IIOT-OXYS, Inc 10-Q for FY2021 Q2
IIOT-OXYS, Inc. (ITOX)
About this 10-Q
IIOT-OXYS, Inc filed this 10-Q on August 13, 2021, covering the quarter ended June 30, 2021 (FY2021 Q2).
Headline figures
Quarter ended June 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $0
- compared with $26.17K a year earlier
- Net loss
- $286.2K
- compared with a net loss of $384.67K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the quarterly period ended |
Or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the transition period from _______________________to___________________________ |
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Not applicable | Not applicable | Not applicable |
Indicate by check mark whether the registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports).
Indicate by check mark whether the registrant has been subject to such filing requirements for the past 90 days.
Yes x No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| x | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
The number of shares outstanding of the registrant’s common stock on August 12, 2021, was .
TABLE OF CONTENTS
Introductory Comment
Unless otherwise indicated, any reference to “the Company”, “our company”, “we”, “us”, or “our” refers to IIOT-OXYS, Inc., a Nevada corporation, and as applicable to its wholly owned subsidiaries, OXYS Corporation, a Nevada corporation, and HereLab, Inc., a Delaware corporation.
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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
IIOT-OXYS, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
| June 30, 2021 | December 31, 2020 | |||||||
| ASSETS | (Unaudited) | |||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Intangible assets, net | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Deferred revenue | ||||||||
| Notes payable, current portion, net of debt discounts of $ | ||||||||
| Shares payable to related parties | ||||||||
| Salaries payable to related parties | ||||||||
| Derivative liability | ||||||||
| PPP loan | ||||||||
| Total Current Liabilities | ||||||||
| PPP loan | ||||||||
| Due to stockholders | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies (Note 4) | ||||||||
| Series B Convertible Preferred Stock, shares designated, $0.001 par value, $ stated value; shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively. Liquidation preference $ | ||||||||
| Stockholders' Equity (Deficit) | ||||||||
| Preferred Stock Series A, $ par value, Shares authorized; shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively | ||||||||
| Common Stock $ par value, shares authorized; shares and shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders' Equity (Deficit) | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders' Equity (Deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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IIOT-OXYS, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
| For The Three Months Ended June 30, | For The Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| Bank service charges | ||||||||||||||||
| Office expenses | ||||||||||||||||
| Organization Costs | ||||||||||||||||
| Payroll expense | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Patent license fees | ||||||||||||||||
| Amortization of intangible assets | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Other Income (Expense) | ||||||||||||||||
| Gain (loss) on change in FMV of derivative liability | ( | ) | ( | ) | ||||||||||||
| Gain on extinguishment of debt | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income | ||||||||||||||||
| Total Other Income (Expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net Loss Before Income Taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income tax | ||||||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Convertible Preferred Stock Dividend | ( | ) | ( | ) | ||||||||||||
| Net Loss Attributable to Common Stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net Loss Per Share Attributable to Common Stockholders - Basic and Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted Average Shares Outstanding Attributable to Common Stockholders - Basic and Diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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IIOT-OXYS, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity (Deficit)
(Unaudited)
For the Three Months Ended June 30, 2021
| Preferred Stock | Common Stock | Additional Paid-In | Accumulated | Total Stockholders’ Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance - March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Common stock issued for accrued compensation | – | |||||||||||||||||||||||||||
| Common stock sold for cash | – | |||||||||||||||||||||||||||
| Commission paid for raising capital | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Common stock issued for conversion of convertible note payables | – | |||||||||||||||||||||||||||
| Common stock issued for services | – | |||||||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance - June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
For the Six Months Ended June 30, 2021
| Preferred Stock | Common Stock | Additional Paid-In | Accumulated | Total Stockholders’ Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance - December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Common stock issued for conversion of convertible note payables | – | |||||||||||||||||||||||||||
| Common stock sold for cash | – | |||||||||||||||||||||||||||
| Beneficial conversion feature discount on notes payable | – | – | ||||||||||||||||||||||||||
| Commission paid for raising capital | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Common stock issued for accrued compensation | – | |||||||||||||||||||||||||||
| Common stock issued for services | – | |||||||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance - June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
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IIOT-OXYS, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity (Deficit)
(Unaudited) (Continued)
For the Three Months Ended June 30, 2020
| Preferred Stock | Common Stock | Additional Paid-In | Accumulated | Total Stockholders’ Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance - March 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Common stock issued for conversion of convertible note payable | – | ( | ) | |||||||||||||||||||||||||
| Common stock issued for conversion of detachable warrants | – | ( | ) | |||||||||||||||||||||||||
| Relief of derivative liabilities | – | – | ||||||||||||||||||||||||||
| Beneficial conversion feature discount on note payable | – | – | ||||||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance - June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
For the Six Months Ended June 30, 2020
| Preferred Stock | Common Stock | Additional Paid-In | Accumulated | Total Stockholders’ Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance December 31, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Common stock issued for conversion of convertible note payables | – | |||||||||||||||||||||||||||
| Common stock issued for conversion of detachable warrants | – | ( | ) | |||||||||||||||||||||||||
| Relief of derivative liabilities | – | – | ||||||||||||||||||||||||||
| Warrants issued for default of convertible note payables | – | – | ||||||||||||||||||||||||||
| Changes in FMV of warrants related to convertible note payables | – | – | ( | ) | ||||||||||||||||||||||||
| Beneficial conversion feature discount on note payable | – | – | ||||||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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IIOT-OXYS, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| For The Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Gain on extinguishment of debt | ( | ) | ||||||
| Loss on issuance of default warrants | ||||||||
| Increase in principal due to penalty provision | ||||||||
| Increase in principal due to fees | ||||||||
| Amortization of discount on notes payable | ||||||||
| Amortization of intangible assets | ||||||||
| Changes in Operating Assets and Liabilities | ||||||||
| (Increase) Decrease in: | ||||||||
| Accounts receivable | ||||||||
| Prepaid expense | ( | ) | ( | ) | ||||
| Increase (Decrease) in: | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued liabilities | ( | ) | ||||||
| Derivative liability | ( | ) | ||||||
| Deferred revenue | ||||||||
| Shares payable to related parties | ||||||||
| Salaries payable to related parties | ( | ) | ||||||
| Net Cash Provided by (Used in) Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows From Financing Activities | ||||||||
| Cash received from PPP loan | ||||||||
| Cash received from Convertible Note Payable | ||||||||
| Proceeds from sale of common stock, net of commissions | ||||||||
| Payment for offering costs | ||||||||
| Net Cash Provided By Financing Activities | ||||||||
| Net increase 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 during the period | $ | $ | ||||||
| Income taxes paid during the period | $ | $ | ||||||
| Supplemental Disclosures of Non-Cash Investing and Financing Activities | ||||||||
| Discount on notes payable | $ | $ | ||||||
| Conversion of convertible notes payable and derivative liabilities | $ | $ | ||||||
| Warrant anti-dilution issuance | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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IIOT-OXYS, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2021 and 2020
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS, BASIS OF PRESENTATION AND GOING CONCERN
Unless otherwise indicated, any reference to “the Company”, “our company”, “we”, “us”, or “our” refers to IIOT-OXYS, Inc., a Nevada corporation, and as applicable to its wholly-owned subsidiaries, OXYS Corporation, a Nevada corporation, and HereLab, Inc., a Delaware corporation.
IIOT-OXYS, Inc., a Nevada corporation (the “Company”) was established for the purpose of designing, building, testing, and selling Edge Computing Systems for the Industrial Internet. The Company is currently devoting substantially all its efforts in identifying, developing and marketing engineered products, software and services for applications in the Industrial Internet which involves collecting and processing data collected from a wide variety of industrial systems and machines.
We were incorporated in the state of New Jersey on October 1, 2003 under the name of Creative Beauty Supply Corporation and commenced operations as of January 1, 2004. On November 30, 2007, our Board of Directors approved a plan to dispose of our wholesale and retail beauty supply business. On May 18, 2015, we changed our name to Gotham Capital Holdings. From January 1, 2009 until July 28, 2017, we had no operations. On March 16, 2017, our Board of Directors approved a name change to “IIOT-OXYS, Inc.” and authorized a change of domicile from New Jersey to Nevada.
Impact of COVID-19
During the period ended June 30, 2021, the effects of a new coronavirus (“COVID-19”) and related actions to attempt to control its spread began to impact our business. The impact of COVID-19 on our operating results for the quarter ended June 30, 2021 was limited, in all material respects, due to the government mandated numerous measures, including closures of businesses, limitations on movements of individuals and goods, and the imposition of other restrictive measures, in its efforts to mitigate the spread of COVID-19 within the country.
On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. Governments around the world have mandated, and continue to introduce, orders to slow the transmission of the virus, including but not limited to shelter-in-place orders, quarantines, significant restrictions on travel, as well as work restrictions that prohibit many employees from going to work. Uncertainty with respect to the economic effects of the pandemic has introduced significant volatility in the financial markets.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company. The financial statements and accompanying notes are the representations of the Company’s management, who is responsible for their integrity and objectivity. In the opinion of the Company’s management, the financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.
Going Concern
The accompanying condensed consolidated financial
statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements,
the Company has suffered continuing operating losses, used cash flows in operating activities of $
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Management believes that the Company will be able to achieve a satisfactory level of liquidity to meet the Company’s obligations for the next 12 months by generating cash through additional borrowings and/or sale of equity securities, as needed. However, there can be no assurance that the Company will be able to generate sufficient liquidity to maintain its operations. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following summary of significant accounting policies of the Company is presented to assist in the understanding of the Company’s financial statements. These accounting policies conform to GAAP in all material respects and have been consistently applied in preparing the accompanying condensed consolidated financial statements.
Interim Financial Statements
The accompanying unaudited condensed interim financial statements and related notes have been prepared in accordance with GAAP for interim financial information, and in accordance with the rules and regulations of the United States Securities and Exchange Commission with respect to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2020.
Principles of Consolidation
The condensed consolidated financial statements for June 30, 2021 and 2020, 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 party. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Cash and Cash Equivalents
The Company considers all highly liquid instruments
with maturity of three months or less at the time of issuance to be cash equivalents. The Company reported a cash balance of $
Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are carried at original
invoice amount less an estimate made for doubtful accounts. The Company determines the allowance for doubtful accounts by identifying
potential troubled accounts and by using historical experience and future expectations applied to an aging of accounts. Trade accounts
receivable are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are recorded as income
when received. There was
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Long-Lived Assets
The Company regularly reviews the carrying value and estimated lives of its long-lived assets to determine whether indicators of impairment may exist that warrant adjustments to the carrying value or estimated useful lives. The determinants used for this evaluation include management’s estimate of the asset’s ability to generate positive income from operations and positive cash flow in future periods as well as the strategic significance of the assets to the Company’s business objectives.
Definite-lived intangible assets are amortized on a straight-line basis over the estimated periods benefited and are reviewed when appropriate for possible impairment.
The Company computes earnings (loss) per share in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”), ASC 260, “Earnings per Share”. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible note and preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.
Revenue Recognition
The Company’s revenue is derived primarily from providing services under contractual agreements. The Company recognizes revenue in accordance with ASC Topic No. 606, Revenue from Contracts with Customers (“ASC 606”) which was adopted on January 1, 2018.
According to ASC 606, the Company recognizes revenue based on the following criteria:
| · | Identification of a contract or contracts, with a customer. | |
| · | Identification of the performance obligations in the contract. | |
| · | Determination of contract price. | |
| · | Allocation of transaction price to the performance obligation. | |
| · | Recognition of revenue when, or as, performance obligation is satisfied. |
The Company used a practical expedient available under ASC 606-10-65-1(f)4 that permits it to consider the aggregate effect of all contract modifications that occurred before the beginning of the earliest period presented when identifying satisfied and unsatisfied performance obligations, transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations.
The Company has elected to treat shipping and handling activities as cost of sales. Additionally, the Company has elected to record revenue net of sales and other similar taxes.
Concentration of Credit Risk
Financial instruments that potentially expose
the Company to concentrations of risk consist primarily of cash and cash equivalents which are generally not collateralized. The Company’s
policy is to place its cash and cash equivalents with high quality financial institutions, in order to limit the amount of credit exposure.
Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”), up to $
| 10 |
Fair Value of Financial Instruments and Fair Value Measurements
ASC 820, “Fair Value Measurements and Disclosures”, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s condensed consolidated financial instruments consist of cash and cash equivalents, prepaid expenses, accounts payable, accrued liabilities, notes payable and related parties payable. The Company believes that the recorded values of all the financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Income Taxes”. The asset and liability method provide that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The Company follows the provisions of ASC 740-10, “Accounting for Uncertain Income Tax Positions.” When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
Convertible Debt and Convertible Preferred Stock
When the Company issues convertible debt or convertible preferred stock, it first evaluates the balance sheet classification of the convertible instrument in its entirety to determine whether the instrument should be classified as a liability under ASC 480, Distinguishing Liabilities from Equity, and second whether the conversion feature should be accounted for separately from the host instrument. A conversion feature of a convertible debt instrument or certain convertible preferred stock would be separated from the convertible instrument and classified as a derivative liability if the conversion feature, were it a standalone instrument, meets the definition of an “embedded derivative” in ASC 815, Derivatives and Hedging. Generally, characteristics that require derivative treatment include, among others, when the conversion feature is not indexed to the Company’s equity, as defined in ASC 815-40, or when it must be settled either in cash or by issuing stock that is readily convertible to cash. When a conversion feature meets the definition of an embedded derivative, it would be separated from the host instrument and classified as a derivative liability carried on the consolidated balance sheet at fair value, with any changes in its fair value recognized currently in the consolidated statements of operations.
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If a conversion feature does not meet the conditions to be separated and accounted for as an embedded derivative liability, the Company then determines whether the conversion feature is “beneficial”. A conversion feature would be considered beneficial if the conversion feature is “in the money” when the host instrument is issued or, under certain circumstances, later. If convertible debt contains a beneficial conversion feature (“BCF”), the amount of the amount of the proceeds allocated to the BCF reduces the balance of the convertible debt, creating a discount which is amortized over the debt’s term to interest expense in the consolidated statements of operations.
When a convertible preferred stock contains a BCF, after allocating the proceeds to the BCF, the resulting discount is either amortized over the period beginning when the convertible preferred stock is issued up to the earliest date the conversion feature may be exercised, or if the convertible preferred stock is immediately exercisable, the discount is fully amortized at the date of issuance. The amortization is recorded similar to a dividend.
Convertible debt is accounted for under the ASC 470-20, Debt – Debt with Conversion and Other Options.
Recent Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share calculation in certain areas. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2023, although early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance on its financial statements.
Other accounting standards that have been issued or proposed by FASB and do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
NOTE 3 - INTANGIBLE ASSETS
The Company’s intangible assets comprise
of intellectual property revolving around their field tests, sensor integrations, and board designs. Intangible assets, net of amortization
at June 30, 2021 and December 31, 2020 amounted to $
| Intangible Assets Net of Amortization | ||||||||
| June 30, 2021 | December 31, 2020 | |||||||
| Intangible Assets | $ | $ | ||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| Intangible Assets, net | $ | $ | ||||||
At June 30, 2021 and December 31, 2020,
respectively, the Company determined that
| 12 |
The following table summarizes the Company’s estimated future amortization expense of intangible assets with finite lives as of December 31:
| Schedule of future amortization | ||||
| Amortization expense | ||||
| 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total | $ | |||
NOTE 4 - COMMITMENTS AND CONTINGENCIES
In prior years, the Company entered into consulting agreements with one director, three executive officers, and one engineer of the Company, which include commitments to issue shares of the Company’s common stock from the Company’s Stock Incentive Plans. Two agreements have been terminated and shares have been issued in conjunction with the related separation agreements, but the vested shares related to the remaining consulting agreements with the three executive officers have not yet been issued in full, and therefore, remain a liability. According to the remaining three agreements, shares vested in 2019, shares vested in 2020, shares of common stock have vested as of June 30, 2021, and $ remain unvested as of June 30, 2021. The shares vest annually on the anniversary date of the agreements.
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. The Company has accrued $ and $ in shares payable in conjunction with these agreements as of June 30, 2021 and December 31, 2020, respectively. A summary of these agreements is as follows.
On March 11, 2019, the Company’s Board of Directors approved the Consulting Agreement dated effective June 1, 2018 with its CEO. The term of the agreement is for three years beginning as of the effective date, unless terminated earlier pursuant to the agreement and is automatically renewable for one-year terms upon the consent of the parties. The services to be provided by the CEO pursuant to the agreement are those customary for the position in which the CEO is serving. As of the effective date, the Company shall issue to the CEO an aggregate of shares of the Company’s common stock which vest as follows:
| 1. | 560,000 shares on the first-year anniversary of the effective date; | |
| 2. | 1,000,000 shares on the second-year anniversary of the effective date; and | |
| 3. | 1,500,000 shares on the third-year anniversary of the effective date. |
The shares are issued under the 2019 Stock Incentive Plan. Vesting of the shares is subject to acceleration of vesting upon the occurrence of certain events such as a Change of Control (as defined in the agreement) or the listing of the Company’s common stock on a senior exchange. As of June 30, 2021 and December 31, 2020, shares and shares had vested, respectively.
On June 11, 2020, the Company entered into a Debt
Forgiveness Agreement with the CEO, pursuant to which the CEO forgave $
| 13 |
On March 11, 2019, the Company’s Board of Directors approved the Consulting Agreement dated effective October 1, 2018 with its COO. The term of the agreement is for three years beginning as of the effective date, unless terminated earlier pursuant to the agreement and is automatically renewable for one-year terms upon the consent of the parties. The services to be provided by the COO pursuant to the agreement are those customary for the position in which the COO is serving. As of the effective date, the Company shall issue to the COO an aggregate of shares of the Company’s common stock which vest as follows:
| 1. | 409,000 shares on the first-year anniversary of the effective date; |
| 2. | 800,000 shares on the second-year anniversary of the effective date; and |
| 3. | 1,200,000 shares on the third-year anniversary of the effective date. |
The shares are issued under the 2017 Stock Incentive Plan. Vesting of the shares is subject to acceleration of vesting upon the occurrence of certain events such as a Change of Control (as defined in the agreement) or the listing of the Company’s common stock on a senior exchange. As of June 30, 2021 and December 31, 2020, shares and shares had vested respectively.
On June 11, 2020, the Company entered into a Debt
Forgiveness Agreement with the COO, pursuant to which the COO forgave $
On March 11, 2019, the Company’s Board of Directors approved the Amended and Restated Consulting Agreement dated effective April 1, 2018 with its CTO. The term of the agreement is for three years beginning as of the effective date, unless terminated earlier pursuant to the agreement and is automatically renewable for one-year terms upon the consent of the parties. The services to be provided by the CTO pursuant to the agreement are those customary for the position in which the CTO is serving. As of the effective date, the Company shall issue to the CTO an aggregate of shares of the Company’s common stock which vest as follows:
| 1. | 300,000 shares on the first-year anniversary of the effective date; |
| 2. | 600,000 shares on the second-year anniversary of the effective date; and |
| 3. | 900,000 shares on the third-year anniversary of the effective date. |
On April 1, 2021, the Company and CTO mutually
agreed to terminate the Amended and Restated Consulting Agreement. The Company and CTO agreed to settle for
On June 11, 2020, the Company entered into a Debt
Forgiveness Agreement with the CTO pursuant to which the CTO forgave $
| 14 |
NOTE 5 - CONVERTIBLE NOTES PAYABLE
The following table summarizes the outstanding balance of convertible notes payable, interest and conversion rates as of June 30, 2021 and December 31, 2020, respectively.
| Schedule of convertible note payable | |||||||||
| June 30, 2021 | December 31, 2020 | ||||||||
| A. | Convertible note payable to an investor with interest at 12% per annum, convertible at any time into shares of common stock at $0.01 per share. Interest is payable quarterly with the balance of principal and interest due on maturity on March 1, 2022. 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, 2022. The note is secured by substantially all the assets of the Company. | ||||||||
| C. | Convertible note payable to an investor with interest at 12% per annum. On February 3, 2021, the investor settled the note and accrued interest, in exchange of common stock of the Company. | ||||||||
| D. | Convertible note payable to an investor with interest at 12% per annum. $10,000 of the principal is currently convertible into shares of common stock at $0.01 per share, with remaining principal and interest convertible into shares of common stock at $0.01 per share. Interest is payable quarterly with the balance of principal and interest due on maturity on March 1, 2022. The note is secured by substantially all the assets of the Company. | ||||||||
| E. | Convertible note payable to a related party with interest at 12% per annum, convertible at any time into shares of common stock at $0.00084 per share. Interest is payable quarterly with the balance of principal and interest due on maturity on August 2, 2022. The note is secured by substantially all the assets of the Company. | ||||||||
| F. | Convertible note payable to an investor with interest at 10% per annum, convertible at any time into shares of common stock at $0.01 per share. Principal and interest due on maturity on October 29, 2021. | ||||||||
| G. | Convertible note payable to an investor with interest at 10% per annum, convertible at any time into shares of common stock at $0.0099 per share. Note was issued as payment for future fees to be incurred under the related Equity Financing Agreement. Principal and interest due on maturity on October 29, 2021. | ||||||||
| Less unamortized discount | ( |
) | ( |
) | |||||
| Net balance | |||||||||
| Less current portion | ( |
) | ( |
) | |||||
| $ | $ | ||||||||
| 15 |
A. January 18, 2018 Convertible Note and Warrants (“Note A”)
On January 28, 2021, the noteholder of Note A
agreed to extend the maturity date of the Senior Secured Convertible Promissory Note to
On February 4, 2021, the noteholder A converted
the principal balance of $
The Company amortized the beneficial conversion
feature discount to interest expense of $
The principal balance payable on Note A amounted
to $
B. January 2019 Convertible Note and Warrants (“Note B”)
The Company recorded interest expense of $
C. March 2019 Convertible Note and Warrants (Note C”)
On January 28, 2021, the noteholder of Note C
agreed to extend the maturity date of the Senior Secured Convertible Promissory Note to
On
January 28, 2021, the noteholder of Note C converted the principal balance of $
| 16 |
D. March 2019 Convertible Note and Warrants (“Note D”)
On January 28, 2021, the noteholder of Note D
agreed to extend the maturity date of the Senior Secured Convertible Promissory Note to
E. August 2019 Convertible Note and Warrants (“Note E”)
On
August 2, 2021, the noteholder of Note E agreed to extend the maturity date of the Senior Secured Convertible Promissory Note to August
2, 2022. All other terms and conditions of the Note E remain the same. The Company amortized the debt discount on Note E to interest
expense of $
F. July 2020 Equity Financing Arrangement (“Note F”)
On February 1, 2021, the noteholder of Note F
converted the principal balance of $
G . July 2020 Equity Financing Arrangement (“Note G”)
In connection with entering into the Equity Financing
Agreement, on July 29, 2020, the Company issued to the investor a Convertible Promissory Note in the principal amount of $
The Company recorded interest expense of $
| 17 |
The following table sets forth the computation of basic and diluted net loss per share of common stock for the three months and six months ended June 30, 2021 and 2020:
| Earnings per share | ||||||||
| Three Months ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| 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 | $ | ( | ) | $ | ( | ) | ||
| Six Months ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Net loss attributable to common stockholders (basic) | $ | ( | ) | $ | ( | ) | ||
| Shares used to compute net loss per common share, basic and diluted | ||||||||
| Net loss per share attributable to common stockholders, basic and diluted | $ | ( | ) | $ | ( | ) | ||
Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted-average number of common shares and common share equivalents outstanding for the period. Common stock equivalents are only included when their effect is dilutive. The Company’s potentially dilutive securities which include stock options, convertible debt, convertible preferred stock and common stock warrants have been excluded from the computation of diluted net loss per share as they would be anti-dilutive. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares outstanding due to the Company’s net loss position.
The following outstanding common stock equivalents have been excluded from diluted net loss per common share for the six months ended June 30, 2021 and 2020, respectively, because their inclusion would be anti-dilutive:
| Antidilutive shares | ||||||||
| As of June 30, | ||||||||
| 2021 | 2020 | |||||||
| Warrants to purchase common stock | ||||||||
| Potentially issuable shares related to convertible notes payable | ||||||||
| Potentially issuable vested shares to directors and officers | ||||||||
| Potentially issuable unvested shares to officers | ||||||||
| Potentially issuable vested shares to a consultant | ||||||||
| Potentially issuance unvested shares to a consultant | ||||||||
| Total anti-dilutive common stock equivalents | ||||||||
| 18 |
NOTE 7 - PAYCHECK PROTECTION PROGRAM LOAN
The Company applied for and received funding
from the Payroll Protection Program (the “PPP Loan”) in the amount of $
NOTE 8 - RELATED PARTIES
At June 30, 2021 and December 31, 2020, respectively,
the amount due to two stockholders was $
The Company executed an operating lease to rent
its current office facility from a stockholder on a month-to-month basis at a monthly rent of $250 starting January 1, 2020. The Company
recorded rent expense of $
The Company awarded shares payable to officers
and a director valued at $
NOTE 9 - STOCKHOLDERS' EQUITY
On January 4, 2021, pursuant to the authorization and approval previously provided by the stockholders, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of Nevada to increase its authorized shares of common stock, $ par value per share, from 190,000,000 shares to shares, which filing became effective on January 18, 2021. The Company has authorized shares of $ par value preferred stock.
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
January 28, 2021, the noteholder of Note C converted the principal balance of $
On February 1, 2021, the noteholder of Note F
converted the principal balance of $
| 19 |
On February 4, 2021, the noteholder of Note A
converted the principal balance of $
On February 24, 2021, the Company entered into
a Common Stock Purchase Agreement with an investor pursuant to which the investor agreed to purchase up to $
On April 1, 2021, the Company’s Chief Technology
Officer resigned from his employment with the Company. In settlement of the Company’s total obligations with the officer upon separation,
the Company issued shares of its common stock valued at $
On April 15, 2021, the noteholder of Note A converted
the principal balance of $
On
May 20, 2021, the Company issued to a consultant for services rendered, pursuant to a consulting agreement, shares of common stock
valued at the fair market price on the date of issuance of $
On May 20, 2021, the Company issued to a consultant
for services, pursuant to a consulting agreement, shares of common stock valued at the fair market price on the date of issuance
of $
On June 15, 2021, the Company issued shares of common stock valued at $ to Company’s Chief Executive Officer in satisfaction of accrued shares payable compensation (Note 8).
As a result of all common stock issuances, the Company recorded shares and shares of common stock issued and outstanding at June 30, 2021 and December 31, 2020, respectively.
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 “Plan”). Awards may be made under the Plan for up to shares of common stock of the Company. All of the Company’s employees, officers and directors, as well as consultants and advisors to the Company are eligible to be granted awards under the Plan. No awards can be granted under the 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.
| 20 |
Shares earned and issued related to the consulting agreements are issued under the 2017 Stock Incentive Plan and the 2019 Stock Incentive Plan (Note 4). Vesting of the shares is subject to acceleration of vesting upon the occurrence of certain events such as a Change of Control (as defined in the agreement) or the listing of the Company’s common stock on a senior exchange.
A summary of the status of the Company’s non-vested shares as of June 30, 2021 and 2020, and changes during the six months period then ended, is presented below:
| Summary of non-vested shares | ||||||||
| Non-vested Shares of Common Stock | Weighted Average Fair Value | |||||||
| Balance at December 31, 2019 | $ | |||||||
| Awarded | ||||||||
| Vested | ( | ) | $ | |||||
| Forfeited | ||||||||
| Balance at June 30, 2020 | $ | |||||||
| Balance at December 31, 2020 | $ | |||||||
| Awarded | ||||||||
| Vested | ( | ) | $ | |||||
| Forfeited | ||||||||
| Balance at June 30, 2021 | $ | |||||||
Preferred Stock
Series A Supervoting Convertible Preferred Stock
On July 2, 2020, the Board of Directors of the Company authorized the issuance of shares of preferred stock, $ par value per share, designated as Series A Supervoting Convertible Preferred Stock.
Dividends: Initially, there will be no dividends due or payable on the Series A Supervoting Preferred Stock. Any future terms with respect to dividends shall be determined by the Board consistent with the Company’s Articles of Incorporation.
Liquidation and Redemption Rights: Upon the occurrence of a Liquidation Event (as defined on the Certificate of Designation), 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 Company’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 Company’s (A) common stock, par value $0.001 per share, and any other class or series of capital stock of the Company hereafter created.
Voting Rights:
| A. | If at least one share of Series A Super Voting Preferred Stock is issued and outstanding, then the total aggregate issued shares of Series A Super Voting Preferred Stock at any given time, regardless of their number, shall have voting rights equal to 20 times the sum of: i) the total number of shares of Common stock which are issued and outstanding at the time of voting, plus ii) the total number of shares of all Series of Preferred stocks which are issued and outstanding at the time of voting. |
| 21 |
| 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 did not issue any Series A Supervoting Convertible Preferred Stock during the six months ended June 30, 2021. The Company had 25,845 shares of Series A Supervoting Convertible Preferred Stock issued and outstanding at June 30, 2021 and December 31, 2020, 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 Company shall pay, cumulative dividends of 12% per annum, payable quarterly, beginning on the Original Issuance Date (as defined in the Certificate of Designation) 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 (as defined in the Certificate of Designation), in addition to the payment of dividends pursuant to Section 2(a), each Holder shall be entitled to receive, and the Company 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 Company 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 (as defined in the Certificate of Designation and not in excess of 4.99% conversion limitation). However, as long as any shares of Series B Convertible Preferred Stock are outstanding, the Company 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 of the Certificate of Designation) senior to, or otherwise pari passu with, the Series B Convertible Preferred Stock or, authorize or create any class of stock ranking as to dividends senior to, or otherwise pari passu with, the Series B Convertible Preferred Stock, (c) amend its Articles of Incorporation or other charter documents in any manner that adversely affects any rights of the Holders, (d) increase the number of authorized shares of Series B Convertible Preferred Stock, or (e) enter into any agreement with respect to any of the foregoing.
Liquidation: Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to the Stated Value (as defined in the Certificate of Designation), 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.
| 22 |
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 (as defined in the Certificate of Designation) at the option of the Holder thereof, into that number of shares of common stock (subject to the limitations) determined by dividing the Stated Value of such share of Series B Convertible Preferred Stock by the Conversion Price. The Conversion Price for the Series B Convertible Preferred Stock shall be the amount equal to the lowest traded price for the Company’s common stock for the fifteen (15) Trading Days immediately preceding the date of such conversion. All such foregoing determinations will be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction that proportionately decreases or increases the common stock during such measuring period. Following an event of default, the Conversion price shall equal the lower of : (a) the then applicable Conversion Price; or (b) a price per share equaling 80% of the lowest traded price for the Company’s common stock during the ten (10) trading days preceding the relevant Conversion.
Redemption: The Series B Convertible Preferred Stock may be redeemed by payment of the stated value thereof, with the following premiums based on the time of the redemption.
| · | 115% of the stated value if the redemption takes place within 90 days of issuance; |
| · | 120% of the stated value if the redemption takes place after 90 days and within 120 days of issuance |
| · | 125% of the stated value if the redemption takes place after 120 days and within 180 days of issuance; and |
| · | each share of Preferred Stock is redeemed one year from the day of issuance |
On November 19, 2020, pursuant to the terms of a Securities Purchase Agreement dated November 16, 2020 (the “SPA”), the Company entered into a new preferred equity financing agreement with GHS Investments, LLC (“GHS”) in the amount of up to $600,000. The SPA provides for GHS’s purchase, from time to time, of up to shares of the newly-designated Series B Convertible Preferred Stock. The initial closing under the SPA consisted of 45 shares of Series B Convertible Preferred Stock, stated value $ per share, issued to GHS for an initial purchase price of $45,000, or $1,000 per share. At the Company’s option, and subject to the terms of the SPA and the Certificate of Designation for the Series B Convertible Preferred Stock (the “COD”), additional closings in the amount of 40 shares of Series B Convertible Preferred Stock for a total purchase price of $40,000 may take place at a rate of up to once every 30 days. In connection with the initial closing in the amount of 45 shares of Series B Convertible Preferred Stock, the Company issued an additional 25 shares of Series B Convertible Preferred Stock to GHS as a service fee.
The Company’s ability to conduct additional closings under the SPA is subject to certain conditions, including the following:
| · | The Company’s continued compliance with all covenants and agreements under the SPA and the COD, with no uncured defaults under the Company’s agreements with GHS; |
| · | The continued quotation of the Company’s common stock on the over-the-counter market or another trading market or exchange; |
| · | The average daily dollar trading volume for the Company’s common stock for the 30 trading days preceding each additional closing must be at least $10,000 per day; and |
| · | The closing market price for the Company’s common stock must be at least $0.01 for each of the 30 trading days preceding each additional closing. |
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.
| 23 |
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 (the date of receipt of cash
proceeds of $45,000 issuance), the Company valued the conversion feature of the derivative and recorded an initial derivative liability
of $
On November 19, 2020, at December 31, 2020, March
31, 2021 and June 30, 2021, the Company valued the conversion feature using the Black-Scholes option pricing model with the following
assumptions: conversion exercise prices ranging from $ to $, the closing stock price of the Company's common stock on the
date of valuation ranging from $
On December 16, 2020, pursuant to the terms of
the SPA, GHS purchased an additional 85 shares of Series B Convertible Preferred Stock for gross proceeds of $
On December 16, 2020 (the date of receipt of cash
proceeds of $85,000 issuance), the Company valued the conversion feature of the derivative and recorded an initial derivative liability
of $
On December 16, 2020, December 31, 2020, March
31, 2021 and June 30, 2021, the Company valued the conversion feature using the Black-Scholes option pricing model with the following
assumptions: conversion exercise prices ranging from $ to $, the closing stock price of the Company's common stock on the
date of valuation ranging from $
As a result of receipt of cash proceeds relating
to Series B Convertible Preferred Stock, the Company recorded derivative liability of $
| 24 |
Warrants
A summary of the status of the Company’s warrants as of June 30, 2021 and December 31, 2020, and changes during the three months then ended, is presented below:
| Summary of warrant activity | ||||||||||
| Shares Under Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | ||||||||
| Outstanding at December 31, 2019 | $ | Years | ||||||||
| Issued | Years | |||||||||
| Exercised | ||||||||||
| Expired/Forfeited | ( | ) | ||||||||
| Outstanding at June 30, 2020 | $ | Years | ||||||||
| Outstanding at December 31, 2020 | ||||||||||
| Issued | $ | Years | ||||||||
| Exercised | ||||||||||
| Expired/Forfeited | ||||||||||
| Outstanding at June 30, 2021 | $ | Years | ||||||||
NOTE 10 - SUBSEQUENT EVENTS
Management has evaluated subsequent events through the date of this Report, the date the financial statements were available to be issued, noting the following items that would impact the accounting for events or transactions in the current period or require additional disclosure.
On July 28, 2021, the noteholder of Note A converted the principal balance of $80,000 of its convertible promissory note into 8,000,000 shares of common stock of the Company (Note 5).
On August 2, 2021, an investor purchased 10,200,000 shares of the Company’s common stock pursuant to the Common Stock Purchase Agreement entered on February 24, 2021. Pursuant to the terms of the agreement, the investor agreed to purchase up to $5,000,000 of the Company’s registered Common Stock at $0.015 per share, subject to certain conditions. The Company received cash proceeds of $149,940, net of selling commission of $3,060, upon the sale of common stock.
On August 2, 2021, the noteholder of Note E agreed to extend the maturity date of the Senior Secured Convertible Promissory Note to August 2, 2022 (Note 5). All other terms and conditions of the Note E remain the same.
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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, 2020. 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 unaudited condensed consolidated financial information presented below and the following Management Discussion and Analysis of the Consolidated Financial Condition, Results of Operations, Stockholders’ Equity and Cash Flow for the quarterly periods ended June 30, 2021 and 2020 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” found in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 6, 2021, 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; | |
| · | general market and economic conditions; | |
| · | our ability to maintain and grow our business with our current customers; | |
| · | our ability to meet the volume and service requirements of our customers; | |
| · | industry consolidation, including acquisitions by us or our competitors; | |
| · | capacity utilization and the efficiency of manufacturing operations; | |
| · | success in developing new products; | |
| · | timing of our new product introductions; | |
| · | new product introductions by competitors; | |
| · | the ability of competitors to more fully leverage low-cost geographies for manufacturing or distribution; | |
| · | product pricing, including the impact of currency exchange rates; | |
| · | effectiveness of sales and marketing resources and strategies; | |
| · | adequate manufacturing capacity and supply of components and materials; | |
| · | strategic relationships with our suppliers; | |
| · | product quality and performance; | |
| · | protection of our products and brand by effective use of intellectual property laws; | |
| · | the financial strength of our competitors; | |
| · | the outcome of any future litigation or commercial dispute; | |
| · | barriers to entry imposed by competitors with significant market power in new markets; | |
| · | government actions throughout the world; and | |
| · | our ability to service secured debt, when due. |
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You should not rely on forward-looking statements in this document. This management’s discussion contains forward looking statements that involve risks and uncertainties. We use words such as “anticipates,” “believes,” “plans,” “expects,” “future,” “intends,” and similar expressions to identify these forward-looking statements. Prospective investors should not place undue reliance on these statements, which apply only as of the date of this document. Our actual results could differ materially from those anticipated in these forward-looking statements.
Critical Accounting Policies
The following discussions are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. These financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingencies. We continually evaluate the accounting policies and estimates used to prepare the financial statements. We base our estimates on historical experiences and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management.
Trends and Uncertainties
On July 28, 2017, we closed the reverse acquisition transaction under the Securities Exchange Agreement dated March 16, 2017, as reported in our Current Report on Form 8-K filed with the Commission on August 3, 2017. Following the closing, our business has been that of OXYS, Inc. and HereLab, Inc., our wholly-owned subsidiaries. Our operations have varied significantly following the closing since, prior to that time, we were an inactive shell company.
Impact of COVID-19
During the year 2020, the effects of a new coronavirus (“COVID-19”) and related actions to attempt to control its spread began to impact our business. The impact of COVID-19 on our operating results for the six months ended June 30, 2021 limited our ability to obtain new business, in all material respects, due to the government mandated numerous measures, including closures of businesses, limitations on movements of individuals and goods, and the imposition of other restrictive measures, in its efforts to mitigate the spread of COVID-19 within the country.
On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. Governments around the world have mandated, and continue to introduce, orders to slow the transmission of the virus, including but not limited to shelter-in-place orders, quarantines, significant restrictions on travel, as well as work restrictions that prohibit many employees from going to work. Uncertainty with respect to the economic effects of the pandemic has introduced significant volatility in the financial markets.
Historical Background
We were incorporated in the State of New Jersey on October 1, 2003 under the name of Creative Beauty Supply of New Jersey Corporation, and subsequently changed our name to Gotham Capital Holdings, Inc. on May 18, 2015. We commenced operations in the beauty supply industry as of January 1, 2004. On November 30, 2007, our Board of Directors approved a plan to dispose of our wholesale and retail beauty supply business. From January 1, 2009 until July 28, 2017, we had no operations and were a shell company.
On March 16, 2017, our Board of Directors adopted resolutions, which were approved by shareholders holding a majority of our outstanding shares, to change our name to “IIOT-OXYS, Inc.”, to authorize a change of domicile from New Jersey to Nevada, to authorize a 2017 Stock Awards Plan, and to approve the Securities Exchange Agreement (the “OXYS SEA”) between the Company and OXYS Corporation (“OXYS”), a Nevada corporation incorporated on August 4, 2016.
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.
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On December 14, 2017, we entered into a Share Exchange Agreement (the “HereLab SEA”) with HereLab, Inc., a Delaware corporation (“HereLab”), and HereLab’s two shareholders pursuant to which we would acquire all the issued and outstanding shares of HereLab in exchange for the issuance of 1,650,000 shares of our Common Stock, on a pro rata basis, to HereLab’s two shareholders. The closing of the transaction occurred on January 11, 2018 and HereLab became our wholly-owned subsidiary.
A new management team was put into place in 2018, which constitutes our current management team.
At the present time, we have two, wholly-owned subsidiaries which are OXYS Corporation and HereLab, Inc., through which our operations are conducted.
General Overview
IIOT-OXYS, Inc., a Nevada corporation (the “Company”), and OXYS, were originally established for the purposes of designing, building, testing, and selling Edge Computing systems for the Industrial Internet. Both companies were, and presently are, early-stage technology startups that are largely pre-revenue in their development phase. HereLab is also an early-stage technology development company. The Company received its first revenues in the last quarter of 2017, has continued to realize revenues in 2020, and didn’t realize revenue growth in 2021 once the pandemic hit.
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.
Our customers have issues and they need improvements. We design a system of hardware and software, assemble, install, monitor data and apply our algorithms to help provide the customer insights.
We use off the shelf components, with reconfigurable hardware architecture that adapts to a wide range of customer needs and applications. We use open-source software tools, while still creating proprietary content for customers, thereby reducing software development time and cost. The software works with the hardware to collect data from the equipment or structure that is being monitored.
We focus on developing insights. We develop algorithms that help our customers create insights from vast data streams. The data collected is analyzed and reports are created for the customer. From these insights, the customer can act to improve their process, product or structure.
Results of Operations for the Three Months Ended June 30, 2021 compared to the Three Months Ended June 30, 2020
For the three months ended June 30, 2021, the Company did not earn any revenues. The Company incurred professional fees of $165,341, interest expense of $110,891, payroll expense of $96,598, amortization of intangible assets of $12,341, and other general and administrative expenses (“G&A”) of 6,993, offset by a gain on change in fair market value of derivative liability of $105,961. As a result, the Company incurred a net loss of $286,203 for the three months ended June 30, 2021.
Comparatively, for the three months ended June 30, 2020, the Company earned revenues of $26,171 and incurred related cost of sales of $12,487. The Company incurred professional fees of $244,216, interest expense of $49,434, amortization of intangible assets of $12,341, G&A expenses of $17,037, and a loss on change in fair market value of derivative liability of $75,324. As a result, the Company incurred a net loss of $384,668 for the three months ended June 30, 2020.
Results of Operations for the Six Months Ended June 30, 2021 compared to the Six Months Ended June 30, 2020
For the six months ended June 30, 2021, the Company did not earn any revenues. The Company incurred professional fees of $376,496, interest expense of $232,338, payroll expense of $138,279, amortization of intangible assets of $24,818, and G&A expenses of $14,440, offset by gain on extinguishment of debt of $120,000 and gain on change in the fair market value of derivative liability of $190,661. As a result, the Company incurred a net loss of $475,710 for the six months ended June 30, 2021.
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Comparatively, for the six months ended June 30, 2020, the Company earned revenues of $41,771 and incurred related cost of sales of $21,121. The Company incurred professional fees of $431,337, interest expense of $567,723, amortization of intangible assets of $24,682, other G&A expenses of $32,223, loss on change in the fair market value of derivative liability of $139,232, partially offset by miscellaneous income of $409. As a result, the Company incurred a net loss of $1,174,138 for the six months ended June 30, 2020.
Year over Year (YoY) revenue for the three months ended June 30, 2021 was less than in same period of 2020. This was due to longer than anticipated customer acquisition times. This factor resulted in a challenging quarter relative to generating revenue. Our Annual Report on Form 10-K for the year ended December 31, 2020 disclosed risks of ongoing concerns, and those concerns still exist.
A counterbalance to the revenue headwinds is the achievements we have made.
Year to Date, in 2021
| · | We have entered into a total of four NDAs with two New England Biotech companies, one Biomedical company, and one South American Structural Health Monitoring company. Our customer engagement process consists of several steps, the first being the execution of an NDA, which then allows us to quickly define a problem statement of interest to the client, which then leads to a definition of scope of work for the first contract. We expect these agreements to lead to new business in due time. | |
| · | We have entered into NDAs with two major New England Universities to pursue an NSF grant associated with our Structural Health Monitoring expertise. | |
| · | We have secured significant and supportive funding, which has supported ongoing operations in Q1, Q2, and most recently Q3. | |
| · | We named a new interim CTO, emphasizing our focus on the Artificial Intelligence (AI) and Machine Learning (ML) aspects of our business. The interim CTO successfully completed his term and will continue to provide technical guidance as Advisory Board Chairman. Our CEO, as part of his responsibilities, will assume the duties of CTO until we finalize a successor. | |
| · | We have rebuilt our Advisory Board with two new members, our former CTO who will serve as a technical advisor and overall leader of the Advisory Board, and the second with a strong legal and business background. |
We believe the underlying strengths of the Company are still in place: an experienced leadership team; contributions of our former interim CTO (and now Advisory Board Chairman) leading our technology team, an MIT PhD level Machine Learning Algorithm Engineer; and strong execution on contracts to date. Those completed contracts to date have produced two successful pilot programs: one on manufacturing operations for our Fortune 500 Pharma customer, and a pilot with a full year of data collection and analysis on our structural health monitoring program for a New England state’s DOT. Our continued focus on high potential growth markets (specifically Biotech, Pharma, and Medical Device Operations, as well as Structural Health Monitoring), have yielded numerous prospects for future growth. Furthermore, the strength of our target market, the Industrial Internet of Things (IIoT), continues: Market research shows the worldwide IIoT market in 2020 was $77.3 billion USD and is projected to be $110.6 billion USD by 2025 (7.4% CAGR).[1]
It is anticipated that revenue will be generated in the second half of 2021, yielding YoY revenue growth that will exceed that for the same period of 2020. This is due to the hard work of the past year that has resulted in two successful pilots, in two of our key target industry verticals. We now have data and algorithms to build strong use cases and marketing collateral that can be leveraged to extend contracts with current customers and win additional contracts with new customers in all targeted industry segments. Also, the strength of the Aingura IIoT, S.G. collaboration agreement has bolstered financial stability, added talent breadth and depth, and complimentary industry segment experience. We recently announced our partner, Aingura IIoT, S.L., won an initial contract with ArcelorMittal, the largest steel manufacturer in North America, South America, and Europe and is further evidence of this collaboration’s value. Furthermore, the continued liquidity of our stock has attracted funding opportunities, and access to additional capital has and will enable funding of business development, staff augmentation, and inorganic growth opportunities. Combined with our underlying strengths: experienced leadership; savvy technological talent, and operational execution excellence; we believe these revenue goals are achievable.
[1] https://www.marketsandmarkets.com/pdfdownloadNew.asp?id=129733727
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Liquidity and Capital Resources
At June 30, 2021, the Company reported a cash balance of $80,262, which represents a $22,812 decrease from the $103,074 balance at December 31, 2020. This decrease in cash was primarily the result of cash used in operating activities of $394,722 offset by the cash proceeds received from sale of common stock of $371,910, net of commissions. At June 30, 2020, the Company reported a cash balance of $34,032.
Operating Activities
Net cash used in operating activities for the six months ended June 30, 2021 was $394,722, primarily as a result of our net loss of $486,778, gain on extinguishment of debt of $120,000, beneficial conversion feature discount on notes payable of $360,000, amortization of debt discount of $172,595, amortization of intangible assets of $24,818, and change is operating assets and liabilities of $167 due to increase in prepaid expense of $4,379, accounts payable of $4,437, accrued liabilities of $55,165, shares payable to related parties of $274,790, offset by decrease in derivative liability of $190,661, and salaries payable to related parties of $139,519.
Net cash used in operating activities for the six months ended June 30, 2020 was $56,390, primarily as a result of our net loss of $1,174,138, loss on issuance of default warrants of $163,433, increase in penalty due to penalty provisions of $146,250, increase in principal due to fees of $16,726, amortization of discount on notes payable of $47,490, amortization of intangible assets of $24,682, and change in operating assets and liabilities of $719,167 due to increase in prepaid expense of $325, derivative liability of $299,120, deferred revenues of $46,425, shares payable to related parties of $362,454 and salaries payable to related parties of $12,863, offset by decrease in accounts receivable of $11,760, accounts payable of $420, and accrued liabilities of $12,710.
Investing Activities
Net cash used in investing activities for the six months ended June 30, 2021 and 2020, was $0.
Financing Activities
Net cash provided by financing activities for the six months ended June 30, 2021 was $371,910 consisting of cash proceeds from sale of common stock of $371,910, net of commissions paid of $7,590.
Net cash provided by financing activities for the six months ended June 30, 2020 was $66,210 consisting of cash received from Payroll Protection Program of $36,700 and cash received from convertible note payable of $29,510.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has incurred losses from operations of $486,778 and $1,174,138 for the six months ended June 30, 2021 and 2020, respectively, and has an accumulated deficiency which raises substantial doubt about the Company’s ability to continue as a going concern.
Management believes the Company will continue to incur losses and negative cash flows from operating activities for the foreseeable future and will need additional equity or debt financing to sustain its operations until it can achieve profitability and positive cash flows. Management plans to seek additional debt and/or equity financing for the Company but cannot assure that such financing will be available on acceptable terms. At the Company’s current rate of expenditure, the Company anticipates that it not be able to maintain its current operations for the next twelve months; however, management is proposing to raise any necessary additional funds not provided by operations through loans or through additional sales of equity securities. There is no assurance that the Company will be successful in raising this additional capital or in achieving profitable operations.
The Company’s continuation as a going concern is dependent upon its ability to ultimately attain profitable operations, generate sufficient cash flow to meet its obligations, and obtain additional financing as may be required. Our auditors have included a going concern qualification in their auditors’ report dated April 6, 2021. Such a going concern qualification may make it more difficult for us to raise funds when needed. The outcome of this uncertainty cannot be assured.
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The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. There can be no assurance that management will be successful in implementing its business plan or that the successful implementation of such business plan will actually improve the Company’s operating results.
Recently Issued Accounting Standards
Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying financial statements.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity capital expenditures or capital resources.
Emerging Growth Company
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Certain specified reduced reporting and other regulatory requirements that are available to public companies that are emerging growth companies. These provisions include:
| 1. | an exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002; |
| 2. | an exemption from the adoption of new or revised financial accounting standards until they would apply to private companies; |
| 3. | an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about our audit and our financial statements; and |
| 4. | reduced disclosure about our executive compensation arrangements. |
We have elected to take advantage of the exemption from the adoption of new or revised financial accounting standards until they would apply to private companies. As a result of this election, our financial statements may not be comparable to public companies required to adopt these new requirements.
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 principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Mr. Emmons, evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act. Based on his evaluation, Mr. Emmons concluded that the Company’s disclosure controls and procedures were not effective as of June 30, 2021.
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Changes in Internal Control Over Financial Reporting
There has been no change in the Company’s internal control over financial reporting, as defined in Rules 13a-15(f) of the Exchange Act, during the Company’s quarter ended June 30, 2021, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
On June 4, 2021, 1,500,000 shares of our Common Stock vested which were previously awarded to Clifford L. Emmons, our CEO and director, pursuant to his Consulting Agreement, as amended, dated effective June 2018. The shares were issued under our 2019 Stock Incentive Plan.
On May 3, 2021, we issued 500,000 shares of our Common Stock to Thomas Murphy pursuant to his appointment to our Advisory Board.
The securities were issued without registration under the Securities Act of 1933, as amended, by reason of the exemption from registration afforded by the provisions of Section 4(a)(2) thereof, and Rule 506(b) promulgated thereunder, as a transaction by an issuer not involving any public offering. No selling commissions were paid in connection with the issuance of the securities.
Use of Proceeds
On February 11, 2021, our Registration Statement on Form S-1 (File No. 333-252-887) was declared effective by the U.S. Securities and Exchange Commission (the “SEC”) and the offering was commenced upon effectiveness and is still ongoing as all of the 44,500,000 (for gross proceeds of $667,500) offered shares have not been sold and the offering has not been terminated.
During the quarter ended June 30, 2021, we sold a total of 8,900,000 shares of Common Stock for gross proceeds of $133,500. We paid $2,670 in fees to J.H. Darbie & Co., Inc. and received net proceeds of $130,830. The net proceeds were used as follows: $130,830 towards a payment pursuant to the Termination Agreement dated effective March 31, 2021 with Antony Coufal.
Item 6. Exhibits
| SEC Ref. No. | Title of Document |
| 10.1* | Employment Contract dated April 1, 2021 with Chandran Seshagiri |
| 10.2* | Extension No. 1 to Convertible Promissory Note dated April 29, 2021 ($75,000) with GHS Investments LLC |
| 10.3* | Extension No. 1 to Convertible Promissory Note dated April 29, 2021 ($100,000) with GHS Investments LLC |
| 31.1* | Rule 13a-14(a) Certification by Principal Executive and Financial Officer |
| 32.1** | Section 1350 Certification of Principal Executive and Financial Officer |
| 101.INS* | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104* | Cover Page Interactive Data File (formatted in IXBRL, and included in exhibit 101). |
*Filed with this Report.
**Furnished with this Report.
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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: August 13, 2021 | By | /s/ Clifford L. Emmons |
| Clifford L. Emmons, Chief Executive Officer and Interim Chief Financial Officer | ||
| (Principal Executive Officer and Principal | ||
| Financial Officer) | ||
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