoting Convertible Preferred Stock issued and outstanding at December 31, 2022 and December 31, 2021, respectively.
Series B Convertible Preferred Stock Equity Financing
On November 16, 2020, the Board of Directors of the Corporation had authorized issuance of up to shares of preferred stock, $ par value per share, designated as Series B Convertible Preferred Stock. Each share of Preferred Stock shall have 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.
| F-24 |
Liquidation: Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to the Stated Value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereon under this Certificate of Designation, for each share of Series B Convertible Preferred Stock before any distribution or payment shall be made to the holders of any Junior Securities, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Holders shall be ratably distributed among the Holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.
Conversion: Each share of Series B Convertible Preferred Stock shall be convertible, at any time and from time to time from and after the Original Issue Date at the option of the Holder thereof, into that number of shares of common stock (subject to the limitations) determined by dividing the Stated Value of such share of Series B Convertible Preferred Stock by the Conversion Price. The Conversion Price for the Series b Convertible Preferred Stock shall be the amount equal to the lowest traded price for the Company’s common stock for the fifteen (15) Trading Days immediately preceding the date of such conversion. All such foregoing determinations will be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction that proportionately decreases or increases the common stock during such measuring period. Following an event of default, the Conversion price shall equal the lower of : (a) the then applicable Conversion Price; or (b) a price per share equaling 80% of the lowest traded price for the Company’s common stock during the ten (10) trading days preceding the relevant Conversion.
Redemption: The Series B Convertible Preferred Stock may be redeemed by payment of the stated value thereof, with the following premiums based on the time of the redemption.
| · | 115% of the stated value if the redemption takes place within 90 days of issuance; | |
| · | 120% of the stated value if the redemption takes place after 90 days and within 120 days of issuance | |
| · | 125% of the stated value if the redemption takes place after 120 days and within 180 days of issuance; and | |
| · | each share of Preferred Stock is redeemed one year from the day of issuance |
On November 19, 2020, pursuant to the terms of a Securities Purchase Agreement dated November 16, 2020 (the “SPA”), the Company entered into a new preferred equity financing agreement with GHS Investments, LLC (“GHS”) in the amount of up to $600,000. The SPA provides for GHS’s purchase, from time to time, of up to 600 shares of the newly-designated Series B Convertible Preferred Stock. The initial closing under the SPA consisted of 45 shares of Series B Convertible Preferred Stock, stated value $1,200 per share, issued to GHS for an initial purchase price of $45,000, or $1,000 per share. At the Company’s option, and subject to the terms of the SPA and the Certificate of Designation for the Series B Convertible Preferred Stock (the “COD”), additional closings in the amount of 40 shares of Series B Convertible Preferred Stock for a total purchase price of $40,000 may take place at a rate of up to once every 30 days. In connection with the initial closing in the amount of 45 shares of Series B Convertible Preferred Stock, the Company issued an additional 25 shares of Series B Convertible Preferred Stock to GHS as a 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.
| F-25 |
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 $0.0019 to $0.005 the closing stock price of the Company's common stock on the date of valuation ranging from $0.0022 to $0.0060, an expected dividend yield of 0%, expected volatility ranging from 174.58% to 208.19%, risk-free interest rates ranging from 0.91% to 4.737%, 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 valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0019 to $0.0096, the closing stock price of the Company's common stock on the date of valuation ranging from $0.0022 to $0.0172, an expected dividend yield of 0%, expected volatility ranging from 160.35% to 177.44%, risk-free interest rates ranging from 1.09% to 4.73%, and an expected term of 1.35 to 1.5 years.
March 24, 2022
On March 24, 2022, pursuant to the terms of the
SPA, GHS purchased an additional 136 shares of Series B Convertible Preferred Stock for gross proceeds of $
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 $
| F-26 |
The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0019 to $0.0096, the closing stock price of the Company's common stock on the date of valuation ranging from $0.0022 to $0.0183, an expected dividend yield of 0%, expected volatility ranging from 160.35% to 177.44%, risk-free interest rates ranging from 1.55% to 4.73%, 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 valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0019 to $0.0020, the closing stock price of the Company's common stock on the date of valuation ranging from $0.0020 to $0.0022, an expected dividend yield of 0%, expected volatility ranging from 174.58% to 179.98%, risk-free interest rates ranging from 4.68% to 4.73%, and an expected term of 1.5 years.
As a result of issuance of derivative instruments,
the Company recorded a derivative liability of $
Warrants
A summary of the status of the Company’s warrants as of December 31, 2022 and 2021 and changes during the years then ended, is presented below:
| Summary of warrant activity | ||||||||||||
Shares Under Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | ||||||||||
| Outstanding at December 31, 2020 | $ | Years | ||||||||||
| Issued | ||||||||||||
| Expired/Forfeited | ( | ) | ||||||||||
| Outstanding at December 31, 2021 | $ | Years | ||||||||||
| Issued | ||||||||||||
| Exercised | ||||||||||||
| Expired/Forfeited | ||||||||||||
| Outstanding at December 31, 2022 | $ | Years | ||||||||||
| F-27 |
NOTE 10 - INCOME TAXES
Income tax expense for the year ended December 31, 2022 and 2021 is summarized as follows:
| Schedule of components of income tax expense (benefit) | ||||||||
| December 31, 2022 | December 31, 2021 | |||||||
| Deferred: | ||||||||
| Federal | $ | ( | ) | $ | ( | ) | ||
| State | ( | ) | ( | ) | ||||
| Change in valuation allowance | ||||||||
| Income tax expense (benefit) | $ | $ | ||||||
The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rate to the income taxes reflected in the Statement of Operations:
| Schedule of effective income tax rate reconciliation | ||||||||
| December 31, 2022 | December 31, 2021 | |||||||
| Tax at statutory tax rate | ||||||||
| State taxes | ||||||||
| Other permanent items | ( | |||||||
| Valuation allowance | - | - | ||||||
| Income tax expense | ||||||||
The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities at December 31, 2022 and 2021 are as follows:
| Schedule of deferred tax assets and liabilities | ||||||||
| December 31, 2022 | December 31, 2021 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carry forward | $ | $ | ||||||
| Total gross deferred tax assets | ||||||||
| Less: valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax assets | $ | $ | ||||||
Deferred income taxes are provided for the tax effects of transactions reported in the financial statements and consist of deferred taxes related primarily to differences between the bases of certain assets and liabilities for financial and tax reporting. The deferred taxes represent the future tax return consequences of those differences, which will either be deductible or taxable when the assets and liabilities are recovered or settled.
| F-28 |
At December 31, 2022 and 2021, the Company had
accumulated net operating losses of approximately $
In the ordinary course of business, the Company’s income tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessment by these taxing authorities. Accordingly, the Company believes that it is more likely than not that it will realize the benefits of tax positions it has taken in its tax returns or for the amount of any tax benefit that exceeds the cumulative probability threshold in accordance with FASB ASC 740. Differences between the estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material adverse effect on the Company’s financial position. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits. As of December 31, 2022, tax years 2021, 2020, and 2019 remain open for examination by the Internal Revenue Service and the Massachusetts Division of Revenue. The Company has received no notice of audit from the Internal Revenue Service or the Massachusetts Division of Revenue for any of the open tax years.
NOTE 11 - SUBSEQUENT EVENTS
Management has evaluated subsequent events through the date of this Report, the date the financial statements were available to be issued, noting the following items that would impact the accounting for events or transactions in the current period or require additional disclosure.
On January 16, 2023, the Company issued 10,650,921 shares of common stock to GHS Investments, LLC for a cash consideration of $16,557. The Company paid a sales commission of $331.
On February 6, 2023, the Company issued 16,854,990 shares of common stock to GHS Investments, LLC for a cash consideration of $27,581. The Company paid a sales commission of $552.
On February 10, 2023, the Company issued 50,000 shares of common stock under 2019 Plan to an employee for past services. The shares were valued at the fair value of common stock on the date of issuance.
On February 21, 2023, the Company issued 100,000 shares of common stock under 2019 Plan to an advisor of the Company. The shares were valued at their fair value on the date of issuance.
On February 22, 2023, the Company issued 4,097,453 shares of common stock to GHS Investments, LLC for a cash consideration of $10,057. The Company paid a sales commission of $201.
On March 13, 2023, the Company issued 100,000 shares of common stock under 2019 Plan to an advisor of the Company. The shares were valued at their fair value on the date of issuance.
On March 23, 2023, the noteholder of Convertible Promissory Note F elected to convert $27,814 of the principal amount of the note and accrued and unpaid interest of $7,186 into 17,837,838 shares of common stock at the conversion price of $0.00185 per share.
On April 1, 2023, pursuant to their respective employment agreements, 1,500,000 shares of common stock previously awarded to each of the Company’s CEO and COO vested.
As of the date of this filing, the Company is in default with the terms of the Notes A and D, which matured for payment on March 1, 2023. The Company is negotiating with the noteholders to extend the maturity date to cure the default.
| F-29 |
Exhibit 10.35
AMENDMENT No. 2 TO 12% SECURED CONVERTIBLE PROMISSORY NOTE
This Amendment No. 2 to the 12% Secured Convertible Promissory Note (this “Amendment”), dated effective August 2, 2022 (the “Effective Date”), is by and between IIOT-OXYS, Inc., a Nevada corporation (the “Borrower”), on the one hand, and Vidhyadhar Mitta, an individual (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 Amendment will have the meaning set forth in the 12% Secured Convertible Promissory Note dated August 2, 2019 issued by the Borrower to the Holder (the “Note”), attached hereto as Exhibit A.
RECITALS
WHEREAS, on August 2, 2019, the Borrower issued to the Holder the Note in the principal amount of up to $125,000;
WHEREAS, the Note matured on August 2, 2022 and is in default; and
WHEREAS, the Parties wish to amend the Note to extend the maturity date from August 2, 2022 to August 2, 2024.
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.
AGREEMENT
Extension of Maturity Date. Pursuant to Section 7.4 of the Note, Section 1.2 be and hereby is revised so, as amended, reads as follows:
1.2 Maturity Date. The outstanding principal of this Note (the “Outstanding Principal”) together with any accrued and unpaid interest thereon (the “Outstanding Interest”), shall all be due and payable on August 2, 2024 (the “Maturity Date”).
Waiver of Prior Defaults. Upon entering into this Amendment, the Holder hereby waives all Events of Default, known or unknown to the Holder, by Borrower prior to the Effective Date.
No Other Changes. Except as amended hereby, the Note will continue to be, and will remain, in full force and effect. Except as provided herein, this Amendment 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.
Authority; Binding on Successors. The Parties represent that they each have the authority to enter into this Amendment. This Amendment will be binding on, and will inure to the benefit of, the Parties to it and their respective heirs, legal representatives, successors, and assigns.
| 1 |
Governing Law and Venue. This Amendment and the rights and duties of the Parties hereto will be construed and determined in accordance with the terms of the Note.
Incorporation by Reference. The terms of the Note, except as amended by this Amendment, are incorporated herein by reference and will form a part of this Amendment as if set forth herein in their entirety.
Counterparts; Facsimile Execution. This Amendment 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 Amendment by facsimile or email will be equally as effective as delivery of a manually executed counterpart of this Amendment.
[Signature Page to Follow]
| 2 |
IN WITNESS WHEREOF, each of the undersigned has executed this Amendment the respective day and year set forth below:
| BORROWER: | IIOT-OXYS, Inc. | |
| Date: February 13, 2023 | By | /s/ Clifford L. Emmons |
| Clifford L. Emmons, CEO | ||
| HOLDER: | ||
| Date: February 13, 2023 | By | /s/ Vidhyadhar Mitta |
| Vidhyadhar Mitta, an Individual | ||
| 3 |
EXHIBIT A
12% Secured Convertible Promissory Note dated August 2, 2019
[See Attached]
| 4 |
Exhibit 31.1
Certifications
I, Clifford L. Emmons, certify that:
| 1. | I have reviewed this Form 10-K for the twelve months ended December 31, 2022, of IIOT-OXYS, Inc.; |
| 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. | The registrant’s other certifying officer(s) and I are 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 our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us 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 our 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. | The registrant’s other certifying officer(s) and I have disclosed, based on our 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: April 13, 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-K for the twelve months ended December 31, 2022, of IIOT-OXYS, Inc.; |
| 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. | The registrant’s other certifying officer(s) and I are 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 our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us 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 our 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. | The registrant’s other certifying officer(s) and I have disclosed, based on our 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: April 13, 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 annual report of IIOT-OXYS, Inc. (the “Company”) on Form 10-K for the twelve months ended December 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned principal executive 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: April 13, 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 annual report of IIOT-OXYS, Inc. (the “Company”) on Form 10-K for the twelve months ended December 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned principal executive 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: April 13, 2023
| /s/ Karen McNemar |
Karen McNemar,
Interim Chief Financial Officer
(Principal Financial and Accounting Officer)