IIOT-OXYS, Inc 10-Q for FY2023 Q3
IIOT-OXYS, Inc. (ITOX)
About this 10-Q
IIOT-OXYS, Inc filed this 10-Q on November 13, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $19.71K
- down 14.3% from $23K a year earlier
- Net loss
- $45.29K
- compared with a net loss of $42.3K a year earlier
- Diluted EPS
- $0.00
- compared with $0.00 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the quarterly period ended |
Or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the transition period from _______________________to___________________________ |
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Not applicable | Not applicable | Not applicable |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| x | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
The number of shares outstanding of the registrant’s common stock on November 13, 2023, was .
TABLE OF CONTENTS
Introductory Comment
Unless otherwise indicated, any reference to “the Company”, “our company”, “we”, “us”, or “our” refers to IIOT-OXYS, Inc., a Nevada corporation, and as applicable to its wholly owned subsidiaries, OXYS Corporation, a Nevada corporation, and HereLab, Inc., a Delaware corporation.
| 2 |
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
IIOT-OXYS, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
| September 30 | December 31, 2022 | |||||||
| ASSETS | (Unaudited) | |||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Note receivable, net of discount of $ | ||||||||
| Intangible assets, net | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Deferred revenue | ||||||||
| Unearned interest | ||||||||
| Notes payable - current | ||||||||
| Shares payable to related parties | ||||||||
| Salaries payable to related parties | ||||||||
| Derivative liabilities | ||||||||
| Total Current Liabilities | ||||||||
| Notes payable | ||||||||
| Due to stockholders | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 5) | ||||||||
| Series B Convertible Preferred Stock, shares designated, $0.001 Par Value, $ stated value; shares and shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively. Liquidation preference $ | ||||||||
| Stockholders' Equity (Deficit) | ||||||||
| Preferred Stock, $ par value, Shares authorized; | ||||||||
| Series A Preferred Stock, shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively | ||||||||
| Common Stock $ Par Value, shares authorized; shares and shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders' Equity (Deficit) | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders' Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
IIOT-OXYS, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
| For The Three Months Ended September 30, | For The Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of Sales | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Amortization of intangible assets | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Other Income (Expense) | ||||||||||||||||
| Gain (Loss) on change in FMV of derivative liability | ( | ) | ||||||||||||||
| Gain (Loss) on derivative | ( | ) | ( | ) | ||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total Other Income (Expense) | ( | ) | ( | ) | ||||||||||||
| Net Loss Before Income Taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for Income Tax | ||||||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Convertible Preferred Stock Dividend | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Loss Attributable to Common Stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net Loss Per Share Attributable to Common Stockholders - Basic and Diluted | $ | ) | ) | ) | $ | ) | ||||||||||
| Weighted Average Shares Outstanding Attributable to Common Stockholders - Basic and Diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
IIOT-OXYS, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity (Deficit)
(Unaudited)
| For the three months ended September 30, 2023 | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In | Accumulated | Total Stockholders’ Equity | ||||||||||||||||||||||||||||
| Series A | Series B | Amount | Shares | Amount | Capital | Deficit | (Deficit) | |||||||||||||||||||||||||
| Balance - June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
| Sales commissions paid on Sale of Series B Preferred stock | – | – | – | ( | ) | ( | ) | |||||||||||||||||||||||||
| Net loss | – | – | – | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance - September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
| For the nine months ended September 30, 2023 | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In | Accumulated | Total Stockholders’ Equity | ||||||||||||||||||||||||||||
| Series A | Series B | Amount | Shares | Amount | Capital | Deficit | (Deficit) | |||||||||||||||||||||||||
| Balance - December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
| Common stock issued for financing commitments | – | – | ||||||||||||||||||||||||||||||
| Sales commissions paid on capital raise | – | – | – | ( | ) | ( | ) | |||||||||||||||||||||||||
| Common stock issued for services | – | – | ||||||||||||||||||||||||||||||
| Common stock issued for conversion of convertible note payable | – | – | ||||||||||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance - September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
| For the three months ended September 30, 2022 | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In | Accumulated | Total Stockholders’ Equity | ||||||||||||||||||||||||||||
| Series A | Series B | Amount | Shares | Amount | Capital | Deficit | (Deficit) | |||||||||||||||||||||||||
| Balance - June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
| Common Stock Issued for Financing Commitments | – | – | ||||||||||||||||||||||||||||||
| Sales commissions paid on capital raise | – | – | – | ( | ) | ( | ) | |||||||||||||||||||||||||
| Net loss | – | – | – | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance - June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
| For the nine months ended September 30, 2022 | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In | Accumulated | Total Stockholders’ Equity | ||||||||||||||||||||||||||||
| Series A | Series B | Amount | Shares | Amount | Capital | Deficit | (Deficit) | |||||||||||||||||||||||||
| Balance - December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
| Common Stock Issued for Financing Commitments | – | – | ||||||||||||||||||||||||||||||
| Sales commissions paid on capital raise | – | – | – | ( | ) | ( | ) | |||||||||||||||||||||||||
| Common Stock Issued for Services | – | – | ||||||||||||||||||||||||||||||
| Common stock issued for conversion of convertible note payables | – | – | ||||||||||||||||||||||||||||||
| Beneficial Conversion Feature Associated with Discounts | – | – | – | ( | ) | ( | ) | |||||||||||||||||||||||||
| Net Loss | – | – | – | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance - June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
IIOT-OXYS, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
| For the Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash (used) by operating activities | ||||||||
| Stock compensation expense for services | ||||||||
| Discount on note receivable | ( | ) | ||||||
| Amortization of debt discount on notes payable and preferred stock | ||||||||
| Amortization of intangible assets | ||||||||
| Changes in Operating Assets and Liabilities | ||||||||
| (Increase) Decrease in: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Increase (Decrease) in: | ||||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued liabilities | ||||||||
| Derivative liability | ||||||||
| Unearned interest | ( | ) | ||||||
| Shares payable to related parties | ||||||||
| Salaries payable to related parties | ||||||||
| Net Cash Used by Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Cash paid for note receivable | ( | ) | ||||||
| Net Cash used in Investing Activities | ( | ) | ||||||
| Cash Flows From Financing Activities | ||||||||
| Cash received from sale of common stock | ||||||||
| Cash payments of offering costs | ( | ) | ( | ) | ||||
| Proceeds from sale of Series B Preferred Stock | ||||||||
| Net Cash Provided By Financing Activities | ||||||||
| Net (Decrease) in Cash and Cash Equivalents | ( | ) | ( | ) | ||||
| Cash and Cash Equivalents - Beginning of Period | ||||||||
| Cash and Cash Equivalents - End of Period | $ | $ | ||||||
| Supplement Disclosures of Cash Flow Information | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Supplemental Disclosures of Non-Cash Investing and Financing Activities | ||||||||
| Conversion of convertible notes payable and derivative liabilities | $ | $ | ||||||
| Effect of adopting ASU-2020-06 | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
IIOT-OXYS, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2023 and 2022
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS, BASIS OF PRESENTATION AND GOING CONCERN
Unless otherwise indicated, any reference to “the Company”, “we”, “us”, or “its” refers to IIOT-OXYS, Inc., a Nevada corporation, and as applicable to its wholly-owned subsidiaries, OXYS Corporation, a Nevada corporation, and HereLab, Inc., a Delaware corporation.
IIOT-OXYS, Inc., incorporated in Nevada on July 6, 2017, (the “Company”) was established for the purpose of designing, building, testing, and selling Edge Computing Systems for the Industrial Internet. The Company is currently devoting substantially all its efforts in identifying, developing and marketing engineered products, software and services for applications in the Industrial Internet which involves collecting and processing data collected from a wide variety of industrial systems and machines.
Impact of COVID-19
The global COVID-19 pandemic continues to present uncertainty and unforeseeable risks to the Company’s operations and business plan. The Company has closely monitored recent developments, including the lifting of COVID-19 safety measures, the spread of new strains or variants of the coronavirus (such as the Delta and Omicron variants), and supply chain and labor shortages. Thus, the full impact of the COVID-19 pandemic on the business and operations remains uncertain and will vary depending on the pandemic’s future impact on the third parties with whom the Company does business, as well as any legal or regulatory consequences resulting therefrom. The Company has been following the recommendations of health authorities to minimize exposure risk for its team members and may take further actions that alter our operations, including any required by federal, state or local authorities, or that it determines are in the best interests of its employees and other third parties with whom the Company does business.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company. The financial statements and accompanying notes are the representations of the Company’s management, who is responsible for their integrity and objectivity. In the opinion of the Company’s management, the financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.
Going Concern
The accompanying condensed consolidated financial
statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements,
the Company has suffered continuing operating losses, has a working capital deficit of $
Management believes that the Company will be able to achieve a satisfactory level of liquidity to meet the Company’s obligations for the next twelve months by generating cash through additional borrowings and/or sale of equity securities, as needed. However, there can be no assurance that the Company will be able to generate sufficient liquidity to maintain its operations. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
| 7 |
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following summary of significant accounting policies of the Company is presented to assist in the understanding of the Company’s financial statements. These accounting policies conform to GAAP in all material respects and have been consistently applied in preparing the accompanying consolidated financial statements.
Interim Financial Statements
The accompanying unaudited interim condensed consolidated financial statements and related notes have been prepared in accordance with GAAP for interim financial information, and in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) with respect to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The unaudited interim condensed consolidated financial statements furnished reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2022 filed with the SEC on April 13, 2023.
Principles of Consolidation
The consolidated condensed financial statements for September 30, 2023 and 2022, respectively, include the accounts of Company, and its wholly-owned subsidiaries OXYS Corporation and HereLab, Inc. All significant intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of accounts payable, accrued liabilities and payable to related parties. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
The Company computes earnings (loss) per share in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”), ASC 260, “Earnings per Share”. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible note and preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.
| 8 |
Revenue Recognition
The Company’s revenue is derived primarily from providing services under contractual agreements. The Company recognizes revenue in accordance with ASC Topic No. 606, Revenue from Contracts with Customers (“ASC 606”) which was adopted on January 1, 2018.
According to ASC 606, the Company recognizes revenue based on the following criteria:
| · | Identification of a contract or contracts, with a customer. | |
| · | Identification of the performance obligations in the contract. | |
| · | Determination of contract price. | |
| · | Allocation of transaction price to the performance obligation. | |
| · | Recognition of revenue when, or as, performance obligation is satisfied. |
The Company used a practical expedient available under ASC 606-10-65-1(f)4 that permits it to consider the aggregate effect of all contract modifications that occurred before the beginning of the earliest period presented when identifying satisfied and unsatisfied performance obligations, transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations.
The Company has elected to treat shipping and handling activities as cost of sales. Additionally, the Company has elected to record revenue net of sales and other similar taxes.
Recent Accounting Pronouncements
Accounting standards that have been issued or proposed by FASB and do not require adoption until a future date, are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
NOTE 3 - NOTE RECEIVABLE
On April 4, 2022, the Company was issued an unsecured
convertible promissory note with the principal sum of $
The Company recorded interest income earned on
the Note of $
| 9 |
NOTE 4 - INTANGIBLE ASSETS
The Company’s intangible assets comprise
of intellectual property revolving around their field tests, sensor integrations, and board designs. Intangible assets, net of amortization
amounted to $
| Schedule of intangible assets | ||||||||
September 30, 2023 | December 31, 2022 | |||||||
| Intangible Assets | $ | $ | ||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| Intangible Assets, net | $ | $ | ||||||
The Company determined that none of its intangible
assets were impaired as of September 30, 2023 and December 31, 2022, respectively. Amortizable intangible assets are amortized using the
straight-line method over their estimated useful lives of ten years. Amortization expense of finite-lived intangibles was $
The following table summarizes the Company’s estimated future amortization expense of intangible assets with finite lives as of September 30, 2023:
| Schedule of future amortization | ||||
| Amortization Expense | ||||
| 2023 (Remainder of the year) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total | $ | |||
NOTE 5 - COMMITMENTS AND CONTINGENCIES
In prior years, the Company entered into consulting agreements with one director, three executive officers, and one engineer of the Company, which included 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 September 30, 2023 and December 31, 2022, and shares and shares were vested and issued per the Company’s 2019 Stock Incentive Plan as of September 30, 2023 and December 31, 2022, respectively.
In the event that the agreement is terminated by either party pursuant to the terms of the agreement, all unvested shares which have been earned shall vest on a pro-rata basis as of the effective date of the termination of the agreement and all unearned, unvested shares shall be terminated. The value of the shares was assigned at fair market value on the effective date of the agreement and the pro-rata number of shares earned was calculated and amortized at the end of each reporting period.
On March 18, 2022, the Company adopted 2022 Stock Incentive Plan and reserved for issuance shares of common stock for incentivizing its management team.
| 10 |
Employment Agreement – CEO/Interim CTO
On
June 2, 2022, the Board approved an Employment Agreement with the CEO/Interim CTO dated effective April 1, 2022 whereby, the CEO
will receive an annual salary of $100,000 which accrues unless converted into shares of common stock of the Company at a stipulated
conversion rate. If the Company reaches $1,000,000 in cumulative sales over a 12-month period, the annual salary will increase to
$150,000 commencing the following month. If the Company reaches $5,000,000 in cumulative sales over a 12-month period, the annual
salary will increase to $200,000 commencing the following month. The Company awarded the CEO an aggregate of
Employment Agreement – COO/Interim CFO
On June 2, 2022, the Board approved an Employment
Agreement with the COO/Interim CFO dated effective April 1, 2022, whereby, the officer will receive an annual salary of $100,000 which
accrues unless converted into shares of common stock of the Company at a stipulated conversion rate. If the Company reaches $1,000,000
in cumulative sales over a 12-month period, the annual salary will increase to $150,000 commencing the following month. If the Company
reaches $5,000,000 in cumulative sales over a 12-month period, the annual salary will increase to $200,000 commencing the following month.
The Company awarded the COO/Interim CFO an aggregate of shares of the Company common stock under the 2022 Stock Incentive
Plan, which will vest (i) shares on April 1, 2023, (ii) shares on April 1, 2024, and (iii) shares
on April 1, 2025. The shares are valued at the 90% of the average market price of the shares of
30 trading days at the end of each quarter. As of September 30, 2023, shares of the common stock were vested and payable to
the officer, and shares of common stock remain unvested The Company recorded $
NOTE 6 - CONVERTIBLE NOTES PAYABLE
The following table summarizes the outstanding balance of convertible notes payable, interest and conversion rates as of September 30, 2023 and December 31, 2022, respectively.
| Schedule of convertible notes payable | ||||||||||
September 30, 2023 | December 31, 2022 | |||||||||
| A. | Convertible note payable to an investor with interest at 12% per annum, convertible at any time into shares of common stock at the lowest VWAP of $0.001 per share on September 30, 2023. The balance of principal and accrued and unpaid interest is payable on maturity on March 1, 2024, unless automatically extended for one-year periods if no Event of Default is existing. The note is secured by substantially all the assets of the Company. | $ | $ | |||||||
| B. | Convertible note payable to an investor with interest at 5% per annum, convertible at any time into shares of common stock at $0.00084 per share. Interest is payable annually with the balance of principal and interest due on maturity on March 1, 2024. The note is secured by substantially all the assets of the Company. | |||||||||
| 11 |
| D. | Convertible note payable to an investor with interest at 12% per annum, convertible at any time into shares of common stock at the lowest VWAP of $0.001 per share on September 30, 2023. The balance of principal and accrued and unpaid interest is payable on March 1, 2024, unless automatically extended for one-year periods if no Event of Default is existing. The note is secured by substantially all the assets of the Company. | |||||||||
| E. | Convertible notes payable to a related party with interest at 12% per annum, convertible at any time into shares of common stock at $0.00084 per share. Interest is payable quarterly with the balance of principal and interest due on maturity on August 2, 2024. The notes are secured by substantially all the assets of the Company. | |||||||||
| F. | Convertible note payable to an investor with interest at 10% per annum, convertible at any time into shares of common stock at $0.0014 per share. Principal and interest due on maturity on April 29, 2023. | |||||||||
| G. | Convertible note payable to an investor with interest at 10% per annum, convertible at any time into shares of common stock at $0.0009 per share. Note was issued as payment for future fees to be incurred under the related Equity Financing Agreement. Principal and interest due on maturity on April 29, 2025. | |||||||||
| Less: deferred financing costs | ( | ) | ( | ) | ||||||
| Less unamortized discount | ||||||||||
| Net balance | ||||||||||
| Less current portion | ( | ) | ( | ) | ||||||
| Long term portion | $ | $ |
A. January 18, 2018 Convertible Note and Warrants (“Note A”)
On March
14, 2022, the noteholder of Note A agreed to extend the maturity date of March 1, 2022 of the Senior Secured Convertible Promissory Note
to March 1, 2023, in exchange for the reduction of the conversion price to $0.008 per share, and all prior Events of Default (as
defined in the Note A) including penalties were waived, and all future Events of Default (as defined in the Note A) pertaining to the
future payment of interest were waived through maturity. On July 21, 2023, the noteholder of Note A agreed to extend the maturity date
to
| · | Upon request of the noteholder of Note A, the Company shall issue twenty thousand dollars ($20,000) worth of common shares (the “1st Incentive Shares) and the price per 1st Incentive Share shall be the Volume-Weighted Average Price (VWAP) per common share of the Company (subject to adjustments) for the previous ten trading days. | |
| · | The Company shall use its best efforts to file a registration statement registering the resales of the 1st Incentive Shares within 45 calendar days from the date hereof. The Company shall use is best efforts to have the registration statement declared “effective” within sixty (60) calendar days from its filing. The Company shall use its best efforts to have a registration statement registering the resales of the 1st Incentive Shares remain effective until such time that the noteholder of Note A no longer holds any such 1st Incentive Shares. | |
| · | Upon full conversion of the Note A and Note D, the Company shall issue to the holder of Note A fifty thousand dollars ($50,000) worth of common shares (the “2nd Incentive Shares”) and the price per 2nd Incentive Share shall be the VWAP per common share of the Company (subject to adjustments) for the previous ten (10) Trading Days. | |
| · | The Company shall use its best efforts to file a registration statement registering the resales of the 2nd Incentive Shares within forty-five (45) calendar days from the date of issuance. The Company shall use is best efforts to have the registration statement declared “effective” within sixty (60) calendar days from its filing. The Company shall use its best efforts to have a registration statement registering the resales of the 2nd Incentive Shares remain effective until such time that the noteholder of Note A no longer holds any such 2nd Incentive Shares. |
| 12 |
All other terms and conditions of the convertible promissory note remain the same. The noteholder of Note A waives all events of default pertaining to the Note A, known or unknown to the noteholder, by the Company prior to the date hereof. The noteholder also waives all defaults of the transaction documents, known or unknown to the noteholder of Note Aby the Company prior to the date hereof.
The Company recorded interest expense of $
The principal balance payable on Note A amounted
to $
B. January 2019 Convertible Note and Warrants (“Note B”)
Effective March 1, 2021, the noteholder of Note B agreed to extend the maturity date of March 1, 2021 of the Secured Convertible Promissory Note to March 1, 2024, and all prior Events of Default (as defined in the Note B) including penalties were waived, and all other terms of the Note B remain the same.
The Company recorded interest expense of $
The principal balance payable on Note B amounted
to $
D. March 2019 Convertible Note and Warrants (“Note D”)
On March
14, 2022, the noteholder of Note D agreed to extend the maturity date of March 1, 2022 of the Senior Secured Convertible Promissory Note
to March 1, 2023, in exchange for the reduction of the conversion price to $0.008 per share, and all prior Events of Default (as
defined in the Note D) including penalties were waived, and all future Events of Default (as defined in the Note D) pertaining to the
future payment of interest were waived through maturity. On July 21, 2023, the noteholder of Note A agreed to extend the maturity of March
1, 2023 date to
The Company recorded interest expense of $
The principal balance payable on Note D amounted
to $
E. August 2019 Convertible Note and Warrants (“Note E”)
On August 2, 2021, the noteholder of Note E agreed to extend the maturity date of the Secured Convertible Promissory Note to August 2, 2024. All other terms and conditions of the Note E remain the same.
The Company recorded interest expense of $
The principal balance payable on Note E amounted
to $
| 13 |
F. July 2020 Equity Financing Arrangement (“Note F”)
On April 29, 2022, the noteholder of Note F agreed
to extend the maturity date of the Secured Convertible Promissory Note to
The Company recorded interest expense of $
The principal balance payable on Note F amounted
to $
G . July 2020 Equity Financing Arrangement (“Note G”)
On April 29, 2022, the noteholder of Note G agreed
to extend the maturity date of the Secured Convertible Promissory Note to
The Company recorded interest expense of $
The principal balance payable of Note G amounted
to $
The following table sets forth the computation of basic and diluted net loss per share of common stock for the three months ended September 30, 2023 and 2022:
| Schedule of earnings per share | ||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net loss attributable to common stockholders (basic) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Shares used to compute net loss per common share, basic and diluted | ||||||||||||||||
| Net loss per share attributable to common stockholders, basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted-average number of common shares and common share equivalents outstanding for the period. Common stock equivalents are only included when their effect is dilutive. The Company’s potentially dilutive securities which include stock options, convertible debt, convertible preferred stock and common stock warrants have been excluded from the computation of diluted net loss per share as they would be anti-dilutive. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares outstanding due to the Company’s net loss position.
| 14 |
The following outstanding common stock equivalents have been excluded from diluted net loss per common share for the nine months ended September 30, 2023 and 2022, respectively, because their inclusion would be anti-dilutive:
| Schedule of anti dilutive shares | ||||||||
| As of September 30, | ||||||||
| 2023 | 2022 | |||||||
| Warrants to purchase common stock | ||||||||
| Potentially issuable shares related to convertible notes payable and convertible preferred stock | ||||||||
| Potentially issuable vested shares to directors and officers | ||||||||
| Potentially issuable unvested shares to directors and officers | ||||||||
| Total anti-dilutive common stock equivalents | ||||||||
NOTE 8 - RELATED PARTIES
At September 30, 2023 and December 31, 2022, respectively,
the amount due to two stockholders was $
The Company executed an operating lease to rent
its current office facility from a stockholder on a month-to-month basis at a monthly rent of $
NOTE 9 - STOCKHOLDERS' EQUITY
The Company has an authorized capital of shares, $par value common stock, and shares of $par value preferred stock at September 30, 2023. The Company has shares shares of common stock and Series A Preferred Stock shares and shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively.
Common Stock
Holders of shares of common stock are entitled to one vote for each share on all matters to be voted on by the stockholders. Holders of common stock do not have cumulative voting rights. Holders of common stock are entitled to share ratably in dividends, if any, as may be declared from time to time by the Board of Directors in its discretion from funds legally available, therefore. In the event of liquidation, dissolution, or winding up of the Company, the holders of common stock are entitled to share pro rata in all assets remaining after payment in full of all liabilities. All of the outstanding shares of common stock are fully paid and non-assessable. Holders of common stock have no preemptive rights to purchase the Company’s common stock. There are no conversion or redemption rights or sinking fund provisions with respect to the common stock.
On February 24, 2021, the Company entered into
a Common Stock Purchase Agreement with an investor pursuant to which the investor agreed to purchase up to $5,000,000 of the Company’s
registered common stock at $0.015 per share. Pursuant to the Agreement, purchases may be made by the Company during the Commitment Period
(as defined in the Agreement) through the submission of a purchase notice to the investor no sooner than ten business days after the preceding
closing. No purchase notice can be made in an amount less than $10,000 or greater than $500,000 or greater than two times the average
of the daily trading dollar volume for the Company’s common stock during the ten business days preceding the purchase date. Each
purchase notice is limited to the investor beneficially owning no more than 4.99% of the total outstanding common stock of the Company
at any given time. There are certain conditions precedent to each purchase including, among others, an effective registration statement
in place and the VWAP of the closing price of the Company’s common stock greater than $0.0175 for the Company's common stock during
the five business days prior to the closing. From January 1, 2023 to March 31, 2023, the investor purchased shares of common
stock for a cash consideration of $
| 15 |
On February 10, 2023, the Company issued
shares of its common stock to a consultant for services. The common stock was valued at the fair market price of $
On February 21, 2023, the Company issued
shares of its common stock to a consultant for services. The common stock was valued at the fair market price of $
On March 13, 2023, the Company issued
shares of its common stock to a consultant for services. The common stock was valued at the fair market price of $
On March 23, 2023, the noteholder of Note F converted
the principal balance of $
On April 27, 2023, the noteholder of Note F converted
the principal balance of $
Stock Incentive Plans
On December 14, 2017, the Board of Directors of the Company approved the 2017 Stock Incentive Plan (the “2017 Plan”). Awards may be made under the 2017 Plan for up to shares of common stock of the Company. All of the Company’s employees, officers and directors, as well as consultants and advisors to the Company are eligible to be granted awards under the 2017 Plan. No awards can be granted under the 2017 Plan after the expiration of 10 years from the plan approval but awards previously granted may extend beyond that date. Awards may consist of both incentive and non-statutory options, restricted stock units, stock appreciation rights, and restricted stock awards.
On March 11, 2019, the Board of Directors of the Company approved the 2019 Stock Incentive Plan (the “2019 Plan”). Awards may be made under the 2019 Plan for up to shares of common stock of the Company. All of the Company’s employees, officers and directors, as well as consultants and advisors to the Company are eligible to be granted awards under the 2019 Plan. No awards can be granted under the 2019 Plan after the expiration of 10 years from the plan approval but awards previously granted may extend beyond that date. Awards may consist of both incentive and non-statutory options, restricted stock units, stock appreciation rights, and restricted stock awards.
On March 18, 2022, the Board of Directors approved and adopted the 2022 Stock Incentive Plan (the “2022 Plan”). Awards may be made under the 2022 Plan for up to shares of common stock of the Company, subject to adjustment as to the number and kind of shares awarded. Only employees and directors of the Company or an Affiliated company are eligible to receive Incentive Options under the 2022 Plan. The Company awarded shares of the Company’s common stock to an officer and shares of common stock to a director of the Company (see Note 4) vesting 1,500,000 shares vesting on the first anniversary on the date of issuance, 2,500,000 shares vesting on the second anniversary of the date of issuance, and 3,000,000 shares on the third anniversary of the date of issuance. In addition, on October 3, 2022, the Company awarded shares of common stock to an advisor vesting 100,000 shares on the first anniversary date of issuance, 100,000 shares vesting on the second anniversary, and the remaining 100,000 vesting the third anniversary of the date of issuance. The common shares vested pursuant to the 2022 Plan amounted to shares and shares at September 30, 2023 and December 31, 2022, and the shares remain unvested as of September 30, 2023. For the three months and nine months ended September 30, 2023, the Company recorded $ and $ as stock compensation expense for shares and shares payable to an officer and a director that remain unvested as of September 30, 2023. Total shares payable to an officer, consultant and a director totaled shares and shares at September 30, 2023 and December 31, 2022, respectively.
Shares earned and issued related to the consulting agreements are issued under the 2017 Stock Incentive Plan and the 2019 Stock Incentive Plan (Note 4). Vesting of the shares is subject to acceleration of vesting upon the occurrence of certain events such as a Change of Control (as defined in the agreement) or the listing of the Company’s common stock on a senior exchange.
| 16 |
A summary of the status of the Company’s non-vested shares as of September 30, 2023 and 2022, and changes during the three months period then ended, is presented below:
| Schedule of summary of non-vested shares | ||||||||
| Non-vested Shares of Common Stock | Weighted Average Fair Value | |||||||
| 2022 Plan | ||||||||
| Authorized shares per the 2022 Plan – shares | ||||||||
| Balance at December 31, 2022 | $ | |||||||
| Awarded | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ||||||||
| Balance at September 30, 2023 | $ | |||||||
Preferred Stock
Series A Supervoting Convertible Preferred Stock
On July 2, 2020, the Board of Directors of the Company authorized the issuance of shares of preferred stock, $ par value per share, designated as Series A Supervoting Convertible Preferred Stock.
Dividends: Initially, there will be no dividends due or payable on the Series A Supervoting Preferred Stock. Any future terms with respect to dividends shall be determined by the Board consistent with the Corporation’s Articles of Incorporation.
Liquidation and Redemption Rights: Upon the occurrence of a Liquidation Event (as defined below), the holders of Series A Supervoting Preferred Stock are entitled to receive net assets on a pro-rata basis. Each holder of Series A Supervoting Preferred Stock is entitled to receive ratably any dividends declared by the Board, if any, out of funds legally available for the payment of dividends. Liquidation Event means (i) the liquidation, dissolution or winding-up, whether voluntary or involuntary, of the corporation, (ii) the purchase or redemption by the corporation of the shares of any class of stock or the merger or consolidation of the corporation with or into any other corporation or corporations, or (iii) the sale, license or lease of all or substantially all, or any material part of, the Corporation’s assets.
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.
| 17 |
Voting Rights:
| A. | If at least one share of Series A Super Voting Preferred Stock is issued and outstanding, then the total aggregate issued shares of Series A Super Voting Preferred Stock at any given time, regardless of their number, shall have voting rights equal to 20 times the sum of: i) the total number of shares of Common stock which are issued and outstanding at the time of voting, plus ii) the total number of shares of all Series of Preferred stocks which are issued and outstanding at the time of voting. | |
| B. | Each individual share of Series A Super Voting Preferred Stock shall have the voting rights equal to: | |
| [twenty times the sum of: {all shares of Common stock issued and outstanding at the time of voting + all shares of Series A and any newly designated Preferred stock issued and outstanding at the time of voting}] | ||
| Divided by: | ||
| [the number of shares of Series A Super Voting Preferred Stock issued and outstanding at the time of voting] |
With respect to all matters upon which stockholders are entitled to vote or to which stockholders are entitled to give consent, the holders of the outstanding shares of Series A Super Voting Preferred Stock shall vote together with the holders of Common Stock without regard to class, except as to those matters on which separate class voting is required by applicable law or the Articles of Incorporation or Bylaws.
The Company had shares of Series A Preferred Stock issued and outstanding at September 30, 2023 and December 31, 2022, respectively.
Series B Convertible Preferred Stock Equity Financing
On November 16, 2020, the Board of Directors of the Company authorized the issuance of up to shares of preferred stock, $ par value per share, designated as Series B Convertible Preferred Stock. Each share of Preferred Stock has a par value of $0.001 per share and a stated value of $, subject to increase set forth in the Certificate of Designation.
Dividends: Each share of Series B Convertible Preferred Stock shall be entitled to receive, and the Corporation shall pay, cumulative dividends of 12% per annum, payable quarterly, beginning on the Original Issuance Date and ending on the date that such share of Series B Convertible Preferred Share has been converted or redeemed (the “Dividend End Date”). Dividends may be paid in cash or in shares of Series B Convertible Preferred Stock. From and after the initial Closing Date, in addition to the payment of dividends pursuant to Section 2(a), each Holder shall be entitled to receive, and the Corporation shall pay, dividends on shares of Series B Convertible Preferred Stock equal to (on an as-if-converted-to-Common-Stock basis) and in the same form as dividends actually paid on shares of the common stock when, as and if such dividends are paid on shares of the common stock. The Corporation shall pay no dividends on shares of the common stock unless it simultaneously complies with the previous sentence.
Voting Rights: The Series B Convertible Preferred Stock will vote together with the common stock on an as converted basis subject to the Beneficial Ownership Limitations (not in excess of 4.99% conversion limitation). However, as long as any shares of Series B Convertible Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of the Series B Convertible Preferred Stock directly and/or indirectly (a) alter or change adversely the powers, preferences or rights given to the Series B Convertible Preferred Stock or alter or amend this Certificate of Designation, (b) authorize or create any class of stock ranking as to redemption or distribution of assets upon a Liquidation (as defined in Section 5) senior to, or otherwise pari passu with, the Series B Convertible Preferred Stock or, authorize or create any class of stock ranking as to dividends senior to, or otherwise pari passu with, the Series B Convertible Preferred Stock, (c) amend its Articles of Incorporation or other charter documents in any manner that adversely affects any rights of the Holders, (d) increase the number of authorized shares of Series B Convertible Preferred Stock, or (e) enter into any agreement with respect to any of the foregoing.
| 18 |
Liquidation: Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to the Stated Value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereon under this Certificate of Designation, for each share of Series B Convertible Preferred Stock before any distribution or payment shall be made to the holders of any Junior Securities, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Holders shall be ratably distributed among the Holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.
Conversion: Each share of Series B Convertible Preferred Stock shall be convertible, at any time and from time to time from and after the Original Issue Date at the option of the Holder thereof, into that number of shares of common stock (subject to the limitations) determined by dividing the Stated Value of such share of Series B Convertible Preferred Stock by the Conversion Price. The Conversion Price for the Series B Convertible Preferred Stock shall be the amount equal to the lowest traded price for the Company’s common stock for the fifteen (15) Trading Days immediately preceding the date of such conversion. All such foregoing determinations will be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction that proportionately decreases or increases the common stock during such measuring period. Following an event of default, the Conversion price shall equal the lower of: (a) the then applicable Conversion Price; or (b) a price per share equaling 80% of the lowest traded price for the Company’s common stock during the ten (10) trading days preceding the relevant Conversion.
Redemption: The Series B Convertible Preferred Stock may be redeemed by payment of the stated value thereof, with the following premiums based on the time of the redemption.
| · | 115% of the stated value if the redemption takes place within 90 days of issuance; | |
| · | 120% of the stated value if the redemption takes place after 90 days and within 120 days of issuance | |
| · | 125% of the stated value if the redemption takes place after 120 days and within 180 days of issuance; and | |
| · | each share of Preferred Stock is redeemed one year from the day of issuance |
November 19, 2020
On November 19, 2020, pursuant to the terms of
a Securities Purchase Agreement dated November 16, 2020 (the “SPA”), the Company entered into a new preferred equity financing
agreement with GHS Investments, LLC (“GHS”) in the amount of up to $600,000. The SPA provides for GHS’s purchase, from
time to time, of up to 600 shares of the newly-designated Series B Convertible Preferred Stock. The initial closing under the SPA consisted
of shares of Series B Convertible Preferred Stock, stated value $1,200 per share, issued to GHS for an initial purchase price of $
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.
| 19 |
Based on the requirements of ASC 815, Derivatives and Hedging, the conversion feature represents an embedded derivative that is required to be bifurcated and accounted for as a separate derivative liability. The derivative liability is originally recorded at its estimated fair value and is required to be revalued at each conversion event and reporting period. Changes in the derivative liability fair value are reported in operating results each reporting period.
On November 19, 2020, GHS purchased a total of
shares of Series B Convertible Preferred Stock for gross proceeds of $
On November 19, 2020 (the date of receipt of cash
proceeds of $45,000 issuance), the Company valued the fair value of the derivative and recorded an initial derivative liability of $
The Company recalculated the value of the derivative
liability associated with this convertible preferred stock recording a gain of $
The Company recorded $
The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0009 to $0.0141, the closing stock price of the Company's common stock on the date of valuation ranging from $0.00105 to $0.0184, an expected dividend yield of 0%, expected volatility ranging from 160.41% to 440.99%, risk-free interest rates ranging from 0.07% to 5.46%, and an expected term ranging from 0.13 years to 1.50 years.
December 16, 2020
On December 16, 2020, pursuant to the terms of
the SPA, GHS purchased an additional shares of Series B Convertible Preferred Stock for gross proceeds of $
On December 16, 2020 (the date of receipt of cash
proceeds of $85,000 issuance), the Company valued the fair value of the derivative and recorded an initial derivative liability of $
The Company recalculated the value of the derivative
liability associated with this convertible preferred stock and recorded a gain of $
The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0009 to $0.0141, the closing stock price of the Company's common stock on the date of valuation ranging from $0.00105 to $0.0184, an expected dividend yield of 0%, expected volatility ranging from 160.41% to 437.59%, risk-free interest rates ranging from 0.07% to 5.46%, and an expected term ranging from 0.21 years to 1.50 years.
| 20 |
December 20, 2021
On December 20, 2021, pursuant to the terms of
the SPA, GHS purchased an additional 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 gain of $
The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0009 to $0.0050 the closing stock price of the Company's common stock on the date of valuation ranging from $0.00105 to $0.0070, an expected dividend yield of 0%, expected volatility ranging from 174.58% to 221.64%, risk-free interest rates ranging from 0.39% to 5.46%, 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 shares of Series B Convertible Preferred Stock for gross proceeds of $
On February 7, 2022 (the date of receipt of cash
proceeds of $51,000 issuance), the Company valued the fair value of the derivative and recorded an initial derivative liability of $
The Company recalculated the value of the derivative
liability associated with this convertible preferred stock recording a gain of $
The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0009 to $0.0096, the closing stock price of the Company’s common stock on the date of valuation ranging from $0.00105 to $0.0172, an expected dividend yield of 0%, expected volatility ranging from 160.35% to 190.27%, risk-free interest rates ranging from 1.09% to 5.46%, 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 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 $
| 21 |
The Company recalculated the value of the derivative
liability associated with the convertible note at September 30, 2023 and 2022, and recorded a gain of $
The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0009 to $0.0096, the closing stock price of the Company’s common stock on the date of valuation ranging from $0.00105 to $0.0183, an expected dividend yield of 0%, expected volatility ranging from 160.35% to 190.27%, risk-free interest rates ranging from 1.55% to 5.46%, 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 shares of Series B Convertible Preferred Stock for gross proceeds of $
On November 17, 2022 (the date of receipt of cash
proceeds of $61,000 issuance), the Company valued the fair value of the derivative and recorded an initial derivative liability of $
The Company recalculated the value of the derivative
liability associated with the convertible note at September 30, 2023 and recorded a gain of $
The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0009 to $0.0020, the closing stock price of the Company’s common stock on the date of valuation ranging from $0.00105 to $0.0022, an expected dividend yield of 0%, expected volatility ranging from 174.58% to 190.27%, risk-free interest rates ranging from 4.64% to 5.46%, and an expected term of 1.5 years.
| 22 |
August 24, 2023
On August 24, 2023, pursuant to the terms of the
SPA, GHS purchased shares of Series B Convertible Preferred Stock for gross proceeds of $
On August 24, 2023 (the date of receipt of cash
proceeds of $62,000 issuance), the Company valued the fair value of the derivative and recorded an initial derivative liability of $
The Company recalculated the value of the derivative
liability associated with the convertible note at September 30, 2023 and recorded a loss of $
The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0009 to $0.0014, the closing stock price of the Company’s common stock on the date of valuation ranging from $0.00105 to $0.0015, an expected dividend yield of 0%, expected volatility ranging from 189.98% to 190.27%, risk-free interest rates ranging from 5.39% to 5.46%, 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 September 30, 2023 and 2022, and changes during the nine months then ended, is presented below:
| Schedule of summary of warrant activity | ||||||||||||
| Shares Under Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | ||||||||||
| Outstanding at December 31, 2021 | ||||||||||||
| Issued | $ | Years | ||||||||||
| Exercised | ||||||||||||
| Expired/Forfeited | ||||||||||||
| Outstanding at September 30, 2022 | $ | Years | ||||||||||
| Outstanding at December 31, 2022 | ||||||||||||
| Issued | $ | Years | ||||||||||
| Exercised | ||||||||||||
| Expired/Forfeited | ||||||||||||
| Outstanding at September 30, 2023 | $ | Years | ||||||||||
NOTE 10 – SUBSEQUENT EVENT
On October 17, 2023, The Company issued to a director, an officer and two advisors, in the aggregate of 3,200,000 shares of common stock as the year 1 anniversary shares pursuant to the terms of the 2022 Stock Incentive Plan (see Note 5).
| 23 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contain certain forward-looking statements. Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events; are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited to, those discussed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022. We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements
Basis of Presentation
The financial information presented below and the following Management Discussion and Analysis of the Consolidated Financial Condition, Results of Operations, Stockholders’ Equity and Cash Flow for the quarterly periods ended September 30, 2023 and 2022 gives effect to our acquisition of OXYS Corporation (“OXYS”) on July 28, 2017. In accordance with the accounting reporting requirements for the recapitalization related to the “reverse merger” of OXYS, the financial statements for OXYS have been adjusted to reflect the change in the shares outstanding and the par value of the common stock of OXYS. Additionally, all intercompany transactions between the Company and OXYS have been eliminated.
Forward-Looking Statements
Statements in this management’s discussion and analysis of financial condition and results of operations contain certain forward-looking statements. To the extent that such statements are not recitations of historical fact, such statements constitute forward looking statements which, by definition involve risks and uncertainties. Where in any forward-looking statements, if we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result or be achieved or accomplished.
Factors that may cause differences between actual results and those contemplated by forward-looking statements include those discussed in “Risk Factors” and are not limited to the following:
| · | the unprecedented impact of COVID-19 pandemic on our business, customers, employees, subcontractors and supply chain, consultants, service providers, stockholders, investors and other stakeholders; | |
| · | the impact of conflicts between the Russian Federation and Ukraine and Israel in on our operations; | |
| · | geo-political events, such as the crisis in Ukraine and Israel, 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; |
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| · | product pricing, including the impact of currency exchange rates; | |
| · | effectiveness of sales and marketing resources and strategies; | |
| · | adequate manufacturing capacity and supply of components and materials; | |
| · | strategic relationships with our suppliers; | |
| · | product quality and performance; | |
| · | protection of our products and brand by effective use of intellectual property laws; | |
| · | the financial strength of our competitors; | |
| · | the outcome of any future litigation or commercial dispute; | |
| · | barriers to entry imposed by competitors with significant market power in new markets; | |
| · | government actions throughout the world; and | |
| · | our ability to service secured debt, when due. |
You should not rely on forward-looking statements in this document. This management’s discussion contains forward looking statements that involve risks and uncertainties. We use words such as “anticipates,” “believes,” “plans,” “expects,” “future,” “intends,” and similar expressions to identify these forward-looking statements. Prospective investors should not place undue reliance on these statements, which apply only as of the date of this document. Our actual results could differ materially from those anticipated in these forward-looking statements.
Critical Accounting Policies
The following discussions are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. These financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingencies. We continually evaluate the accounting policies and estimates used to prepare the financial statements. We base our estimates on historical experiences and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management.
Trends and Uncertainties
On July 28, 2017, we closed the reverse acquisition transaction under the Securities Exchange Agreement dated March 16, 2017, as reported in our Current Report on Form 8-K filed with the Commission on August 3, 2017. Following the closing, our business has been that of OXYS, Inc. and HereLab, Inc., our wholly owned subsidiaries. Our operations have varied significantly following the closing since, prior to that time, we were an inactive shell company.
Impact of COVID-19
The global COVID-19 pandemic continues to present uncertainty and unforeseeable risks to the Company’s operations and business plan. The Company has closely monitored recent developments, including the lifting of COVID-19 safety measures, the spread of new strains or variants of the coronavirus (such as the Delta and Omicron variants), and supply chain and labor shortages. Thus, the full impact of the COVID-19 pandemic on the business and operations remains uncertain and will vary depending on the pandemic’s future impact on the third parties with whom the Company does business, as well as any legal or regulatory consequences resulting therefrom. The Company has been following the recommendations of health authorities to minimize exposure risk for its team members and may take further actions that alter our operations, including any required by federal, state or local authorities, or that it determines are in the best interests of its employees and other third parties with whom the Company does business.
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Historical Background
We were incorporated in the State of New Jersey on October 1, 2003 under the name of Creative Beauty Supply of New Jersey Corporation and subsequently changed our name to Gotham Capital Holdings, Inc. on May 18, 2015. We commenced operations in the beauty supply industry as of January 1, 2004. On November 30, 2007, our Board of Directors approved a plan to dispose of our wholesale and retail beauty supply business. From January 1, 2009 until July 28, 2017, we had no operations and were a shell company.
On March 16, 2017, our Board of Directors adopted resolutions, which were approved by shareholders holding a majority of our outstanding shares, to change our name to “IIOT-OXYS, Inc.”, to authorize a change of domicile from New Jersey to Nevada, to authorize a 2017 Stock Awards Plan, and to approve the Securities Exchange Agreement (the “OXYS SEA”) between the Company and OXYS Corporation (“OXYS”), a Nevada corporation incorporated on August 4, 2016.
Under the terms of the OXYS SEA we acquired 100% of the issued voting shares of OXYS in exchange for 34,687,244 shares of our Common Stock. We also cancelled 1,500,000 outstanding shares of our Common Stock and changed our management to Mr. DiBiase who also served in management of OXYS. Also, one of our principal shareholders entered into a consulting agreement with OXYS to provide consulting services during the transition. The OXYS SEA was effective on July 28, 2017, and our name was changed to “IIOT-OXYS, Inc.” at that time. Effective October 26, 2017, our domicile was changed from New Jersey to Nevada.
At the present time, we have two, wholly-owned subsidiaries which are OXYS Corporation and HereLab, Inc. (an entity immaterial to our operations), through which our operations are conducted.
General Overview
IIOT-OXYS, Inc., a Nevada corporation (the “Company”), and OXYS, were originally established for the purposes of designing, building, testing, and selling Edge Computing systems for the Industrial Internet. Both companies were, and presently are, early-stage technology startups that are largely pre-revenue in their development phase. HereLab (an entity immaterial to our operations) is also an early-stage technology development company. We received our first revenues in the last quarter of 2017, continued to realize revenues until 2020 when the pandemic hit, and we realized nominal revenues through 2021 to the present.
We develop hardware, software and algorithms that monitor, measure and predict conditions for energy, structural, agricultural and medical applications. We use domain-specific Artificial Intelligence to solve industrial and environmental challenges. Our engineered solutions focus on common sense approaches to machine learning, algorithm development and hardware and software products.
We use off the shelf components, with reconfigurable hardware architecture that adapts to a wide range of customer needs and applications. We use open-source software tools, while still creating proprietary content for customers, thereby reducing software development time and cost. The software works with the hardware to collect data from the equipment or structure that is being monitored.
We focus on developing insights. We develop algorithms that help our customers create insights from vast data streams. The data collected is analyzed and reports are created for the customer. From these insights, the customer can act to improve their process, product or structure.
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Results of Operations for the Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022 (Unaudited)
For the three months ended September 30, 2023, we earned revenues of $19,714 and incurred related cost of sales of $4,871. Our operating expenses were $102,272 which included professional fees of $13,861, payroll costs of $53,825, amortization of intangible assets of $12,477, and general and administrative expenses of $22,109. We recorded net other income of $42,138 consisting of gain of $122,089 due to change in fair market value of derivative liability, interest income on note receivable of $8,205, gain on a derivative of $321 and interest expense of $14,077. We also recorded $17,383 as preferred stock dividend on convertible preferred stock for the three months ended September 30, 2023. As a result, we incurred a net loss of $62,674 for the three months ended September 30, 2023.
For the three months ended September 30, 2022, we earned revenues of $23,003 and related cost of sales of $5,140. Our operating expenses were $158,818 which included professional fees paid to consultants of $35,454, payroll costs of $109,595, amortization of intangible assets of $12,477, and general and administrative expenses of $13,770. We recorded net other income of $111,137, consisting of interest expense of $14,913 on notes payable due to amortization of debt discount and interest payable on notes payable, loss on derivates of $5,504, offset by gain on change in the fair market value of derivative liability of $125,568. We also recorded $6,909 as preferred stock dividend on convertible preferred stock for the three months ended September 30, 2022. As a result, we incurred a net loss of $49,204 for the three months ended September 30, 2022.
During the current and prior period, we did not record an income tax benefit due to the uncertainty associated with the Company’s ability to utilize the deferred tax assets.
Results of Operations for the Nine months Ended September 30, 2023 Compared to the Nine months Ended September 30, 2022 (Unaudited)
For the nine months ended September 30, 2023, we earned revenues of $98,286 and incurred related cost of sales of $30,330. Our operating expenses were $410,757 which included professional fees of $138,027, payroll costs of $194,083, amortization of intangible assets of $37,023, and general and administrative expenses of $41,623. We recorded net other expenses of $131,297 consisting of a loss $34,600 due to change in fair market value of derivative liability, gain on a derivative of $321, interest income on note receivable of $19,983, interest expense of $117,001 on the convertible promissory notes. We also recorded preferred stock dividend on convertible preferred stock of $49,803 for the nine months ended September 30, 2023. As a result, we incurred a net loss of $523,901 for the nine months ended September 30, 2023.
For the nine months ended September 30, 2022, we earned revenues of $39,503 and related cost of sales of $5,650. Our operating expenses were $580,472 which included professional fees of $143,193, payroll costs of $350,543, amortization of intangible assets of $37,023, and general and administrative expenses of $49,713. We recorded net other expenses of $196,981, consisting of interest expense of $278,605 on notes payable due to amortization of debt discount and interest payable on notes payable, loss on derivates of $207,447, offset by gain on change in the fair market value of derivative liability of $277,424 and interest income of $11,647 on note receivable. We also recorded $31,617 as preferred stock dividend on convertible preferred stock for the nine months ended September 30, 2022. As a result, we incurred a net loss of $775,217 for the nine months ended September 30, 2022.
During the current and prior period, we did not record an income tax benefit due to the uncertainty associated with the Company’s ability to utilize the deferred tax assets.
The first nine months of revenue in 2023 was a substantial improvement over the same period in 2022 (an increase of 149%), and we have already met our commitment for 2023 revenue to exceed that in 2022. We expect revenue to moderate in the fourth quarter of 2023, as our ability to raise funding to fuel sales & marketing efforts has been limited. Potential future revenue growth is possible, pending adequate funding for sales and marketing efforts and building on the strength of the following factors:
| · | Our current DOT Bridge Monitoring Contract and overall Structural Health Monitoring (“SHM”) vertical is the foundation of our revenue stream. The current monitoring revenue will continue through the fourth quarter of 2023. Discussions with our main contractor to the DOT for extensions and expansions continue to be favorable. We also continue to believe that prospects with our current DOT state, and DOT contacts in two other northeast states bode well for future business in mid-2024. There is still potential for local municipalities in our current northeast state to contribute revenue in 2024. |
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| · | Our Smart Manufacturing vertical is benefiting from the progress on our CNC SaaS contract that commenced in June 2023, and will continue through the fourth quarter of 2023. Initial public endorsements and promotional videos have been released and additional videos are planned for release in the fourth quarter of 2023. These endorsements and promotional videos along with grass-roots sales & marketing efforts have generated additional sales leads for potential paid CNC POCs and additional SaaS contracts, which may contribute to revenue in the fourth quarter of 2023 and beyond. It is also expected these endorsements will also strengthen our position to secure additional POCs for other discrete manufacturing processes, including metal stamping, plastic injection molding, plastic extrusion, and automated assembly and test. | |
| · | Our strategic partnership development continues to be a “force multiplier” for us. The strength of our Aingura IIoT, S.L. partnership provides supplemental expertise, equipment and software, which ensures we continue to bring value to our customers. We will also continue to develop our other previously announced partnerships. |
Despite these strengths, we continue to face significant headwinds and we have not been able to raise material funds for ongoing operations through our existing financing agreements due to market conditions. Our CEO and COO have not received any compensation since mid-April (their salaries have accrued), and the lack of funds has severely limited sales and marketing efforts. Our management is working to secure funding from our lead investor to pay for ongoing expenses and the leadership team is considering many options for both the short and long term. These options depend largely upon our ability to continue to raise funds and implement a marketing and sales plan. In the event we are unable to raise adequate funds, management may need to consider other options such as pursuing suitable companies to merge with or acquire us.
We believe that our business development in these industries has potential for success, due to the strength of their size and growth. The global smart manufacturing (also known as Industry 4.0) was $97.6 billion in 2022 and will reach $228.3 billion by 2027 (CAGR 18.5%)1, and the worldwide SHM industry was $2.0 billion in 2021 and will reach $4.0 billion by 2027 (CAGR of 14.6%).2
Given the valuable real-world data we have collected, our Artificial Intelligence (“AI”) Machine Learning algorithms we have developed, compelling use cases and marketing collateral developed from our data and algorithms, combined with our experienced leadership, savvy technological talent, and operational execution excellence, we believe continued annual revenue growth is possible, if adequate funding for sales and marketing efforts can be secured.
Liquidity and Capital Resources for the Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022 (Unaudited)
At September 30, 2023, we reported a cash balance of $17,790 as a result of decrease of $15,546 from the $33,336 cash balance at December 31, 2022. This decrease was primarily as a result of net cash used in operating activities of $129,417 and net cash provided by financing activities of $113,871.
Operating Activities
Net cash flows used in operating activities for the nine months ended September 30, 2023 was $129,417, primarily attributed to the net loss of $523,901, stock compensation expense of $825, discount received on note receivable of $2,805, amortization of debt discount on notes payable and preferred stock of $12,400, and amortization of intangible assets of $37,023. The Company recorded changes in operating assets and liabilities of $347,041 primarily attributable to decrease in accounts receivable of $18,021, increase in prepaid expenses and other current assets of $10,028, decrease in accounts payable of $38,108, increase in accrued liabilities of $125,434, increase in derivative liabilities of $96,279, decrease in unearned interest of $5,151, increase in shares payable to related parties of $3,870, and increase in salaries payable to related parties of $156,724.
Net cash flows used in operating activities for the nine months ended September 30, 2022 was $471,561, primarily attributable to net loss of $775,217, stock compensation expense of $900, discount on note receivable of $5,661, amortization of debt discount on notes payable and preferred stock of $37,400, and amortization of intangible assets of $37,023. The Company recorded a net change in operating assets and liabilities of $222,672 attributable to net increase in accounts receivable of $5,100, decrease in accounts payable of $1,588, net increase in accrued liabilities of $80,398, net increase in derivative liabilities of $116,023, increase in unearned interest of $10,192, and net increase in shares payable to related parties of $12,221, and a net increase in salaries payable to related parties of $10,526.
_______________________
1 https://www.marketsandmarkets.com/Market-Reports/industry-4-market-102536746.html
2 https://www.marketsandmarkets.com/Market-Reports/structural-health-monitoring-market-101431220.html
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Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2023 was $0. Net cash used in investing activities for the nine months ended September 30, 2022 resulted due to cash advanced for a promissory note receivable totaling $200,000.
Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2023 was $113,871 primarily due to sales of our common stock of $54,195, Series B convertible preferred stock of $62,000 and paid $2,324 in costs for raising capital. Cash provided by financing activities for the nine months ended September 30, 2022 was $659,024 primarily due to cash received from sale of common stock of $481,657 and paid $9,633 in costs for raising capital, and cash received from sale of Series B convertible preferred stock of $187,000.
As a result of the above activities, the Company recorded a decrease in cash of $15,546 for the nine months ended September 30, 2023, and a decrease in cash of $12,537 for the same comparable period ended September 30, 2022, respectively.
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has suffered continuing operating losses, has a working capital deficit of $1,958,290, used cash flows in operating activities of $129,417, and has an accumulated deficit of $9,831,038 as of September 30, 2023. These factors, among others, raise a substantial doubt about the Company’s ability to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity capital expenditures or capital resources.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, the Company has elected not to provide the disclosure required by this item.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
The Company has established disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and, as such, is accumulated and communicated to the Company’s Chief Executive Officer, Clifford L. Emmons, who serves as our principal executive officer, and to the Company’s Interim Chief Financial Officer, Karen McNemar, who serves as our principal financial and accounting officer, as appropriate to allow timely decisions regarding required disclosure. Mr. Emmons and Ms. McNemar, evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, as of September 30, 2023. Based on their evaluation, Mr. Emmons and Ms. McNemar concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2023.
Changes in Internal Control Over Financial Reporting
There has been no change in the Company’s internal control over financial reporting, as defined in Rules 13a-15(f) of the Exchange Act, during the Company’s quarter ended September 30, 2023, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 6. Exhibits
*Filed with this Report.
**Furnished with this Report.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| IIOT-OXYS, Inc. | ||
| Date: November 13, 2023 | By | /s/ Clifford L. Emmons |
| Clifford L. Emmons, Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: November 13, 2023 | By | /s/ Karen McNemar |
| Karen McNemar, Interim Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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Exhibit 10.1
AMENDMENT NO. 5 TO 12% SENIOR SECURED CONVERTIBLE PROMISSORY NOTE
This Amendment No. 5 to the 12% Senior Secured Convertible Promissory Note (this “Amendment”) dated effective March 1, 2023 is by and between IIOT-OXYS, Inc., a Nevada corporation (the “Borrower”), on the one hand, and Sergey Gogin (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% Senior Secured Convertible Promissory Note dated January 22, 2018, as amended, issued by the Borrower to the Holder (the “Note”), attached hereto as Exhibit A.
RECITALS
WHEREAS, on January 22, 2018, the Borrower issued to the Holder the Note in the original principal amount of $500,000;
WHEREAS, the Note has previously been amended on four separate occasions, with the last amendment amending the maturity date to March 1, 2023 (the “Maturity Date”), amongst other revisions;
WHEREAS, the Note matured on March 1, 2023 and was not paid by the Borrower, which constituted an Event of Default under the Note;
WHEREAS, the Parties wish to amend the Note to revise the Maturity Date to March 1, 2024, subject to extensions; and
WHEREAS, the Parties also wish to amend the conversion terms of the Note and to issue to the Holder shares of Common Stock as consideration for the Amendment.
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
1. Revised Conversion Terms. Pursuant to Section 7(i) of the Note, Sections 4(a) and 4(b) of the Note are hereby amended so that, as amended, Sections 4(a) and 4(b) of the Note read as follows:
(b) Section 4. Conversion.
a) Voluntary Conversion. Beginning on July 21, 2023, at the option of the Holder, the Holder may only convert an aggregate of Fifty Thousand Dollars ($50,000) of the Note and the 12% Senior Secured Convertible Promissory Note dated March 6, 2019, as amended, issued by the Borrower to YVSGRAMORAH LLC, an affiliate of the Holder (the “YVSGRAMORAH Note”) into Common Shares of the Borrower over the following three (3) months and the Holder may only convert additional aggregates of Fifty Thousand Dollars ($50,000) over each three (3)-month period (the “Quarterly Periods”). If during any Quarterly Period, the Holder or the holder of the YVSGRAMORAH Note (together, the “Holders”) makes a conversion during the third (3rd) month of the Quarterly Period, neither of the Holders shall make any subsequent conversions until at least one (1) month has passed. During any Quarterly Period, in the event that the average daily trading amount is at least Twenty Five Thousand Dollars ($25,000) for the prior thirty (30) days, the Holder may convert an aggregate of One Hundred Thousand Dollars ($100,000) for the remainder of the Quarterly Period. Under the Note, “daily trading amount” means the daily amount of shares traded multiplied by the lowest traded daily share price. Under no circumstances may the Holder convert more than One Hundred Thousand Dollars ($100,000) during any Quarterly Period. The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. To effect conversions hereunder, the Holder shall be required to physically surrender this Note to the Company. The Company may deliver an objection to any Notice of Conversion within two (2) Business Days of delivery of such Notice of Conversion.
b) Conversion Price. The Conversion Price of the Common Stock into which the Principal Amount, or the then outstanding interest due thereon, of this Note is convertible shall be the volume-weighted average price (“VWAP”) per Common Share of the Borrower (subject to adjustments as described herein) for the previous ten (10) Trading Days. The Borrower shall provide the VWAP upon written notice from the Holder. “Trading Days” is defined herein as a day on which any of the following markets or exchanges on which the Common Shares of the Borrower is listed or quoted for trading on the date in question: the NYSE MKT, the Nasdaq Capita Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, the OTCQB, or the OTC Markets (or any successors to any of the foregoing). In the event the Company (i) makes a distribution or distributions on Common Shares payable in Common Shares or any Common Share Equivalents (which, for avoidance of doubt, shall not include any Common Shares issued by the Company upon conversion of, or payment of interest on, the Notes), (ii) subdivides outstanding Common Shares into a larger number of Common Shares, (iii) combines (including by way of a reverse split) outstanding Common Shares into a smaller number of Common Shares or (iv) issues, in the event of a reclassification of Common Shares, any Common Shares of the Company, then the Conversion Price shall be adjusted by multiplying the Conversion Price by a fraction of which the numerator shall be the number of Common Shares outstanding immediately before such event, and of which the denominator shall be the number of Common Shares outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of members entitled to receive such distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
2. Extended Maturity Date. Pursuant to Section 7(i) of the Note, the definition of “Maturity Date,” as defined in the Note, is “March 1, 2024, subject to additional one-year extensions in the event the Borrower does not receive prior written notice from the Holder of the Holder’s refusal to extend the Maturity Date.”
3. Revision of Event of Default. Pursuant to Section 7(i) of the Note, the definition of “Event of Default” is amended to exclude the requirement to make interest payments and also the following:
| vi. | the closing price of the Common Shares the Trading Market is less than $0.008 per share for ten (10) consecutive Trading Days. |
4. Incentive Shares. Pursuant to Section 7(i) of the Note, the following ARTICLE V is inserted prior to the existing ARTICLE V and the existing ARTICLE V is renumbered to ARTICLE VI (including the renumbering of all subsections of ARTICLE V):
ARTICLE V
INCENTIVE SHARES
5.1 Upon request of the Holder, the Borrower shall issue the Holder Twenty Thousand Dollars ($20,000) worth of Common Shares (the “1st Incentive Shares”) and the price per 1st Incentive Share shall be the VWAP per Common Share of the Borrower (subject to adjustments as described herein) for the previous ten (10) Trading Days.
5.2 The Borrower shall use its best efforts to file a registration statement registering the resales of the 1st Incentive Shares within forty-five (45) calendar days from the date hereof. The Borrower shall use is best efforts to have the registration statement declared “effective” within sixty (60) calendar days from its filing. The Borrower shall use its best efforts to have a registration statement registering the resales of the 1st Incentive Shares remain effective until such time that the Holder no longer holds any such 1st Incentive Shares.
5.3 Upon full conversion of the Note and the YVSGRAMORAH Note, the Borrower shall issue to the Holder Fifty Thousand ($50,000) worth of Common Shares (the “2nd Incentive Shares”) and the price per 2nd Incentive Share shall be the VWAP per Common Share of the Borrower (subject to adjustments as described herein) for the previous ten (10) Trading Days.
5.4 The Borrower shall use its best efforts to file a registration statement registering the resales of the 2nd Incentive Shares within forty-five (45) calendar days from the date of issuance. The Borrower shall use is best efforts to have the registration statement declared “effective” within sixty (60) calendar days from its filing. The Borrower shall use its best efforts to have a registration statement registering the resales of the 2nd Incentive Shares remain effective until such time that the Holder no longer holds any such 2nd Incentive Shares.
| 2 |
5. Waiver of Prior Defaults. Upon entering into this Amendment, the Holder hereby waives all “Events of Default” pertaining to the Note, known or unknown to the Holder, by Borrower prior to the date hereof. The Holder also waives all defaults of the Transaction Documents, known or unknown to the Holder by Borrower prior to the date hereof.
6. No Other Changes. Except as amended hereby, the Transaction Documents 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.
7. 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.
8. 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.
9. 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.
10. 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]
| 3 |
IN WITNESS WHEREOF, each of the undersigned has executed this Amendment the respective day and year set forth below:
| BORROWER: | IIOT-OXYS, Inc. |
|
Date: July 21, 2023 |
By /s/ Clifford L. Emmons |
| Clifford L. Emmons, CEO | |
|
HOLDER: |
|
|
Date: July 21, 2023 |
By /s/ Sergey Gogin |
| Sergey Gogin, an Individual |
| 4 |
EXHIBIT A
12% Senior Secured Convertible Promissory Note dated January 22, 2018, as Amended
[See Attached]
| 5 |
Exhibit 10.2
AMENDMENT NO. 5 TO 12% SENIOR SECURED CONVERTIBLE PROMISSORY NOTE
This Amendment No. 5 to the 12% Senior Secured Convertible Promissory Note (this “Amendment”) dated effective March 1, 2023 is by and between IIOT-OXYS, Inc., a Nevada corporation (the “Borrower”), on the one hand, and YVSGRAMORAH LLC (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% Senior Secured Convertible Promissory Note dated March 6, 2019, as amended, issued by the Borrower to the Holder (the “Note”), attached hereto as Exhibit A.
RECITALS
WHEREAS, on March 6, 2019, the Borrower issued to the Holder the Note in the original principal amount of $50,000 (the “Principal Amount”);
WHEREAS, the Note has previously been amended on four separate occasions, with the last amendment amending the maturity date to March 1, 2023 (the “Maturity Date”), amongst other revisions;
WHEREAS, the Note matured on March 1, 2023 and was not paid by the Borrower, which constituted an Event of Default under the Note;
WHEREAS, the Parties wish to amend the Note to revise the Maturity Date to March 1, 2024, subject to extensions; and
WHEREAS, the Parties also wish to amend the conversion terms of the Note and the Events of Default.
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
1. Revised Conversion Terms. Pursuant to Section 7(i) of the Note, Sections 4(a) and 4(b) of the Note are hereby amended so that, as amended, Sections 4(a) and 4(b) of the Note read as follows:
(b) Section 4. Conversion.
a) Voluntary Conversion. Beginning on July 25, 2023, at the option of the Holder, the Holder may only convert an aggregate of Fifty Thousand Dollars ($50,000) of the Note and the 12% Senior Secured Convertible Promissory Note dated January 22, 2018, as amended, issued by the Borrower to Sergey Gogin, an affiliate of the Holder (the “Gogin Note”) into Common Shares of the Borrower over the following three (3) months and the Holder may only convert additional aggregates of Fifty Thousand Dollars ($50,000) over each three (3)-month period (the “Quarterly Periods”). If during any Quarterly Period, the Holder or the holder of the Gogin Note (together, the “Holders”) makes a conversion during the third (3rd) month of the Quarterly Period, neither of the Holders shall make any subsequent conversions until at least one (1) month has passed. During any Quarterly Period, in the event that the average daily trading amount is at least Twenty Five Thousand Dollars ($25,000) for the prior thirty (30) days, the Holder may convert an aggregate of One Hundred Thousand Dollars ($100,000) for the remainder of the Quarterly Period. Under the Note, “daily trading amount” means the daily amount of shares traded multiplied by the lowest traded daily share price. Under no circumstances may the Holder convert more than One Hundred Thousand Dollars ($100,000) during any Quarterly Period. The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. To effect conversions hereunder, the Holder shall be required to physically surrender this Note to the Company. The Company may deliver an objection to any Notice of Conversion within two (2) Business Days of delivery of such Notice of Conversion.
b) Conversion Price. The Conversion Price of the Common Stock into which the Principal Amount, or the then outstanding interest due thereon, of this Note is convertible shall be the volume-weighted average price (“VWAP”) per Common Share of the Borrower (subject to adjustments as described herein) for the previous ten (10) Trading Days. The Borrower shall provide the VWAP upon written notice from the Holder. “Trading Days” is defined herein as a day on which any of the following markets or exchanges on which the Common Shares of the Borrower is listed or quoted for trading on the date in question: the NYSE MKT, the Nasdaq Capita Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, the OTCQB, or the OTC Markets (or any successors to any of the foregoing). In the event the Company (i) makes a distribution or distributions on Common Shares payable in Common Shares or any Common Share Equivalents (which, for avoidance of doubt, shall not include any Common Shares issued by the Company upon conversion of, or payment of interest on, the Notes), (ii) subdivides outstanding Common Shares into a larger number of Common Shares, (iii) combines (including by way of a reverse split) outstanding Common Shares into a smaller number of Common Shares or (iv) issues, in the event of a reclassification of Common Shares, any Common Shares of the Company, then the Conversion Price shall be adjusted by multiplying the Conversion Price by a fraction of which the numerator shall be the number of Common Shares outstanding immediately before such event, and of which the denominator shall be the number of Common Shares outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of members entitled to receive such distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
2. Extended Maturity Date. Pursuant to Section 7(i) of the Note, the definition of “Maturity Date,” as defined in the Note, is “March 1, 2024, subject to additional one-year extensions in the event the Borrower does not receive prior written notice from the Holder of the Holder’s refusal to extend the Maturity Date.”
3. Revision of Event of Default. Pursuant to Section 7(i) of the Note, the definition of “Event of Default” is amended to exclude the requirement to make interest payments and also the following:
| vi. | the closing price of the Common Shares the Trading Market is less than $0.008 per share for ten (10) consecutive Trading Days. |
4. Waiver of Prior Defaults. Upon entering into this Amendment, the Holder hereby waives all “Events of Default” pertaining to the Note, known or unknown to the Holder, by Borrower prior to the date hereof. The Holder also waives all defaults of the Transaction Documents, known or unknown to the Holder by Borrower prior to the date hereof.
5. No Other Changes. Except as amended hereby, the Transaction Documents 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.
6. 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.
7. 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.
8. 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.
9. 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: July 25, 2023 |
By /s/ Clifford L. Emmons |
| Clifford L. Emmons, CEO | |
|
HOLDER: |
YVSGRAMORAH LLC |
|
Date: July 25, 2023 |
By /s/ Sergey Gogin |
| Sergey Gogin, President |
| 3 |
EXHIBIT A
12% Senior Secured Convertible Promissory Note dated March 6, 2019, as Amended
[See Attached]
| 4 |
Exhibit 10.3
IIOT-OXYS, Inc.
705 Cambridge Street.
Cambridge, MA 02141
Re:Finder’s Fee Agreement
Dear Clifford Emmons:
As you know, IIOT-OXYS, Inc. (the “Issuer”), has expressed an interest in obtaining private equity or debt capital for various purposes. This letter agreement (“Agreement”) sets forth the terms and conditions upon which J.H. Darbie & Co., Inc. (“Darbie”), will introduce the Issuer to third-party investors (each, an “Introduced Party”).
1. Nature of Agreement and Services.
(a) Promptly upon execution of this Agreement by the Issuer, Darbie will use its best efforts to initiate an introduction between principals of the Introduced Party and the Issuer. The Issuer understands that Darbie is not guaranteeing that a Transaction (as defined herein) will be consummated, is not offering to purchase any securities of the Issuer, and is not obligated to provide any additional services beyond the scope of this Agreement.
(b) Issuer is not at the time of this Agreement a customer, affiliate, or representative of Darbie.
(c) Darbie is not providing any recommendation to the Issuer in connection with any possible Transaction.
(d) Darbie has not provided any investment banking, advisory, or analytic services to the Issuer, including underwriting or placement agent services, either as principal or agent, in connection with the offer or sale of any securities of the Issuer, and Issuer specifically acknowledges that Darbie will not provide any investment banking, advisory, or analytic services to the Issuer, including underwriting or placement agent services, either as principal or agent, in connection with the offer or sale of any securities of the Issuer under this Agreement.
(e) Darbie is not and will not be a party to any contract entered into between the Issuer and any Introduced Party.
(f) Darbie will not participate in any way in fulfilling any obligations to any Introduced Party undertaken by the Issuer, including services relating to the offer or sale of securities, such as: (i) performing any independent analysis of the offer or sale of securities; (ii) engaging in any due diligence activities; (iii) assisting in or providing financing for such purchases; (iv) providing any advice relating to the valuation of or the financial advisability of such an investment; (v) advising or providing information regarding the suitability of any investment for any person; or (vi) handling any funds or securities.
J.H. Darbie & Co.
48 Wall Street, Suite 1206 New York, NY 10005
Telephone: 212-269-7271 Fax: 212-269-7330
www.jhdarbie.com
J H DARBIE & CO., INC.
IIOT-OXYS, Inc.
August 17, 2023
Page 2
2. Term.
(a) This Agreement will remain in effect for a period of 120 days from its date (the “Term”). Darbie will have the right to terminate this Agreement immediately upon written notice to the Issuer. The Issuer will not have the right to terminate this Agreement unless there has been a breach by Darbie of a material term of this Agreement, and the Issuer has provided Darbie with written notice of such breach; provided, however, Darbie will have the right to cure such breach within 10 days of the date of the notice sent by the Issuer. Notwithstanding termination of this Agreement, Darbie will be entitled to receive compensation under section 3 in the event the Issuer and an Introduced Party consummate a Transaction (as defined herein) at any time during the period commencing on the date hereof and ending 24 months from the later of the date of the termination of this Agreement or the last funding of a Transaction between the Issuer and the Introduced Party. Sections 2, 3, 6, 8, and 11 will survive termination of this Agreement.
(b) If: (i) during the 24 months following termination or expiration of this Agreement, any Introduced Party purchases equity or debt securities from the Issuer; or (ii) during the Term, an Introduced Party enters into an agreement to purchase securities from the Issuer, which is consummated at any time thereafter; each of the foregoing, a “Transaction,” the Issuer will pay Darbie, upon the receipt of the purchase price for the securities or the close of the Transaction, a Finder’s Fee in the amount that would otherwise have been payable to Darbie in accordance with this Agreement had such Transaction occurred during the Term.
3. Finder’s Fee and Expenses.
(a) In consideration of the foregoing, upon consummation of the closing regarding a financing on behalf of the Issuer, directly or through a structured Transaction, Darbie will be entitled to receive a finder fee (“Finder’s Fee”) in cash equal to 4% (2% for GHS Investments LLC) of the gross proceeds of an equity/convertible debt transaction and/or cash equal to 3% (2% for GHS Investments LLC)of the gross proceeds of a non-convertible debt transaction received by the Issuer within three business days from the closing date. The Issuer and the Introduced Party will not be obligated to pay Darbie if the Issuer does not receive the Transaction Proceeds. Darbie shall not be entitled to receive a Finder’s Fee for any sales of securities by the Issuer to any Introduced Party which would result in a change of control of the Issuer. For purposes of this Agreement, “change of control” shall mean the Issuer is a party to a transaction in which it is sold to, merged, consolidated, reorganized into or with, or its assets are transferred or sold to an Introduced Party, or its affiliates, after which the holders of voting securities of the Issuer immediately prior to such transaction, including voting securities issuable upon exercise or conversion of vested options, warrants or other securities or rights, hold (directly or indirectly) less than a majority of the combined voting power of the then-outstanding securities of the surviving entity.
(b) Within three days of closing the Transaction a warrant in the form, appropriately completed to reflect the following terms. The Issuer also shall pay Darbie non-callable warrants of the Issuer issuable to Darbie, or its designee simultaneously with the closing of the Transaction equal to 4% (0% for GHS Investments LLC) warrant coverage of the amount raised. The warrants shall entitle the holder thereof to purchase securities of the Issuer at a purchase price equal to 120% of the Introduced Party’s exercise price of the Transaction or the public market closing price of the Issuer’s common stock on the date of the Transaction, whichever is lower (such price, the “Warrant Price”). The warrants shall be exercisable immediately after the date of issuance, shall have anti-dilutive price protection, participating registration rights, and shall expire 5 years after the date of issuance. If warrants are issued to investors in a Transaction, the Darbie warrants shall have the same terms as the warrants issued to investors in the applicable Transaction, except that such Darbie warrants shall have an exercise price equal to 120% of the Warrant Price.
(c) In the event that the Issuer proceeds with a non-financing transaction with one or more Introduced Parties, then prior to closing the Issuer and Darbie shall mutually agree upon compensation payable to Darbie which may include an ownership interest in the resulting licensed, joint venture and/or merged/acquiring entity. In the event the Issuer completes a non-financing transaction with an Introduced Party, without first agreeing with Darbie on the finder’s fee for the non-financing transaction, then Darbie shall be entitled to receive a cash fee equal to 6% of any licensing fees payable upon receipt by the licensor, a cash fee equal to 6% of the value of the Issuer related portion of the surviving entity resulting from any merger or acquisition payable upon closing of the transaction and, in the case of a joint venture, equal to 6% of Darbie’s ownership portion of the joint venture.
J H DARBIE & CO., INC.
IIOT-OXYS, Inc.
August 17, 2023
Page 3
(d) The Finder’s Fee will be paid in cash and will be payable whether or not the Transaction involves equity or debt securities, or a combination of equity and debt securities and cash or is made on the installment-sale basis. The Finder’s Fee will be deducted from the Transaction Proceeds by the Introduced Party, and the Introduced Party will remit the Finder’s Fee directly to Darbie on Issuer’s behalf. For purposes of this Agreement “Transaction Proceeds” will mean the fair market value of all cash and securities received by the Issuer from the Introduced Party, including a debt repayment or debt assumption, all determined in accordance with generally accepted accounting principles. Notwithstanding the foregoing, in the event that the Transaction Proceeds are received by the Issuer in installments, the compensation payable to Darbie hereunder will be due and payable upon receipt by the Issuer of each installment in the same manner described earlier in this section.
(e) Darbie will be solely liable for the payment of any taxes imposed or arising out of any Finder’s Fee received by it under this Agreement.
(f) Issuer agrees to not circumvent Darbie by entering into business relations with any Introduced Party without providing payment of the agreed upon Finder’s Fee as stated in this Agreement.
(g) Issuer and Darbie will each pay its own expenses arising out of or relating to this Agreement.
4. Preexisting Relationship. In the event Issuer has prior evidentiary communication with an Introduced Party, the Issuer will notify Darbie of such a relationship and, upon written request, provide documentation of the Issuer’s prior communication with an Introduced Party. Communication will include phone or e-mail contact or written representations by both Issuer and an Introduced Party of a preexisting relationship. For purposes of this paragraph, email communication is deemed acceptable.
5. Confidential Information. Darbie will hold in confidence, for a period of two years from the date hereof, any confidential information that the Issuer may provide to it pursuant to this Agreement unless the Issuer gives Darbie permission in writing to disclose such confidential information to a specific third party. Notwithstanding the foregoing, Darbie will not be required to maintain confidentiality for information: (a) that is or becomes part of the public domain through no fault or action of Darbie; (b) of which it had independent knowledge prior to disclosure to it by the Issuer; (c) that comes into Darbie’s possession in the normal and routine course of its own business from and through independent, nonconfidential sources; or (d) that is required to be disclosed by Darbie by governmental or security regulatory requirements. If Darbie is requested or required (by oral questions, interrogatories, requests for information or document subpoenas, civil investigative demands, or similar process) to disclose any confidential information supplied to it by the Issuer, or the existence of other negotiations in the course of its dealings with the Issuer or its representatives, Darbie will, unless prohibited by law, promptly notify the Issuer of such a request so that the Issuer may seek an appropriate protective order.
6. Independent Contractor. Nothing in this Agreement will constitute a business combination, joint venture, partnership, or employment relationship between the Issuer and Darbie. Darbie acknowledges and agrees that it is merely and strictly acting as a finder, and not as an agent, employee, or representative of the Issuer, and has no authority to negotiate for or to bind the Issuer. This Agreement is not exclusive, and each party is free to enter into similar arrangements with third parties. Darbie agrees it will not make, publish, or distribute any advertisement or marketing material using the trademarks, logos, trade names or abbreviations thereof, or any other such identifying mark or name of the Issuer or its affiliates without the prior consent of the Issuer.
J H DARBIE & CO., INC.
IIOT-OXYS, Inc.
August 17, 2023
Page 4
7. Indemnification. The Issuer agrees to indemnify and hold harmless Darbie and its officers, directors, employees, agents, representatives, and controlling persons (and the officers, directors, employees, agents, representatives, and controlling persons of each of them),from and against any and all losses, claims, damages, liabilities, costs, and expenses (and all actions, suits, proceedings, or claims in respect thereof) and any legal or other expenses in giving testimony or furnishing documents in response to a subpoena or otherwise (including the cost of investigating, preparing, or defending any such action, suit, proceeding or claim, whether or not in connection with any action, suit, proceeding, or claim in which Darbie or the Issuer is a party), as and when incurred, directly or indirectly, caused by, relating to, based upon, or arising out of Darbie’s service pursuant to this Agreement, including any suit based upon the terms and conditions of a Transaction or information, representations, or warranties provided by the Issuer to a Transaction party by the Issuer. The Issuer further agrees that Darbie will incur no liability to the Issuer for any acts or omissions by Darbie arising out of or relating to this Agreement or Darbie’s performance or failure to perform any services under this Agreement, except for Darbie’s intentional or willful misconduct. Further, in no event will Darbie be liable to the Issuer or to any third party or Transaction party for an amount in excess of the cash compensation received pursuant to section 3 hereof. This section 8 will survive the termination of this Agreement. Notwithstanding the foregoing, no party otherwise entitled to indemnification will be entitled thereto to the extent such party has been determined to have acted in a manner that has been deemed as gross negligence or willful misconduct regarding the matter for which indemnification is sought herein.
8. Notices. Any notice, demand, request, or other communication permitted or required under this Agreement will be in writing and will be deemed to have been given as of the date so delivered, if personally delivered; as of the date so sent, if sent by electronic mail and receipt is acknowledged by the recipient; and one day after the date so sent, if delivered by overnight courier service; addressed as follows:
| If to the Issuer: | IIOT-OXYS, Inc. |
705 Cambridge Street.
Cambridge, MA 02141
Attn: Clifford Emmons
Email: cliff.emmons@oxyscorp.com
| If to Darbie, to: | J. H. Darbie & Co., Inc. |
48 Wall Street, Suite 1206
New York, NY 10005
Attn: Xavier Vicuna
Email: ib@jhdarbie.com
Notwithstanding the foregoing, service of legal process or other similar communications will not be given by electronic mail and will not be deemed duly given under this Agreement if delivered by such means. Each party, by notice duly given in accordance herewith, may specify a different address for the giving of any notice hereunder.
9. Successors and Assigns. No party will assign its rights, duties, and obligations under this Agreement without the written consent of the other party, which will not be unreasonably withheld, except as otherwise specifically contemplated in this Agreement. This Agreement will be binding upon, inure to the benefit of, and be enforceable by the parties and their permitted successors and assigns.
10. Governing Law and Enforcement. This Agreement will be governed by and construed under and in accordance with the laws of the state of New York, without giving effect to any choice or conflict of law provision or rule (whether the state of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the state of New York. All matters involving the Issuer and Darbie, whether arising under this Agreement or otherwise will be heard and determined by mediation or arbitration.
J H DARBIE & CO., INC.
IIOT-OXYS, Inc.
August 17, 2023
Page 5
11. Entire Agreement. This Agreement incorporates and includes all prior negotiations, correspondence, conversations, agreements, or understandings applicable to the matters contained herein, and the parties agree that there are no commitments, agreements, or understandings concerning the subject matter of this Agreement that are not contained in this document. The parties acknowledge that, in deciding to enter into this Agreement, they have not relied upon any statements, promises, or representations, written or oral, express or implied, other than those set forth in this Agreement. Accordingly, it is agreed that no deviation from the terms hereof will be predicated upon any prior representations or agreements, whether oral or written. The parties acknowledge that they have negotiated this Agreement at arm’s-length with adequate representation on an equal basis, and the filing of a suit challenging the negotiated terms of this Agreement by either party will be deemed a default and this Agreement will be terminated as provided herein.
12. Amendment. Any amendment, modification, or waiver of the terms of this Agreement must be executed in writing by both parties.
13. Severability. The provisions of this Agreement are severable and should any provision hereof be void, voidable, or unenforceable under any applicable law, such void, voidable, or unenforceable provision will not affect or invalidate any other provision of this Agreement, which will continue to govern the relative rights and duties of the parties as though the void, voidable, or unenforceable provision was not a part hereof. In addition, it is the intention and agreement of the parties that all the terms and conditions hereof be enforced to the fullest extent permitted by law.
14. Warranty of Authority. Each of the individuals signing this Agreement on behalf of a party hereto warrants and represents that such individual is duly authorized and empowered to enter in this Agreement and bind such party hereto.
15. Counterpart Signatures. This Agreement may be executed in any number of counterparts (and any counterpart may be executed by original, portable document format (pdf), or facsimile signature), each of which when executed and delivered will be deemed an original, but all of which will constitute one and the same instrument.
_____________________________
If the foregoing is acceptable to you, please so indicate by signing in the space provided below and returning a signed copy of this Agreement to us for our records.
Sincerely,
J.H. DARBIE & CO., INC.
By: /s/ Xavier Vicuna
Name: Xavier Vicuna
Title: Vice President
IIOT-OXYS, Inc.
By: /s/ Clifford L. Emmons
Name: Clifford Emmons
Title: CEO
Agreed to and accepted this 17th day of August 2023.
Exhibit 10.4
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this “Agreement”) is dated as of August 24, 2023, between IIOT-OXYS, Inc., a Nevada corporation (the “Company”), and the purchaser identified on the signature page hereto (including its successors and assigns, the “Purchaser”).
WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 promulgated thereunder, the Company desires to issue and sell to the Purchaser, and the Purchaser desires to purchase from the Company, securities of the Company as more fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Purchaser agrees as follows:
ARTICLE I.
DEFINITIONS
1.1Definitions. In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Certificate of Designation (as defined herein), and (b) the following terms have the meanings set forth in this Section 1.1:
“Acquiring Person” shall have the meaning ascribed to such term in Section 4.5.
“Action” shall have the meaning ascribed to such term in Section 3.1(j).
“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.
“Board of Directors” means the board of directors of the Company.
“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
“Certificate of Designation” means the Certificate of Designation to be filed prior to the Closing by the Company with the Secretary of State of the State of Nevada, in the form of Exhibit A attached hereto.
“Closing Date” means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto in connection with the Closing, and, to the extent applicable, all conditions precedent to (i) the Purchaser’s obligations to pay the Subscription Amount as to the Closing and (ii) the Company’s obligations to deliver the Securities as to the Closing, in each case, have been satisfied or waived.
“Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1(a), which shall occur on the Closing Date. The Closing will be for the purchase of Sixty-Two (62) Preferred Shares at the aggregate purchase price of $62,000.
“Commission” means the United States Securities and Exchange Commission.
“Common Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.
“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
“Company Counsel” means Business Legal Advisors, LLC.
“Conversion Shares” means the Common Stock issuable upon conversion of the Preferred Stock.
“Disclosure Schedules” shall have the meaning ascribed to such term in Section 3.1.
“Dividend” means twelve percent (12%) per annum of the stated value of any purchased Preferred Share, paid quarterly by the Company, and at the Company’s discretion, in cash or in Preferred Stock.
“Equity Conditions” means (i) the Company shall cure any Events of Default under existing agreements within ten calendar days from the execution of this Agreement.
“Evaluation Date” shall have the meaning ascribed to such term in Section 3.1(r).
“Event of Default” means any of the following events: (i) the suspension, cessation from trading or delisting of the Company's Common Stock on the Principal Market for a period of two (2) consecutive trading days or more; (ii) the failure by the Company to timely comply with the reporting requirements of the Exchange Act (including applicable extension periods) within fifteen (15) calendar days from the execution of this Agreement; (iii) the failure for any reason by the Company to issue Dividends or Conversion Shares to the Purchaser within the required time periods; (iv) the Company breaches any representation, warranty, covenant or other term of condition contained in the definitive agreements between the parties; (v) the Company files for Bankruptcy or receivership or any money judgment writ, liquidation or a similar process is entered by or filed against the Company for more than $50,000 and remains unvacated, unbonded or unstayed for a period of twenty (20) calendar days; (vi) any cessation of operations by the Company or failure by the Company to maintain any assets, intellectual, personal or real property or other assets which are necessary to conduct its business (vii) the Company shall lose the "bid" price for its Common stock on the Principal Market; or (viii) if at any time the Common Stock is no longer DWAC eligible.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended.
“GAAP” means generally accepted accounting principles in the U.S.
“Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(o).
“Liens” means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.
“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).
“Material Permits” shall have the meaning ascribed to such term in Section 3.1(m).
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Preferred Stock” means, sixty-two (62) shares of the Company’s Series B Preferred Stock issued hereunder having the rights, preferences and privileges set forth in the Certificate of Designation, in the form of Exhibit A hereto.
“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.
“Purchaser Party” shall have the meaning ascribed to such term in Section 4.7.
“Registration Statement” means any Registration Statement under which the shares of the Company’s common stock is registered.
“Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).
| 2 |
“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(g).
“Securities” means the Preferred Stock and the Conversion Shares.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock).
“Stated Value” means $1,200 per share of Series B Preferred Stock.
“Subscription Amount” shall mean the aggregate amount to be paid for the Preferred Stock purchased hereunder as specified on the signature page under the heading “Subscription Amount,” in United States dollars and in immediately available funds.
“Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a) and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.
“Trading Day” means a day on which the principal Trading Market is open for trading.
“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, the OTCQB or the OTC Markets (or any successors to any of the foregoing).
“Transaction Documents” means this Agreement, the Certificate of Designation, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.
“Transfer Agent” means Issuer Direct, the current transfer agent of the Company, with a mailing address of 1981 East 4800 South, Suite 100, Salt Lake City, UT 84117, and any successor transfer agent of the Company.
ARTICLE II.
PURCHASE AND SALE
2.1 (a) Closing. Upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchaser agrees to purchase, sixty-two (62) shares of Preferred Stock at price of $1,000 per share of Preferred Stock (the “Purchased Shares”). The Purchaser shall deliver to the Company, via wire transfer immediately available funds equal to the Purchaser’s Subscription Amount as set forth on the signature page hereto executed by the Purchaser, and the Company shall deliver to the Purchaser such number of shares of the Preferred Stock purchased, as determined pursuant to Section 2.2(a) and the Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of Company Counsel or such other location as the parties shall mutually agree.
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2.2 Deliveries.
(a) On or prior to the Closing Date (or as otherwise indicated below), the Company shall deliver or cause to be delivered to the Purchaser the following:
(i) This Agreement duly executed by the Company;
(ii) Certificates evidencing sixty two (62) shares of Preferred Stock, representing the Purchased Shares; and
(iii) An irrevocable letter of instruction to the Company's Transfer Agent, instructing the Transfer Agent to maintain for the benefit of the Purchaser, One Hundred and Sixteen Million Two Hundred Fifty Thousand (116,250,000) shares of its common stock and at all times thereafter two times (2x) the number of common shares needed to by the Purchaser to convert all shares of Preferred Stock held by the Purchaser.
(b) On or prior to the Closing Date, the Purchaser shall deliver or cause to be delivered to the Company, as applicable, the following:
(i) This Agreement duly executed by the Purchaser; and
(ii) the Purchaser’s Subscription Amount by wire transfer to the account specified in writing by the Company together with the subscription form attached as an Exhibit below.
2.3 Closing Conditions.
(a) The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects on the applicable Closing Date of the representations and warranties of the Purchaser contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);
(ii) all obligations, covenants and agreements of the Purchaser required to be performed at or prior to the applicable Closing Date shall have been performed; and
(iii) the delivery by the Purchaser of the items set forth in Section 2.2(b) of this Agreement.
(b) The obligations of the Purchaser hereunder in connection with the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects when made and on the applicable Closing Date of the representations and warranties of the Company contained herein (unless as of a specific date therein);
(ii) all obligations, covenants and agreements of the Company required to be performed at or prior to the applicable Closing Date shall have been performed;
(iii) the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and
(v) from the date hereof to the applicable Closing Date, trading in the Common Stock shall not have been suspended by the Commission or the Company’s principal Trading Market and, at any time prior to the applicable Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of the Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing.
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2.4 Post-Closing Covenants. Within sixty (60) days of Closing, the Company shall file an amendment to its Articles of Incorporation to increase the authorized shares of Common Stock to at least three billion (3,000,000,000) shares and, upon the filing of the Articles of Amendment, the Company shall reserve two times (2x) the number of common shares needed to by the Purchaser to convert all shares of Preferred Stock held by the Purchaser.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1Representations and Warranties of the Company. Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to the Purchaser as of the date hereof, the date of the initial Closing pursuant to Section 2.1(a):
(a) Subsidiaries. All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a). The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities. If the Company has no subsidiaries, all other references to the Subsidiaries or any of them in the Transaction Documents shall be disregarded.
(b) Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection herewith or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
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(d) No Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company has timely filed all quarterly and annual reports required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “1934 Act”) (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits to such documents) incorporated by reference therein, being hereinafter referred to herein as the “SEC Documents”). The Company has delivered to Purchaser true and complete copies of the SEC Documents, except for such exhibits and incorporated documents, and except as such Documents are available EDGAR filings on the SEC’s sec.gov website. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the statements made in any such SEC Documents is, or has been, required to be amended or updated under applicable law (except for such statements as have been amended or updated in subsequent filings prior the date hereof). As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied, during the periods involved and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth in the financial statements of the Company included in the SEC Documents, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to March 31, 2023, and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such financial statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company. The Company is subject to the reporting requirements of the 1934 Act. For the avoidance of doubt, filing of the documents required in this Section 3(g) via the SEC’s Electronic Data Gathering, Analysis, and Retrieval system (“EDGAR”) shall satisfy all delivery requirements of this Section 3(g).
The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.4 of this Agreement, (ii) the notice and/or application(s) to each applicable Trading Market for the issuance and sale of the Securities, and (iii) such filings as are required to be made under applicable state and federal securities laws (collectively, the “Required Approvals”).
(f) Issuance of the Securities. The Preferred Stock is duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Conversion Shares, when issued in accordance with the terms of the Preferred Stock, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. The Company shall reserve from its duly authorized capital stock a number of shares of Common Stock issuable pursuant to the Preferred Stock.
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(g) Capitalization. The capitalization of the Company is as set forth on Schedule 3.1(g), which Schedule 3.1(g) shall also include the number of shares of Common Stock owned beneficially, and of record, by Affiliates of the Company as of the date hereof. Except as set forth on Schedule 3.1(g), the Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act, other than pursuant to the exercise of employee stock options under the Company’s stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company’s employee stock purchase plans and pursuant to the conversion and/or exercise of Common Stock Equivalents outstanding as of the date of the most recently filed periodic report under the Exchange Act (“SEC Reports”). No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as set forth on Schedule 3.1(g) and except as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. The issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.
(h) Intentionally omitted.
(i) Intentionally omitted.
(j) Litigation. Except as disclosed in Schedule 3.1(j), there is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.
(k) Labor Relations. Except as disclosed in Schedule 3.1(k), no labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good. To the knowledge of the Company, no executive officer of the Company or any Subsidiary, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
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(l) Compliance. Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived) except as disclosed in Schedule 3.1(l), (ii) is in violation of any judgment, decree or order of any court, arbitrator or other governmental authority, except as set forth on Schedule 3.1(l) or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, other than tax payments related to payroll that are late, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.
(n) Title to Assets. Except as disclosed in Schedule 3.1(n), the Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and (ii) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance with GAAP and, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance.
(o) Intellectual Property. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights as described in the SEC Reports as necessary or required for use in connection with their respective businesses and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). Except as disclosed on Schedule 3.1(o), none of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this Agreement. Neither the Company nor any Subsidiary has received, since the date of the latest audited financial statements included within the SEC Reports, a written notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as could not have or reasonably be expected to not have a Material Adverse Effect. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(p) [Reserved].
(q) Transactions with Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the Company or any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, providing for the borrowing of money from or lending of money to or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case in excess of $50,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan of the Company. Except as set forth on Schedule 3.1(q), all employee salaries and contractor fees have been paid to date and no such amounts are outstanding or past due.
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(r) Sarbanes-Oxley; Internal Accounting Controls. Except as may be disclosed in the SEC Reports, the Company and the Subsidiaries are in compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated by the Commission thereunder that are effective as of the date hereof and as of each Closing Date. Except as disclosed in the SEC Reports, the Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company and the Subsidiaries have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. The Company’s certifying officers have evaluated the effectiveness of the disclosure controls and procedures of the Company and the Subsidiaries as of the end of the period covered by the most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the internal control over financial reporting (as such term is defined in the Exchange Act) of the Company and its Subsidiaries that have materially affected, or is reasonably likely to materially affect, the internal control over financial reporting of the Company and its Subsidiaries.
(s) Certain Fees. The Company has or shall engage a suitable Investment Banker in conjunction with the transaction contemplated herein. No brokerage or finder’s fees or commissions are or will be payable by the Company or any Subsidiary to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents, other than as set forth on Schedule 3.1(s). The Purchaser shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.
(t) Private Placement. Assuming the accuracy of the Purchaser’s representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchaser as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.
(u) Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become an “investment company” subject to registration under the Investment Company Act of 1940, as amended.
(v) Registration Rights. Except for Sergey Gogin, a holder of senior secured debt of the Company, no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company or any Subsidiary.
(w) Listing and Maintenance Requirements. The Company has not in the twelve (12) months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements.
(x) [RESERVED]
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(y) Disclosure. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company confirms that neither it nor any other Person acting on its behalf has provided the Purchaser or its agents or counsel with any information that it believes constitutes or might constitute material, non-public information. The Company understands and confirms that the Purchaser will rely on the foregoing representation in effecting transactions in securities of the Company. All of the disclosure furnished by or on behalf of the Company to the Purchaser regarding the Company and its Subsidiaries, their respective businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees that the Purchaser does not make and has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.
(z) No Integrated Offering. Assuming the accuracy of the Purchaser’s representations and warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.
(aa) Tax Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States federal, state and local income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or of any Subsidiary know of no basis for any such claim. Immediately after closing of this transaction, the Company covenants to pay to the Past Due Taxes.
(bb) No General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to the Purchaser.
(cc) Foreign Corrupt Practices. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent or other person acting on behalf of the Company or any Subsidiary, has: (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any person acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect any provision of FCPA.
(dd) Accountants. The Company’s accounting firm is set forth on Schedule 3.1(dd) of the Disclosure Schedules. To the knowledge and belief of the Company, such accounting firm: (i) is a registered public accounting firm as required by the Exchange Act and (ii) shall express its opinion with respect to the financial statements to be included in the Company’s Annual Report for the fiscal year ending December 31, 2023.
(ee) Acknowledgment Regarding Purchaser’s Purchase of Securities. The Company acknowledges and agrees that the Purchaser is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that the Purchaser is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by the Purchaser or any of its representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchaser’s purchase of the Securities. The Company further represents to the Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.
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(ff) Acknowledgment Regarding Purchaser’s Trading Activity. Anything in this Agreement or elsewhere herein to the contrary notwithstanding, it is understood and acknowledged by the Company that: (i) the Purchaser has not been asked by the Company to agree, nor has the Purchaser agreed, to desist from purchasing or selling, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term, (ii) past or future open market or other transactions by the Purchaser, specifically including, without limitation, “derivative” transactions, before or after a closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities (iii) Omit and (iv) the Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction. The Company further understands and acknowledges that (y) the Purchaser may engage in hedging activities at various times during the period that the Securities are outstanding, and (z) such hedging activities (if any) could reduce the value of the existing stockholders’ equity interests in the Company at and after the time that the hedging activities are being conducted. The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents.
(gg) Regulation M Compliance. The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Company’s placement agent in connection with the placement of the Securities.
(hh) Reserved.
(ii) Stock Option Plans. Each stock option granted by the Company under the Company’s stock option plan was granted (i) in accordance with the terms of the Company’s stock option plan and (ii) with an exercise price at least equal to the fair market value of the Common Stock on the date such stock option would be considered granted under GAAP and applicable law. No stock option granted under the Company’s stock option plan has been backdated. The Company has not knowingly granted, and there is no and has been no Company policy or practice to knowingly grant, stock options prior to, or otherwise knowingly coordinate the grant of stock options with, the release or other public announcement of material information regarding the Company or its Subsidiaries or their financial results or prospects.
(jj) Office of Foreign Assets Control. Neither the Company nor any Subsidiary nor, to the Company's knowledge, any director, officer, agent, employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”).
(kk) U.S. Real Property Holding Corporation. The Company is not and has never been a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon Purchaser’s request.
(ll) Bank Holding Company Act. Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Neither the Company nor any of its Subsidiaries or Affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries or Affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.
(mm) Money Laundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or any Subsidiary, threatened.
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3.2Representations and Warranties of the Purchaser. The Purchaser hereby represents and warrants as of the date hereof and as of the initial and any additional Closing Date to the Company as follows (unless as of a specific date therein):
(a)Organization; Authority. The Purchaser is either an individual or an entity duly incorporated or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability company or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by the Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of the Purchaser. Each Transaction Document to which it is a party has been duly executed by the Purchaser, and when delivered by the Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of the Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(b)Own Account. The Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities law (this representation and warranty not limiting the Purchaser’s right to sell the Securities pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws).
(c)Purchaser Status. At the time the Purchaser was offered the Securities, it was, and as of the date hereof it is and on each date on which it converts any shares of Preferred Stock, either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act.
(d)Experience of the Purchaser. The Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. The Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.
(e) General Solicitation. The Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.
The Company acknowledges and agrees that the representations contained in Section 3.2 shall not modify, amend or affect the Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transaction contemplated hereby.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with state and federal securities laws. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights and obligations of the Purchaser under this Agreement.
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(b) The Purchaser agrees to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following form:
THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that the Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and, if required under the terms of such arrangement, the Purchaser may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities, including, if the Securities are registered under a registration statement, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of selling stockholders thereunder.
(c) Certificates evidencing the Conversion Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i) while a registration statement covering the resale of such security is effective under the Securities Act, (ii) following any sale of such Conversion Shares pursuant to Rule 144, (iii) if such Conversion Shares are eligible for sale under Rule 144 without volume or manner-of-sale restrictions, or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). If all or any shares of Preferred Stock are converted at a time when there is an effective registration statement to cover the resale of the Conversion Shares, or if such Conversion Shares may be sold under Rule 144 and the Company is then in compliance with the current public information required under Rule 144, or if the Conversion Shares may be sold under Rule 144 without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Conversion Shares and without volume or manner-of-sale restrictions or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Conversion Shares shall be issued free of all legends. The Company agrees that following the Effective Date or at such time as such legend is no longer required under this Section 4.1(c), it will, no later than the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) following the delivery by a Purchaser to the Company or the Transfer Agent of a certificate representing Conversion Shares, issued with a restrictive legend (such date, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate representing such shares that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 4. Certificates for Conversion Shares subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of a certificate representing Conversion Shares, issued with a restrictive legend.
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(d) In addition to such Purchaser’s other available remedies, (i) the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, for each $1,000 of the value of the Conversion shares for which the Preferred Stock is being converted, $10 per Trading Day for each Trading Day after the Legend Removal Date (increasing to $20 per Trading Day after the fifth Trading Day) until such certificate is delivered without a legend. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Company’s failure to deliver certificates representing any Securities as required by the Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief, and (ii) if after the Legend Removal Date such Purchaser purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Purchaser of all or any portion of the number of shares of Common Stock, or a sale of a number of shares of Common Stock equal to all or any portion of the number of shares of Common Stock that such Purchaser anticipated receiving from the Company without any restrictive legend, then, the Company shall pay to such Purchaser, in cash, an amount equal to the excess of such Purchaser’s total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased (including brokerage commissions and other out-of-pocket expenses, if any) (the “Buy-In Price”) over the product of the highest closing sale price of the Common Stock on any Trading Day during the period commencing on the date of the delivery by such Purchaser to the Company of the applicable Preferred Stock and ending on the date of such delivery and payment under this Section 4.1(d).
(e) In the event a Purchaser shall request delivery of unlegended shares as described in this Section 4.1 and the Company is required to deliver such unlegended shares, (i) it shall pay all fees and expenses associated with or required by the legend removal and/or transfer including but not limited to legal fees, Transfer Agent fees and overnight delivery charges and taxes, if any, imposed by any applicable government upon the issuance of Common Stock; and (ii) the Company may not refuse to deliver unlegended shares based on any claim that such Purchaser or anyone associated or affiliated with such Purchaser has not complied with Purchaser’s obligations under the Transaction Documents, or for any other reason, unless, an injunction or temporary restraining order from a court, on notice, restraining and or enjoining delivery of such unlegended shares shall have been sought and obtained by the Company and the Company has posted a surety bond for the benefit of such Purchaser in the amount of the greater of (i) 150% of the amount of the aggregate purchase price of the Conversion Shares which is subject to the injunction or temporary restraining order, or (ii) the VWAP of the Common Stock on the Trading Day before the issue date of the injunction multiplied by the number of unlegended shares to be subject to the injunction, which bond shall remain in effect until the completion of the litigation of the dispute and the proceeds of which shall be payable to such Purchaser to the extent Purchaser obtains judgment in Purchaser’s favor.
4.2Acknowledgment of Dilution of Voting Power. The Company acknowledges that the issuance of the Securities will result in dilution of the voting power of the outstanding shares of Common Stock, which dilution will be substantial.
4.3Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market such that it would require shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction.
4.4Securities Laws Disclosure; Publicity. The Company shall file a Current Report on Form 8-K disclosing the material terms of the transactions contemplated hereby, including the Transaction Documents as exhibits thereto, with the Commission within the time required by the Exchange Act. From and after the issuance of such report, the Company represents to the Purchasers that it shall have publicly disclosed all material, non-public information delivered to the Purchaser by the Company or any of its Subsidiaries, or any of their respective officers, directors, employees or agents in connection with the transactions contemplated by the Transaction Documents. In addition, effective upon the issuance of such report, the Company acknowledges and agrees that any and all confidentiality or similar obligations under any agreement, whether written or oral, between the Company, any of its Subsidiaries or any of their respective officers, directors, agents, employees or Affiliates on the one hand, and the Purchaser or any of its Affiliates on the other hand, shall terminate. The Company and the Purchaser shall consult with each other in issuing any press release or public disclosure with respect to the transactions contemplated by the Transaction Documents, and neither the Company nor the Purchaser shall issue any such press release nor otherwise make any such public statement without the prior consent of the Company, with respect to any press release of the Purchaser, or without the prior consent of the Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name of the Purchaser, or include the name of the Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of the Purchaser, except: (a) as required by federal securities law in connection with the filing of final Transaction Documents with the Commission and (b) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchaser with prior notice of such disclosure permitted under this clause (b).
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4.5Shareholder Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that the Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that the Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchaser.
4.6 Non-Public Information. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company covenants and agrees that neither it, nor any other Person acting on its behalf, will provide the Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto the Purchaser shall have entered into a written agreement with the Company regarding the confidentiality and use of such information. The Company understands and confirms that the Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.
4.7Indemnification of Purchaser. Subject to the provisions of this Section 4.7, the Company will indemnify and hold the Purchaser and their respective directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls the Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling persons (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against the Purchaser Parties in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser Party, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser Party’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser Party may have with any such stockholder or any violations by such Purchaser Party of state or federal securities laws or any conduct by such Purchaser Party which constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or such defense once started is subsequently delayed owing to lack of timely payment by the Company of legal fees and expenses or (iii) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents. The indemnification required by this Section 4.7 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or are incurred. The indemnity agreements contained herein shall be in addition to any cause of action or similar right of any Purchaser Party against the Company or others and any liabilities the Company may be subject to pursuant to law.
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4.8Certain Transactions and Confidentiality. The Purchaser, covenants that neither it, nor any Affiliate acting on its behalf or pursuant to any understanding with it will (i) execute any Short Sales, of any of the Company’s securities during the period commencing with the execution of this Agreement and ending at such time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.4 or (ii) from the date hereof until the earlier of the 12 month anniversary of the date hereof and the date that the Preferred Stock is no longer outstanding, execute any Short Sales of the Common Stock (a “Prohibited Short Sale”). The Purchaser covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company pursuant to Section 4.4, the Purchaser will maintain the confidentiality of the existence and terms of this transaction and the information included in the Transaction Documents and the Disclosure Schedules. Notwithstanding the foregoing, and notwithstanding anything contained in this Agreement to the contrary, the Company expressly acknowledges and agrees that (i) the Purchaser does not make any representation, warranty or covenant hereby that it will not engage in effecting transactions in any securities of the Company after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to Section 4.4, (ii) except for a Prohibited Short Sale, the Purchaser shall not be restricted or prohibited from effecting any transactions in any securities of the Company in accordance with applicable securities laws from and after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to Section 4.4 and (iii) the Purchaser shall have no duty of confidentiality to the Company or its Subsidiaries after the issuance of the public disclosure as described in Section 4.4.
4.9 Form D; Blue Sky Filings. The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof, promptly upon request of the Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchaser under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of the Purchaser.
4.10Redemption.
The Company shall have the right to redeem the Securities, in accordance with the terms of the Certificate of Designation.
4.11Dividends The Company shall pay a dividend of twelve percent (12%) per annum on any purchased Preferred Shares, for as long as the relevant Preferred Shares have not been redeemed or converted. Dividends shall be paid quarterly, and at the Company’s discretion, in cash or Preferred Stock calculated at the purchase price.
4.12Registration RightsThe Purchased Shares shall carry registration rights as described in the Certificate of Designation.
4.13Event of Default Following any Event of Default, all outstanding Purchased Shares shall come immediately due for redemption and the redemption amount shall accrue interest at the lesser of (a) 18% per annum or (b) the maximum legal rate. Redemption following an Event of Default shall occur at an amount equaling the product of one hundred and thirty five percent (135%), multiplied by the sum of the Stated Value, all accrued but unpaid dividends and all other amounts due pursuant to the Certificate of Designation for all Purchased Shares.
4.14Conversion Procedures. The form of Notice of Conversion included in the Preferred Stock sets forth the totality of the procedures required of the Purchaser in order to convert the Preferred Stock. No additional legal opinion, other information or instructions shall be required of the Purchaser to convert their Preferred Stock. Without limiting the preceding sentences, no ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required in order to convert the Preferred Stock. The Company shall honor conversion of the Preferred Stock and shall deliver Conversion Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.
4.14 DTC Program. For so long as the Preferred Stock is outstanding, the Company will employ as the Transfer Agent for the Common Stock a participant in the DTC Automated Securities Transfer Program and cause the Common Stock to be transferable pursuant to such program.
4.15 Most Favored Nations. From the date hereof until the date when the Purchaser no longer holds any Securities, upon any issuance by the Company or any of its subsidiaries of Common Stock, Common Stock Equivalents for cash consideration, indebtedness or a combination of units hereof (a “Subsequent Financing”), Purchaser may elect, in its sole discretion, to exchange (in lieu of conversion), if applicable, all or some of the Securities then held for any securities or units issued in a Subsequent Financing on a $1.00 for $1.00 basis. The Company shall provide the Purchaser with notice of any such Subsequent Financing in the manner set forth below. Additionally, if in such Subsequent Financing there are any contractual provisions or side letters that provide terms more favorable to the investors than the terms provided for hereunder, then the Company shall specifically notify the Purchaser of such additional or more favorable terms and such terms, at Purchaser’s option, shall become a part of the transaction documents with the Purchaser. The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms addressing stock sale price, price per share, and warrant coverage.
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ARTICLE V.
MISCELLANEOUS
5.1Termination. This Agreement may be terminated by the Purchaser, as to the Purchaser’s obligations hereunder, if the Closing has not been consummated within five (5) Business Days of the date hereof; provided, however, that such termination will not affect the right of any party to sue for any breach by any other party (or parties).
5.2Fees and Expenses. At the Closing, the Company has agreed to reimburse the Purchaser $2,000 for its legal fees in connection with the transaction contemplated by the Transaction Documents, which such amount may be withheld from the Purchaser’s Subscription Amount deliverable at Closing. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all Transfer Agent fees (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the Company), stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchaser.
5.3Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.
5.4Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.
5.5Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the holders of at least 75% in interest of the Securities then outstanding or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.
5.6Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.
5.7Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Purchaser (other than by merger). The Purchaser may assign any or all of its rights under this Agreement to any Person to whom the Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchaser.”
5.8No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.7 and this Section 5.8.
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5.9Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of Nevada, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state or federal courts sitting in the Borough of Manhattan, New York, New York Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the Borough of Manhattan, New York, New York for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If either party shall commence an action, suit or proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company under Section 4.7, the prevailing party in such action, suit or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.
5.10Survival. The representations and warranties contained herein shall survive each Closing and the delivery of the Securities.
5.11Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.
5.12Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
5.13Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then the Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.
5.14Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.
5.15Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, the Purchaser and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.
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5.16Payment Set Aside. To the extent that the Company makes a payment or payments to the Purchaser pursuant to any Transaction Document or the Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.
5.17Liquidated Damages. The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.
5.18Saturdays, Sundays, Holidays, etc.If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.
5.19Construction. The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.
5.20WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.
(Signature Pages Follow)
| 19 |
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
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IIOT-OXYS, INC.
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Address for Notice: 705 Cambridge St. Cambridge, MA 02141 |
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By: /s Clifford L. Emmons Name: Clifford L. Emmons Title: Chief Executive Officer
With a copy to (which shall not constitute notice): |
|
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Attn: Brian Higley, Esq. Email: brian@businesslegaladvisor.com
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[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
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[PURCHASER SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser:
Signature of Authorized Signatory of Purchaser: /s/ Mark Grober
Name of Authorized Signatory: Mark Grober
Title of Authorized Signatory: Member
Address for Notice to Purchaser:
420 Jericho Turnpike,
Suite 102
Jericho, NY 11753
Address for Delivery of Securities to Purchaser (if not same as address for notice):
Book entry please
Facsimile Number: (212) 574-2236
Subscription Amount: $62,000
Subscription Date: 8/29/2023
Shares of Series B Preferred Stock: 62
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Exhibit A
Certificate of Designation
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[list of Disclosure Schedules: content to be provided by Company]:
(please read each section for specific content, topic below listed for convenience only)
Schedule 3.1(a) - subsidiaries
Schedule 3.1(g) - capitalization
Schedule 3.1(j) - litigation
Schedule 3.1(k) - labor disputes
Schedule 3.1(l) - compliance
Schedule 3.1(n) - title to assets
Schedule 3.1(o) -intellectual property
Schedule 3.1(p) - insurance
Schedule 3.1(s) – certain fees
Schedule 3.1(aa) - tax status
Schedule 3.1(dd) - accountants
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FORM OF CLOSING NOTICE
TO:
DATE: _________________
We refer to the Securities Purchase Agreement, dated August 24, 2023 (the “Agreement”), entered into by and between IIOT-OXYS, Inc., and you. Capitalized terms defined in the Agreement shall, unless otherwise defined herein, have the same meaning when used herein.
We hereby:
1)Give you notice that we require you to purchase 62 shares of Series B Preferred Stock; and
2)The purchase price per share, pursuant to the terms of the Agreement, is $1,000; and
3)Certify that, as of the date hereof, the conditions set forth in Section 2.3 of the Agreement, as related to the obligations of the Company, are satisfied.
Closing will occur in accordance with the terms and conditions of Section 2 of the Agreement.
IIOT-OXYS, INC.
By: ______________________________
Name: Clifford L. Emmons
Title: Chief Executive Officer
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Schedule 3.1(a)
As of the date hereof, IIOT-OXYS, Inc., a Nevada corporation, has the following material wholly owned subsidiaries:
| 1. OXYS Corporation, a Nevada corporation |
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Schedule 3.1(g)
As of the date hereof, IIOT-OXYS, Inc., a Nevada corporation, has the following capitalization:
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Schedule 3.1(p)
| 27 |
Schedule 3.1(dd)
Haynie & Company
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Exhibit 31.1
CERTIFICATIONS
I, Clifford L. Emmons, certify that:
| 1. | I have reviewed this Form 10-Q quarterly report of IIOT-OXYS, Inc. for the quarter ended September 30, 2023; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
| |
| b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
| |
| c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
| |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
| |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 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-Q quarterly report of IIOT-OXYS, Inc. for the quarter ended September 30, 2023; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
| |
| b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
| |
| c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
| |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
| |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 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 quarterly report of IIOT-OXYS, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2023, as filed with the Securities and Exchange Commission (the “Report”), the undersigned principal executive and principal financial officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: November 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 quarterly report of IIOT-OXYS, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2023, as filed with the Securities and Exchange Commission (the “Report”), the undersigned principal executive and principal financial officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: November 13, 2023 | |||
| /s/ Karen McNemar | |||
| Karen McNemar, Interim Chief Financial Officer | |||
| (Principal Financial and Accounting Officer) | |||