10-Q 1 iiot_i10q-093023.htm FORM 10-Q
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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
    For the quarterly period ended September 30, 2023

 

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: 000-50773

 

IIOT-OXYS, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada 56-2415252
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
   
705 Cambridge Street, Cambridge, MA 02141
(Address of principal executive offices) (Zip Code)

 

(401) 307-3092

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to section 12(b) of the Act:

 

Title of Each Class   Trading Symbol(s)   Name of each exchange on which registered
Not applicable   Not applicable   Not applicable

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

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). Yes x No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer Accelerated filer
  Non-accelerated filer x Smaller reporting company x
      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 No x

 

The number of shares outstanding of the registrant’s common stock on November 13, 2023, was 406,815,293.

 

 

 

 

   

 

 

TABLE OF CONTENTS

 

PART I—FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 24
Item 3. Quantitative and Qualitative Disclosures About Market Risk 29
Item 4. Controls and Procedures 29
PART II—OTHER INFORMATION 30
Item 6. exhibits 30

 

 

 

Introductory Comment

 

Unless otherwise indicated, any reference to “the Company”, “our company”, “we”, “us”, or “our” refers to IIOT-OXYS, Inc., a Nevada corporation, and as applicable to its wholly owned subsidiaries, OXYS Corporation, a Nevada corporation, and HereLab, Inc., a Delaware corporation.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 2 

 

 

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

IIOT-OXYS, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

 

           
   September 30   December 31, 2022 
ASSETS   (Unaudited)      
Current Assets          
Cash and cash equivalents  $17,790   $33,336 
Accounts receivable, net   10,920    28,941 
Prepaid expenses and other current assets   17,801    7,773 
Total Current Assets   46,511    70,050 
           
Note receivable, net of discount of $1,911 and $4,716 at September 30, 2023 and December 31, 2022, respectively   198,089    195,284 
Intangible assets, net   211,562    248,585 
Total Assets  $456,162   $513,919 
           
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)          
Current Liabilities          
Accounts payable  $95,300   $133,408 
Accrued liabilities   513,889    395,714 
Deferred revenue   31,425    31,425 
Unearned interest       5,151 
Notes payable - current   359,300    363,167 
Shares payable to related parties   18,494    14,624 
Salaries payable to related parties   420,240    263,516 
Derivative liabilities   566,153    469,873 
Total Current Liabilities   2,004,801    1,676,878 
           
Notes payable   75,000    104,300 
Due to stockholders   1,000    1,000 
Total Liabilities   2,080,801    1,782,178 
           
Commitments and Contingencies (Note 5)        
           
Series B Convertible Preferred Stock, 600 shares designated, $0.001 Par Value, $1,200 stated value; 578 shares and 454 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively. Liquidation preference $619,200 and $544,800 at September 30, 2023 and December 31, 2022, respectively   619,200    544,800 
           
Stockholders' Equity (Deficit)          
Preferred Stock, $0.001 par value, 10,000,000 Shares authorized;         
Series A Preferred Stock, 25,845 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively   26    26 
Common Stock $0.001 Par Value, 3,000,000,000 shares authorized; 406,815,293 shares and 352,174,583 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively   406,816    352,175 
Additional paid in capital   7,180,357    7,141,877 
Accumulated deficit   (9,831,038)   (9,307,137)
Total Stockholders' Equity (Deficit)   (2,243,839)   (1,813,059)
           
Total Liabilities and Stockholders' Equity  $456,162   $513,919 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 3 

 

 

IIOT-OXYS, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

 

                     
   For The Three Months Ended
September 30,
   For The Nine Months Ended
September 30,
 
   2023   2022   2023   2022 
Revenues  $19,714   $23,003   $98,286   $39,503 
                     
Cost of Sales   4,871    5,140    30,330    5,650 
                     
Gross Profit   14,843    17,863    67,956    33,853 
                     
Operating Expenses                    
General and administrative   89,795    158,818    373,734    543,449 
Amortization of intangible assets   12,477    12,477    37,023    37,023 
Total Operating Expenses   102,272    171,295    410,757    580,472 
                     
Other Income (Expense)                    
Gain (Loss) on change in FMV of derivative liability   122,089    125,568    (34,600)   277,424 
Gain (Loss) on derivative   321    (5,504)   321    (207,447)
Interest income   8,205    5,986    19,983    11,647 
Interest expense   (88,477)   (14,913)   (117,001)   (278,605)
Total Other Income (Expense)   42,138    111,137    (131,297)   (196,981)
                     
Net Loss Before Income Taxes   (45,291   (42,295)   (474,098)   (743,600)
                     
Provision for Income Tax                
                     
Net Loss  $(45,291  $(42,295)  $(474,098)  $(743,600)
                     
Convertible Preferred Stock Dividend   (17,383)   (6,909)   (49,803)   (31,617)
                     
Net Loss Attributable to Common Stockholders  $(62,674  $(49,204)  $(523,901)  $(775,217)
                     
Net Loss Per Share Attributable to Common Stockholders - Basic and Diluted  $(0.00   (0.00)   (0.00)  $(0.00)
                     
Weighted Average Shares Outstanding Attributable to Common Stockholders - Basic and Diluted   406,815,293    287,269,793    395,579,178    256,358,480 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

 4 

 

 

IIOT-OXYS, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity (Deficit)

(Unaudited)

 

                                                                 
For the three months ended September 30, 2023
    Preferred Stock    Common Stock    Additional Paid-In    Accumulated    Total Stockholders’ Equity 
    Series A    Series B    Amount    Shares    Amount     Capital     Deficit     (Deficit) 
Balance - June 30, 2023 25,845     $26    406,815,293   $406,816   $7,181,597   $(9,768,364)  $(2,179,925)
Sales commissions paid on Sale of Series B Preferred stock                     (1,240)       (1,240)
Net loss                         (62,674   (62,674
Balance - September 30, 2023 25,845   62  $26    406,815,293   $406,816   $7,180,357   $(9,831,038)  $(2,243,839)

 

For the nine months ended September 30, 2023                               
    Preferred Stock    Common Stock    Additional Paid-In    Accumulated    Total Stockholders’ Equity 
    Series A    Series B    Amount    Shares    Amount    Capital     Deficit    (Deficit) 
Balance - December 31, 2022   25,845     $26    352,174,584   $352,175   $7,141,877   $(9,307,137)  $(1,813,059)
Common stock issued for financing commitments             31,603,364    31,603    22,592        54,195 
Sales commissions paid on capital raise                      (2,324)       (2,324)
Common stock issued for services              250,000    250    575        825 
Common stock issued for conversion of convertible note payable              22,787,345    22,788    17,637        40,425 
Net loss                           (523,901)   (523,901)
Balance - September 30, 2023   25,845   62  $26    406,815,293   $406,816   $7,180,357   $(9,831,038)  $(2,243,839)

 

For the three months ended September 30, 2022
    Preferred Stock    Common Stock    Additional Paid-In    Accumulated    Total Stockholders’ Equity 
    Series A    Series B    Amount    Shares    Amount    Capital     Deficit    (Deficit) 
Balance - June 30, 2022   25,896     $26    280,792,951   $280,793   $7,103,833   $(8,956,269)  $(1,571,617)
Common Stock Issued for Financing Commitments             28,290,472    28,290    60,002        88,292 
Sales commissions paid on capital raise                      (1,766)       (1,766)
Net loss                          (49,204)   (49,204)
Balance - June 30, 2022   25,896     $26    309,083,423   $309,083   $7,162,069   $(9,005,473)  $(1,534,295)

 

For the nine months ended September 30, 2022                               
    Preferred Stock    Common Stock    Additional Paid-In    Accumulated    Total Stockholders’ Equity 
    Series A    Series B    Amount    Shares    Amount    Capital     Deficit    (Deficit) 
Balance - December 31, 2021   25,896     $26    220,254,396   $220,255   $7,059,098   $(8,544,232)  $(1,264,853)
Common Stock Issued for Financing Commitments             77,479,027    77,478    404,179        481,657 
Sales commissions paid on capital raise                     (9,633)       (9,633)
Common Stock Issued for Services             100,000    100    800        900 
Common stock issued for conversion of convertible note payables             11,250,000    11,250    78,750        90,000 
Beneficial Conversion Feature Associated with Discounts                     (371,125)   313,976    (57,149)
Net Loss                         (775,217)   (775,217)
Balance - June 30, 2022   25,896     $26    309,083,423   $309,083   $7,162,069   $(9,005,473)  $(1,534,295)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 5 

 

 

 

IIOT-OXYS, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

 

           
   For the Nine Months Ended September 30, 
   2023   2022 
Cash Flows From Operating Activities          
Net loss  $(523,901)  $(775,217)
Adjustments to reconcile net loss to net cash (used) by operating activities          
Stock compensation expense for services   825    900 
Discount on note receivable   (2,805)   5,661 
Amortization of debt discount on notes payable and preferred stock   12,400    37,400 
Amortization of intangible assets   37,023    37,023 
Changes in Operating Assets and Liabilities          
(Increase) Decrease in:          
Accounts receivable   18,021    (5,100)
Prepaid expenses and other current assets   (10,028)    
Increase (Decrease) in:          
Accounts payable   (38,108)   (1,588)
Accrued liabilities   125,434    80,398 
Derivative liability   96,279    116,023 
Unearned interest   (5,151)   10,192 
Shares payable to related parties   3,870    12,221 
Salaries payable to related parties   156,724    10,526 
Net Cash Used by Operating Activities   (129,417)   (471,561)
           
Cash Flows from Investing Activities          
Cash paid for note receivable       (200,000)
Net Cash used in Investing Activities       (200,000)
           
Cash Flows From Financing Activities          
Cash received from sale of common stock   54,195    481,657 
Cash payments of offering costs   (2,324)   (9,633)
Proceeds from sale of Series B Preferred Stock   62,000    187,000 
Net Cash Provided By Financing Activities   113,871    659,024 
           
Net (Decrease) in Cash and Cash Equivalents   (15,546)   (12,537)
           
Cash and Cash Equivalents - Beginning of Period   33,336    46,821 
           
Cash and Cash Equivalents - End of Period  $17,790   $34,284 
           
Supplement Disclosures of Cash Flow Information          
Interest paid  $   $ 
Income taxes paid  $   $ 
           
Supplemental Disclosures of Non-Cash Investing and Financing Activities          
Conversion of convertible notes payable and derivative liabilities  $40,425   $ 
Effect of adopting ASU-2020-06  $   $57,149 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

 6 

 

 

IIOT-OXYS, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2023 and 2022

(Unaudited)

 

 

NOTE 1 - NATURE OF OPERATIONS, BASIS OF PRESENTATION AND GOING CONCERN

 

Unless otherwise indicated, any reference to “the Company”, “we”, “us”, or “its” refers to IIOT-OXYS, Inc., a Nevada corporation, and as applicable to its wholly-owned subsidiaries, OXYS Corporation, a Nevada corporation, and HereLab, Inc., a Delaware corporation.

 

IIOT-OXYS, Inc., incorporated in Nevada on July 6, 2017, (the “Company”) was established for the purpose of designing, building, testing, and selling Edge Computing Systems for the Industrial Internet. The Company is currently devoting substantially all its efforts in identifying, developing and marketing engineered products, software and services for applications in the Industrial Internet which involves collecting and processing data collected from a wide variety of industrial systems and machines.

 

Impact of COVID-19

 

The global COVID-19 pandemic continues to present uncertainty and unforeseeable risks to the Company’s operations and business plan. The Company has closely monitored recent developments, including the lifting of COVID-19 safety measures, the spread of new strains or variants of the coronavirus (such as the Delta and Omicron variants), and supply chain and labor shortages. Thus, the full impact of the COVID-19 pandemic on the business and operations remains uncertain and will vary depending on the pandemic’s future impact on the third parties with whom the Company does business, as well as any legal or regulatory consequences resulting therefrom. The Company has been following the recommendations of health authorities to minimize exposure risk for its team members and may take further actions that alter our operations, including any required by federal, state or local authorities, or that it determines are in the best interests of its employees and other third parties with whom the Company does business.

 

Basis of Presentation

 

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company. The financial statements and accompanying notes are the representations of the Company’s management, who is responsible for their integrity and objectivity. In the opinion of the Company’s management, the financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.

 

Going Concern

 

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has suffered continuing operating losses, has a working capital deficit of $1,958,290, used cash flows in operating activities of $129,417, and has an accumulated deficit of $9,831,038 as of September 30, 2023. These factors, among others, raise a substantial doubt about the Company’s ability to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations. The accompanying condensed financial statements do not include any adjustments to reflect the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Management believes that the Company will be able to achieve a satisfactory level of liquidity to meet the Company’s obligations for the next twelve months by generating cash through additional borrowings and/or sale of equity securities, as needed. However, there can be no assurance that the Company will be able to generate sufficient liquidity to maintain its operations. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

 

 

 7 

 

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The following summary of significant accounting policies of the Company is presented to assist in the understanding of the Company’s financial statements. These accounting policies conform to GAAP in all material respects and have been consistently applied in preparing the accompanying consolidated financial statements.

 

Interim Financial Statements

 

The accompanying unaudited interim condensed consolidated financial statements and related notes have been prepared in accordance with GAAP for interim financial information, and in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) with respect to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The unaudited interim condensed consolidated financial statements furnished reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2022 filed with the SEC on April 13, 2023.

 

Principles of Consolidation

 

The consolidated condensed financial statements for September 30, 2023 and 2022, respectively, include the accounts of Company, and its wholly-owned subsidiaries OXYS Corporation and HereLab, Inc. All significant intercompany balances and transactions have been eliminated.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of accounts payable, accrued liabilities and payable to related parties. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

 

Basic and Diluted Earnings (Loss) Per Common Share

 

The Company computes earnings (loss) per share in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”), ASC 260, “Earnings per Share”. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible note and preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.

 

 

 

 8 

 

 

Revenue Recognition

 

The Company’s revenue is derived primarily from providing services under contractual agreements. The Company recognizes revenue in accordance with ASC Topic No. 606, Revenue from Contracts with Customers (“ASC 606”) which was adopted on January 1, 2018.

 

According to ASC 606, the Company recognizes revenue based on the following criteria:

 

  · Identification of a contract or contracts, with a customer.
  · Identification of the performance obligations in the contract.
  · Determination of contract price.
  · Allocation of transaction price to the performance obligation.
  · Recognition of revenue when, or as, performance obligation is satisfied.

 

The Company used a practical expedient available under ASC 606-10-65-1(f)4 that permits it to consider the aggregate effect of all contract modifications that occurred before the beginning of the earliest period presented when identifying satisfied and unsatisfied performance obligations, transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations.

 

The Company has elected to treat shipping and handling activities as cost of sales. Additionally, the Company has elected to record revenue net of sales and other similar taxes.

 

Recent Accounting Pronouncements

  

Accounting standards that have been issued or proposed by FASB and do not require adoption until a future date, are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

 

NOTE 3 - NOTE RECEIVABLE

 

On April 4, 2022, the Company was issued an unsecured convertible promissory note with the principal sum of $200,000 (“Note”) with a company incorporated under the laws of the Province of British Columbia. The Note bears an original issuance discount of $7,500 and matures on April 4, 2024. The interest on the Note accrues at the rate of 10% per annum from the date of the Note, and will continue to accrue on the outstanding principal until the entire balance is paid or converted into shares of common stock equal to 3.23% of the fully diluted share capital of the borrower on the conversion date. The terms of the Note require the borrower to prepay (i) within 30 days of April 4, 2022, the first twelve months of interest totaling $20,000, and (ii) within six months of April 4, 2022, the interest for the second twelve months under the Note totaling $20,000. The Company will have the right, at its option on the maturity date, to convert all the principal sum into the common stock equal to 3.23% of the fully diluted share capital of the borrower as of the conversion date. On April 4, 2022, the Company advanced to the borrower $192,500 cash and recorded an original issuance discount on note receivable of $7,500. On April 21, 2022, the Company received $20,000 as prepaid interest from the borrower for the first twelve months of the Note.

 

The Company recorded interest income earned on the Note of $8,205 and $19,983 for the three months and nine months ended September 30, 2023, and $5,986 and $11,647 for the three months and nine months ended September 30, 2022. The Company recorded unearned interest of $0 and $5,151, and unamortized original debt discount of $1,911 and $4,716 at September 30, 2023 and December 31, 2022, respectively.

 

 

 

 9 

 

 

NOTE 4 - INTANGIBLE ASSETS

 

The Company’s intangible assets comprise of intellectual property revolving around their field tests, sensor integrations, and board designs. Intangible assets, net of amortization amounted to $211,562 and $248,585 at September 30, 2023 and December 31, 2022, respectively. 

        
  

September 30,

2023

  

December 31,

2022

 
Intangible Assets  $495,000   $495,000 
Accumulated amortization   (283,438)   (246,415)
Intangible Assets, net  $211,562   $248,585 

 

The Company determined that none of its intangible assets were impaired as of September 30, 2023 and December 31, 2022, respectively. Amortizable intangible assets are amortized using the straight-line method over their estimated useful lives of ten years. Amortization expense of finite-lived intangibles was $12,477 and $12,477 for the three months ended September 30, 2023 and 2022, respectively. Amortization expense of finite-lived intangibles was $37,023 and $37,023 for the nine months ended September 30, 2023 and 2022, respectively.

 

The following table summarizes the Company’s estimated future amortization expense of intangible assets with finite lives as of September 30, 2023: 

    
   Amortization Expense 
2023 (Remainder of the year)  $12,341 
2024   49,500 
2025   49,500 
2026   49,500 
2027   49,500 
Thereafter   1,085 
Total  $211,426 

 

NOTE 5 - COMMITMENTS AND CONTINGENCIES

 

In prior years, the Company entered into consulting agreements with one director, three executive officers, and one engineer of the Company, which included commitments to issue shares of the Company’s common stock from the Company’s 2017 Stock Incentive Plan and 2019 Stock Incentive Plans. All the consulting agreements have been terminated and shares have been issued in conjunction with the related separation agreements. According to the terms of the agreements, 3,547,788 shares were vested and issued per the Company’s 2017 Stock Incentive Plan as of September 30, 2023 and December 31, 2022, and 3,080,000 shares and 2,980,000 shares were vested and issued per the Company’s 2019 Stock Incentive Plan as of September 30, 2023 and December 31, 2022, respectively.

 

In the event that the agreement is terminated by either party pursuant to the terms of the agreement, all unvested shares which have been earned shall vest on a pro-rata basis as of the effective date of the termination of the agreement and all unearned, unvested shares shall be terminated. The value of the shares was assigned at fair market value on the effective date of the agreement and the pro-rata number of shares earned was calculated and amortized at the end of each reporting period.

 

On March 18, 2022, the Company adopted 2022 Stock Incentive Plan and reserved for issuance 20,000,000 shares of common stock for incentivizing its management team.

 

 

 

 10 

 

 

Employment Agreement – CEO/Interim CTO

 

On June 2, 2022, the Board approved an Employment Agreement with the CEO/Interim CTO dated effective April 1, 2022 whereby, the CEO will receive an annual salary of $100,000 which accrues unless converted into shares of common stock of the Company at a stipulated conversion rate. If the Company reaches $1,000,000 in cumulative sales over a 12-month period, the annual salary will increase to $150,000 commencing the following month. If the Company reaches $5,000,000 in cumulative sales over a 12-month period, the annual salary will increase to $200,000 commencing the following month. The Company awarded the CEO an aggregate of 7,000,000 shares of the Company’s common stock under the 2022 Stock Incentive Plan, which will vest (i) 1,500,000 shares on April 1, 2023, (ii) 2,500,000 shares on April 1, 2024, and (iii) 3,000,000 shares on April 1, 2025. The shares are valued at the 90% of the average market price of the shares of 30 trading days at the end of each quarter. As of September 30, 2023, 1,500,000 shares of the common stock were vested and payable to the CEO, and 5,500,000 shares of common stock remain unvested. The Company has recorded $179,151 and $142,424 in salaries payable to the CEO as of September 30, 2023 and December 31, 2022, respectively.

 

Employment Agreement – COO/Interim CFO

 

On June 2, 2022, the Board approved an Employment Agreement with the COO/Interim CFO dated effective April 1, 2022, whereby, the officer will receive an annual salary of $100,000 which accrues unless converted into shares of common stock of the Company at a stipulated conversion rate. If the Company reaches $1,000,000 in cumulative sales over a 12-month period, the annual salary will increase to $150,000 commencing the following month. If the Company reaches $5,000,000 in cumulative sales over a 12-month period, the annual salary will increase to $200,000 commencing the following month. The Company awarded the COO/Interim CFO an aggregate of 7,000,000 shares of the Company common stock under the 2022 Stock Incentive Plan, which will vest (i) 1,500,000 shares on April 1, 2023, (ii) 2,500,000 shares on April 1, 2024, and (iii) 3,000,000 shares on April 1, 2025. The shares are valued at the 90% of the average market price of the shares of 30 trading days at the end of each quarter. As of September 30, 2023, 1,500,000 shares of the common stock were vested and payable to the officer, and 5,500,000 shares of common stock remain unvested The Company recorded $159,821 and $121,092 in salaries payable to the COO/Interim CFO as of September 30, 2023 and December 31, 2022, respectively.

 

NOTE 6 - CONVERTIBLE NOTES PAYABLE

 

The following table summarizes the outstanding balance of convertible notes payable, interest and conversion rates as of September 30, 2023 and December 31, 2022, respectively. 

           
     

September 30,

2023

  

December 31,

2022

 
            
A.  Convertible note payable to an investor with interest at 12% per annum, convertible at any time into shares of common stock at the lowest VWAP of $0.001 per share on September 30, 2023. The balance of principal and accrued and unpaid interest is payable on maturity on March 1, 2024, unless automatically extended for one-year periods if no Event of Default is existing. The note is secured by substantially all the assets of the Company.  $205,000   $205,000 
              
B.  Convertible note payable to an investor with interest at 5% per annum, convertible at any time into shares of common stock at $0.00084 per share. Interest is payable annually with the balance of principal and interest due on maturity on March 1, 2024. The note is secured by substantially all the assets of the Company.   55,000    55,000 

 

 

 

 11 

 

 

D.  Convertible note payable to an investor with interest at 12% per annum, convertible at any time into shares of common stock at the lowest VWAP of $0.001 per share on September 30, 2023. The balance of principal and accrued and unpaid interest is payable on March 1, 2024, unless automatically extended for one-year periods if no Event of Default is existing. The note is secured by substantially all the assets of the Company.   50,000    50,000 
              
E.  Convertible notes payable to a related party with interest at 12% per annum, convertible at any time into shares of common stock at $0.00084 per share. Interest is payable quarterly with the balance of principal and interest due on maturity on August 2, 2024. The notes are secured by substantially all the assets of the Company.   125,000    125,000 
              
F.  Convertible note payable to an investor with interest at 10% per annum, convertible at any time into shares of common stock at $0.0014 per share. Principal and interest due on maturity on April 29, 2023.       33,167 
              
G.  Convertible note payable to an investor with interest at 10% per annum, convertible at any time into shares of common stock at $0.0009 per share. Note was issued as payment for future fees to be incurred under the related Equity Financing Agreement. Principal and interest due on maturity on April 29, 2025.   75,000    75,000 
       510,000    543,167 
   Less: deferred financing costs   (75,700)   (75,700)
   Less unamortized discount        
   Net balance   434,300    467,467 
   Less current portion   (359,300)   (363,167)
   Long term portion  $75,000   $104,300 

 

A. January 18, 2018 Convertible Note and Warrants (“Note A”)

 

On March 14, 2022, the noteholder of Note A agreed to extend the maturity date of March 1, 2022 of the Senior Secured Convertible Promissory Note to March 1, 2023, in exchange for the reduction of the conversion price to $0.008 per share, and all prior Events of Default (as defined in the Note A) including penalties were waived, and all future Events of Default (as defined in the Note A) pertaining to the future payment of interest were waived through maturity. On July 21, 2023, the noteholder of Note A agreed to extend the maturity date to March 1, 2024, and Note A convertible into shares of common stock on September 30, 2023 at the lowest VWAP of $0.001 per share during the look back period, provided:

 

·Upon request of the noteholder of Note A, the Company shall issue twenty thousand dollars ($20,000) worth of common shares (the “1st Incentive Shares) and the price per 1st Incentive Share shall be the Volume-Weighted Average Price (VWAP) per common share of the Company (subject to adjustments) for the previous ten trading days.
·The Company shall use its best efforts to file a registration statement registering the resales of the 1st Incentive Shares within 45 calendar days from the date hereof. The Company shall use is best efforts to have the registration statement declared “effective” within sixty (60) calendar days from its filing. The Company shall use its best efforts to have a registration statement registering the resales of the 1st Incentive Shares remain effective until such time that the noteholder of Note A no longer holds any such 1st Incentive Shares.
·Upon full conversion of the Note A and Note D, the Company shall issue to the holder of Note A fifty thousand dollars ($50,000) worth of common shares (the “2nd Incentive Shares”) and the price per 2nd Incentive Share shall be the VWAP per common share of the Company (subject to adjustments) for the previous ten (10) Trading Days.
·The Company shall use its best efforts to file a registration statement registering the resales of the 2nd Incentive Shares within forty-five (45) calendar days from the date of issuance. The Company shall use is best efforts to have the registration statement declared “effective” within sixty (60) calendar days from its filing. The Company shall use its best efforts to have a registration statement registering the resales of the 2nd Incentive Shares remain effective until such time that the noteholder of Note A no longer holds any such 2nd Incentive Shares.

 

 

 

 12 

 

 

All other terms and conditions of the convertible promissory note remain the same. The noteholder of Note A waives all events of default pertaining to the Note A, known or unknown to the noteholder, by the Company prior to the date hereof. The noteholder also waives all defaults of the transaction documents, known or unknown to the noteholder of Note Aby the Company prior to the date hereof.

 

The Company recorded interest expense of $6,201 and $18,400 for the three months and nine months ended September 30, 2023, and $6,201 and $22,631 for the three months and nine months ended September 30, 2022, respectively. Accrued interest payable on Note A was $178,268 and $159,868 as of September 30, 2023 and December 31, 2022, respectively.

 

The principal balance payable on Note A amounted to $205,000 on September 30, 2023 and December 31, 2022, respectively.

 

B. January 2019 Convertible Note and Warrants (“Note B”)

 

Effective March 1, 2021, the noteholder of Note B agreed to extend the maturity date of March 1, 2021 of the Secured Convertible Promissory Note to March 1, 2024, and all prior Events of Default (as defined in the Note B) including penalties were waived, and all other terms of the Note B remain the same.

 

The Company recorded interest expense of $693 and $2,057 on Note B for the three months and nine months ended September 30, 2023, and $693 and $2,057 for the three months and nine months ended September 30, 2022, respectively. Accrued interest payable on Note B was $12,899 and $10,842 as of September 30, 2023 and December 31, 2022, respectively.

 

The principal balance payable on Note B amounted to $55,000 on September 30, 2023 and December 31, 2022, respectively.

 

D. March 2019 Convertible Note and Warrants (“Note D”)

 

On March 14, 2022, the noteholder of Note D agreed to extend the maturity date of March 1, 2022 of the Senior Secured Convertible Promissory Note to March 1, 2023, in exchange for the reduction of the conversion price to $0.008 per share, and all prior Events of Default (as defined in the Note D) including penalties were waived, and all future Events of Default (as defined in the Note D) pertaining to the future payment of interest were waived through maturity. On July 21, 2023, the noteholder of Note A agreed to extend the maturity of March 1, 2023 date to March 1, 2024 and Note D convertible into shares of common stock on September 30, 2023 at the lowest VWAP of $0.001 per share during the look back period (see Note A above”).

 

The Company recorded interest expense of $1,512 and $4,487 on Note D for the three months and nine months ended September 30, 2023, and $1,512 and $4,487 for the three months and nine months ended September 30, 2022, respectively. Accrued interest payable on Note D was $25,185 and $20,698 as of September 30, 2023 and December 31, 2022, respectively.

 

The principal balance payable on Note D amounted to $50,000 on September 30, 2023 and December 31, 2022, respectively.

 

E. August 2019 Convertible Note and Warrants (“Note E”)

 

On August 2, 2021, the noteholder of Note E agreed to extend the maturity date of the Secured Convertible Promissory Note to August 2, 2024. All other terms and conditions of the Note E remain the same.

 

The Company recorded interest expense of $3,781 and $11,219 on Note E for the three months and nine months ended September 30, 2023, and $3,781 and $11,219 for the three months and nine months ended September 30, 2022, respectively. Accrued interest payable on Note E was $59,909 and $48,690 as of September 30, 2023 and December 31, 2022, respectively.

 

The principal balance payable on Note E amounted to $125,000 on September 30, 2023 and December 31, 2022, respectively.

 

 

 

 13 

 

 

F. July 2020 Equity Financing Arrangement (“Note F”)

 

On April 29, 2022, the noteholder of Note F agreed to extend the maturity date of the Secured Convertible Promissory Note to April 29, 2023. All other terms and conditions of the Note F remain the same. On March 23, 2023, the noteholder of Note F converted the principal balance of its convertible promissory note of $25,814 and $7,186 of accrued interest into 17,837,838 shares of common stock of the Company valued at the fair value of $0.00185 per share. On April 27, 2023, the noteholder of Note F converted the remaining principal balance of $7,353 and accrued interest of $71 into 4,949,507 shares of common stock of the Company valued at the fair value of $0.0015 per share.

 

The Company recorded interest expense of $71 and $828 on Note F for the three months and nine months ended September 30, 2023, and $836 and $2,481 for the three months and nine months ended September 30, 2022, respectively. Accrued interest payable on Note F was $0 and $5,029 as of September 30, 2023 and December 31, 2022, respectively.

 

The principal balance payable on Note F amounted to $0 and $33,167 on September 30, 2023 and December 31, 2022, respectively.

 

G . July 2020 Equity Financing Arrangement (“Note G”)

 

On April 29, 2022, the noteholder of Note G agreed to extend the maturity date of the Secured Convertible Promissory Note to April 29, 2023. On May 1, 2023, the noteholder of Note G agreed to extend the maturity date of the Secured Convertible Promissory Note to April 29, 2025. All other terms and conditions of the Note G remain the same.

 

The Company recorded interest expense of $1,890 and $5,609 on Note G for the three months and nine months ended September 30, 2023, and $1,890 and $5,610 for the three months and nine months ended September 30, 2022, respectively. Accrued interest payable on Note G was $21,449 and $17,240 as of September 30, 2023 and December 31, 2022, respectively.

 

The principal balance payable of Note G amounted to $75,000 at September 30, 2023 and December 31, 2022, respectively.

 

NOTE 7 - EARNINGS (LOSS) PER SHARE

 

The following table sets forth the computation of basic and diluted net loss per share of common stock for the three months ended September 30, 2023 and 2022: 

                
   Three Months Ended September 30,   Nine Months Ended September 30, 
   2023   2022   2023   2022 
Net loss attributable to common stockholders (basic)  $(62,674  $(49,204)  $(523,901)  $(775,217)
Shares used to compute net loss per common share, basic and diluted   406,815,293    287,269,793    395,579,178    256,358,480 
Net loss per share attributable to common stockholders, basic and diluted  $(0.00)  $(0.00)  $(0.00)  $(0.00)

 

Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted-average number of common shares and common share equivalents outstanding for the period. Common stock equivalents are only included when their effect is dilutive. The Company’s potentially dilutive securities which include stock options, convertible debt, convertible preferred stock and common stock warrants have been excluded from the computation of diluted net loss per share as they would be anti-dilutive. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares outstanding due to the Company’s net loss position.

 

 

 

 14 

 

 

The following outstanding common stock equivalents have been excluded from diluted net loss per common share for the nine months ended September 30, 2023 and 2022, respectively, because their inclusion would be anti-dilutive: 

        
   As of September 30, 
   2023   2022 
Warrants to purchase common stock   2,868,397    2,868,397 
Potentially issuable shares related to convertible notes payable and convertible preferred stock   866,579,598    351,967,716 
Potentially issuable vested shares to directors and officers   3,000,000    14,000,000 
Potentially issuable unvested shares to directors and officers   11,300,000     
Total anti-dilutive common stock equivalents   883,747,995    368,836,113 

 

NOTE 8 - RELATED PARTIES

 

At September 30, 2023 and December 31, 2022, respectively, the amount due to two stockholders was $1,000 relating to depositing funds for opening bank accounts for the Company.

 

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 $750 and $2,250 for the three months and nine months ended September 30, 2023 and 2022, respectively. The Company has recorded $1,000 and $250 of rent payable to the stockholder in accounts payable as of September 30, 2023 and December 31, 2022, respectively.

 

NOTE 9 - STOCKHOLDERS' EQUITY

  

The Company has an authorized capital of 3,000,000,000 shares, $0.001 par value common stock, and 10,000,000 shares of $0.001 par value preferred stock at September 30, 2023. The Company has 406,815,293 shares 352,174,583 shares of common stock and Series A Preferred Stock 25,845 shares and 25,845 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively.

 

Common Stock

 

Holders of shares of common stock are entitled to one vote for each share on all matters to be voted on by the stockholders. Holders of common stock do not have cumulative voting rights. Holders of common stock are entitled to share ratably in dividends, if any, as may be declared from time to time by the Board of Directors in its discretion from funds legally available, therefore. In the event of liquidation, dissolution, or winding up of the Company, the holders of common stock are entitled to share pro rata in all assets remaining after payment in full of all liabilities. All of the outstanding shares of common stock are fully paid and non-assessable. Holders of common stock have no preemptive rights to purchase the Company’s common stock. There are no conversion or redemption rights or sinking fund provisions with respect to the common stock.

 

On February 24, 2021, the Company entered into a Common Stock Purchase Agreement with an investor pursuant to which the investor agreed to purchase up to $5,000,000 of the Company’s registered common stock at $0.015 per share. Pursuant to the Agreement, purchases may be made by the Company during the Commitment Period (as defined in the Agreement) through the submission of a purchase notice to the investor no sooner than ten business days after the preceding closing. No purchase notice can be made in an amount less than $10,000 or greater than $500,000 or greater than two times the average of the daily trading dollar volume for the Company’s common stock during the ten business days preceding the purchase date. Each purchase notice is limited to the investor beneficially owning no more than 4.99% of the total outstanding common stock of the Company at any given time. There are certain conditions precedent to each purchase including, among others, an effective registration statement in place and the VWAP of the closing price of the Company’s common stock greater than $0.0175 for the Company's common stock during the five business days prior to the closing. From January 1, 2023 to March 31, 2023, the investor purchased 31,603,364 shares of common stock for a cash consideration of $54,196.

 

 

 

 15 

 

 

On February 10, 2023, the Company issued 50,000 shares of its common stock to a consultant for services. The common stock was valued at the fair market price of $215 on the date of issuance. The shares were issued under the Company’s 2019 Stock Incentive Plan.

 

On February 21, 2023, the Company issued 100,000 shares of its common stock to a consultant for services. The common stock was valued at the fair market price of $340 on the date of issuance. The shares were issued under the Company’s 2019 Stock Incentive Plan.

 

On March 13, 2023, the Company issued 100,000 shares of its common stock to a consultant for services. The common stock was valued at the fair market price of $270 on the date of issuance. The shares were issued under the Company’s 2019 Stock Incentive Plan.

 

On March 23, 2023, the noteholder of Note F converted the principal balance of $25,814 and accrued interest of $7,186 into 17,837,838 shares of common stock. The shares issued were valued at the fair value of common stock on the date of issuance.

 

On April 27, 2023, the noteholder of Note F converted the principal balance of $7,353 and accrued interest of $71 into 4,949,507 shares of common stock. The shares issued were valued at the fair value of common stock on the date of issuance.

 

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 4,500,000 shares of common stock of the Company. All of the Company’s employees, officers and directors, as well as consultants and advisors to the Company are eligible to be granted awards under the 2017 Plan. No awards can be granted under the 2017 Plan after the expiration of 10 years from the plan approval but awards previously granted may extend beyond that date. Awards may consist of both incentive and non-statutory options, restricted stock units, stock appreciation rights, and restricted stock awards.

 

On March 11, 2019, the Board of Directors of the Company approved the 2019 Stock Incentive Plan (the “2019 Plan”). Awards may be made under the 2019 Plan for up to 5,000,000 shares of common stock of the Company. All of the Company’s employees, officers and directors, as well as consultants and advisors to the Company are eligible to be granted awards under the 2019 Plan. No awards can be granted under the 2019 Plan after the expiration of 10 years from the plan approval but awards previously granted may extend beyond that date. Awards may consist of both incentive and non-statutory options, restricted stock units, stock appreciation rights, and restricted stock awards.

 

On March 18, 2022, the Board of Directors approved and adopted the 2022 Stock Incentive Plan (the “2022 Plan”). Awards may be made under the 2022 Plan for up to 20,000,000 shares of common stock of the Company, subject to adjustment as to the number and kind of shares awarded. Only employees and directors of the Company or an Affiliated company are eligible to receive Incentive Options under the 2022 Plan. The Company awarded 7,000,000 shares of the Company’s common stock to an officer and 7,000,000 shares of common stock to a director of the Company (see Note 4) vesting 1,500,000 shares vesting on the first anniversary on the date of issuance, 2,500,000 shares vesting on the second anniversary of the date of issuance, and 3,000,000 shares on the third anniversary of the date of issuance. In addition, on October 3, 2022, the Company awarded 300,000 shares of common stock to an advisor vesting 100,000 shares on the first anniversary date of issuance, 100,000 shares vesting on the second anniversary, and the remaining 100,000 vesting the third anniversary of the date of issuance. The common shares vested pursuant to the 2022 Plan amounted to 3,000,000 shares and 0 shares at September 30, 2023 and December 31, 2022, and the 11,300,000 shares remain unvested as of September 30, 2023. For the three months and nine months ended September 30, 2023, the Company recorded $864 and $3,870 as stock compensation expense for 756,164 shares and 2,243,836 shares payable to an officer and a director that remain unvested as of September 30, 2023. Total shares payable to an officer, consultant and a director totaled 4,512,329 shares and 2,568,493 shares at September 30, 2023 and December 31, 2022, respectively.

 

Shares earned and issued related to the consulting agreements are issued under the 2017 Stock Incentive Plan and the 2019 Stock Incentive Plan (Note 4). Vesting of the shares is subject to acceleration of vesting upon the occurrence of certain events such as a Change of Control (as defined in the agreement) or the listing of the Company’s common stock on a senior exchange.

 

 

 

 16 

 

 

A summary of the status of the Company’s non-vested shares as of September 30, 2023 and 2022, and changes during the three months period then ended, is presented below: 

        
   Non-vested Shares of Common Stock  

Weighted Average

Fair Value

 
2022 Plan          
Authorized shares per the 2022 Plan – 20,000,000 shares          
Balance at December 31, 2022   14,300,000   $0.006146 
Awarded        
Vested   (3,000,000)    
Forfeited        
Balance at September 30, 2023   11,300,000   $ 

 

Preferred Stock

 

Series A Supervoting Convertible Preferred Stock

On July 2, 2020, the Board of Directors of the Company authorized the issuance of 15,600 shares of preferred stock, $0.001 par value per share, designated as Series A Supervoting Convertible Preferred Stock.

 

Dividends: Initially, there will be no dividends due or payable on the Series A Supervoting Preferred Stock. Any future terms with respect to dividends shall be determined by the Board consistent with the Corporation’s Articles of Incorporation.

 

Liquidation and Redemption Rights: Upon the occurrence of a Liquidation Event (as defined below), the holders of Series A Supervoting Preferred Stock are entitled to receive net assets on a pro-rata basis. Each holder of Series A Supervoting Preferred Stock is entitled to receive ratably any dividends declared by the Board, if any, out of funds legally available for the payment of dividends. Liquidation Event means (i) the liquidation, dissolution or winding-up, whether voluntary or involuntary, of the corporation, (ii) the purchase or redemption by the corporation of the shares of any class of stock or the merger or consolidation of the corporation with or into any other corporation or corporations, or (iii) the sale, license or lease of all or substantially all, or any material part of, the Corporation’s assets.

 

Conversion: Each holder of Series A Supervoting Preferred Stock may voluntarily convert its shares into shares of common stock of the Corporation at a rate of 1:100 (as may be adjusted for any combinations or splits with respect to such shares).

 

Rank: All shares of the Series A Supervoting Preferred Stock shall rank senior to the Corporation’s (A) common stock, par value $0.001 per share, and any other class or series of capital stock of the Corporation hereafter created.

 

 

 

 17 

 

 

Voting Rights:

  A. If at least one share of Series A Super Voting Preferred Stock is issued and outstanding, then the total aggregate issued shares of Series A Super Voting Preferred Stock at any given time, regardless of their number, shall have voting rights equal to 20 times the sum of: i) the total number of shares of Common stock which are issued and outstanding at the time of voting, plus ii) the total number of shares of all Series of Preferred stocks which are issued and outstanding at the time of voting.
     
  B. Each individual share of Series A Super Voting Preferred Stock shall have the voting rights equal to:
     
    [twenty times the sum of: {all shares of Common stock issued and outstanding at the time of voting + all shares of Series A and any newly designated Preferred stock issued and outstanding at the time of voting}]
     
    Divided by:
     
    [the number of shares of Series A Super Voting Preferred Stock issued and outstanding at the time of voting]

 

With respect to all matters upon which stockholders are entitled to vote or to which stockholders are entitled to give consent, the holders of the outstanding shares of Series A Super Voting Preferred Stock shall vote together with the holders of Common Stock without regard to class, except as to those matters on which separate class voting is required by applicable law or the Articles of Incorporation or Bylaws.

 

The Company had 25,845 shares of Series A Preferred Stock issued and outstanding at September 30, 2023 and December 31, 2022, respectively.

 

Series B Convertible Preferred Stock Equity Financing

On November 16, 2020, the Board of Directors of the Company authorized the issuance of up to 600 shares of preferred stock, $0.001 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 $1,200, subject to increase set forth in the Certificate of Designation.

 

Dividends: Each share of Series B Convertible Preferred Stock shall be entitled to receive, and the Corporation shall pay, cumulative dividends of 12% per annum, payable quarterly, beginning on the Original Issuance Date and ending on the date that such share of Series B Convertible Preferred Share has been converted or redeemed (the “Dividend End Date”). Dividends may be paid in cash or in shares of Series B Convertible Preferred Stock. From and after the initial Closing Date, in addition to the payment of dividends pursuant to Section 2(a), each Holder shall be entitled to receive, and the Corporation shall pay, dividends on shares of Series B Convertible Preferred Stock equal to (on an as-if-converted-to-Common-Stock basis) and in the same form as dividends actually paid on shares of the common stock when, as and if such dividends are paid on shares of the common stock. The Corporation shall pay no dividends on shares of the common stock unless it simultaneously complies with the previous sentence.

 

Voting Rights: The Series B Convertible Preferred Stock will vote together with the common stock on an as converted basis subject to the Beneficial Ownership Limitations (not in excess of 4.99% conversion limitation). However, as long as any shares of Series B Convertible Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of the Series B Convertible Preferred Stock directly and/or indirectly (a) alter or change adversely the powers, preferences or rights given to the Series B Convertible Preferred Stock or alter or amend this Certificate of Designation, (b) authorize or create any class of stock ranking as to redemption or distribution of assets upon a Liquidation (as defined in Section 5) senior to, or otherwise pari passu with, the Series B Convertible Preferred Stock or, authorize or create any class of stock ranking as to dividends senior to, or otherwise pari passu with, the Series B Convertible Preferred Stock, (c) amend its Articles of Incorporation or other charter documents in any manner that adversely affects any rights of the Holders, (d) increase the number of authorized shares of Series B Convertible Preferred Stock, or (e) enter into any agreement with respect to any of the foregoing.

 

 

 

 18 

 

 

Liquidation: Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to the Stated Value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereon under this Certificate of Designation, for each share of Series B Convertible Preferred Stock before any distribution or payment shall be made to the holders of any Junior Securities, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Holders shall be ratably distributed among the Holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.

 

Conversion: Each share of Series B Convertible Preferred Stock shall be convertible, at any time and from time to time from and after the Original Issue Date at the option of the Holder thereof, into that number of shares of common stock (subject to the limitations) determined by dividing the Stated Value of such share of Series B Convertible Preferred Stock by the Conversion Price. The Conversion Price for the Series B Convertible Preferred Stock shall be the amount equal to the lowest traded price for the Company’s common stock for the fifteen (15) Trading Days immediately preceding the date of such conversion. All such foregoing determinations will be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction that proportionately decreases or increases the common stock during such measuring period. Following an event of default, the Conversion price shall equal the lower of: (a) the then applicable Conversion Price; or (b) a price per share equaling 80% of the lowest traded price for the Company’s common stock during the ten (10) trading days preceding the relevant Conversion.

 

Redemption: The Series B Convertible Preferred Stock may be redeemed by payment of the stated value thereof, with the following premiums based on the time of the redemption.

 

  · 115% of the stated value if the redemption takes place within 90 days of issuance;
  · 120% of the stated value if the redemption takes place after 90 days and within 120 days of issuance
  · 125% of the stated value if the redemption takes place after 120 days and within 180 days of issuance; and
  · each share of Preferred Stock is redeemed one year from the day of issuance

  

November 19, 2020

 

On November 19, 2020, pursuant to the terms of a Securities Purchase Agreement dated November 16, 2020 (the “SPA”), the Company entered into a new preferred equity financing agreement with GHS Investments, LLC (“GHS”) in the amount of up to $600,000. The SPA provides for GHS’s purchase, from time to time, of up to 600 shares of the newly-designated Series B Convertible Preferred Stock. The initial closing under the SPA consisted of 45 shares of Series B Convertible Preferred Stock, stated value $1,200 per share, issued to GHS for an initial purchase price of $45,000, or $1,000 per share. At the Company’s option, and subject to the terms of the SPA and the Certificate of Designation for the Series B Convertible Preferred Stock (the “COD”), additional closings in the amount of 40 shares of Series B Convertible Preferred Stock for a total purchase price of $40,000 may take place at a rate of up to once every 30 days. In connection with the initial closing in the amount of 45 shares of Series B Convertible Preferred Stock, the Company issued an additional 25 shares of Series B Convertible Preferred Stock to GHS as a commitment fee.

 

No additional closings may take place after the two-year anniversary of the SPA, or once the entire $600,000 amount has been funded. If the average daily dollar trading volume for the Company’s common stock for the 30 trading days preceding a particular additional closing is at least $50,000 per day, the Company may, at its option, increase the amount of that additional closing to 75 shares of Series B Convertible Preferred Stock ($75,000).

 

The Series B Convertible Preferred Stock is classified as temporary equity, as it is convertible upon issuance at an amount equal to the lowest traded price for the Company’s common stock for the fifteen trading days immediately preceding the date of conversion.

 

 

 

 19 

 

 

Based on the requirements of ASC 815, Derivatives and Hedging, the conversion feature represents an embedded derivative that is required to be bifurcated and accounted for as a separate derivative liability. The derivative liability is originally recorded at its estimated fair value and is required to be revalued at each conversion event and reporting period. Changes in the derivative liability fair value are reported in operating results each reporting period.

 

On November 19, 2020, GHS purchased a total of 70 shares of Series B Convertible Preferred Stock for gross proceeds of $45,000. The Company paid $900 in selling commissions to complete this financing.

 

On November 19, 2020 (the date of receipt of cash proceeds of $45,000 issuance), the Company valued the fair value of the derivative and recorded an initial derivative liability of $103,267, $58,267 as day one loss on the derivative, $39,000 as interest expense, and $39,000 as Series B Convertible Preferred Stock mezzanine liability, and $45,000 as amortization.

 

The Company recalculated the value of the derivative liability associated with this convertible preferred stock recording a gain of $19,811 and a loss of $4,348 for the three months and nine months ended September 30, 2023, and a gain of $25,701 and a gain of $28,848 for the three months and nine months ended September 30, 2022, respectively, in connection with the change in fair market value of the derivative liability.

 

The Company recorded $2,541 and $7,539 as preferred stock dividend expense for the three months and nine months ended September 30, 2023, and $2,541 and $7,513 as preferred stock dividend for the three months and nine months ended September 30, 2022. The Company recorded $28,859 and $21,320 as preferred stock dividend payable as of September 30, 2023 and December 31, 2022, respectively. Derivative liability payable for this transaction totaled $76,804 and $72,456 at September 30, 2023 and December 31, 2022, and Series B Convertible Preferred Stock mezzanine liability was $84,000 at September 30, 2023 and December 31, 2022, respectively.

 

The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0009 to $0.0141, the closing stock price of the Company's common stock on the date of valuation ranging from $0.00105 to $0.0184, an expected dividend yield of 0%, expected volatility ranging from 160.41% to 440.99%, risk-free interest rates ranging from 0.07% to 5.46%, and an expected term ranging from 0.13 years to 1.50 years.

 

December 16, 2020

 

On December 16, 2020, pursuant to the terms of the SPA, GHS purchased an additional 85 shares of Series B Convertible Preferred Stock for gross proceeds of $85,000. The Company paid $1,700 in selling commissions to complete this financing.

 

On December 16, 2020 (the date of receipt of cash proceeds of $85,000 issuance), the Company valued the fair value of the derivative and recorded an initial derivative liability of $106,241, $21,241 as day one loss on the derivative, $17,000 as interest expense, and $17,000 as Series B Convertible Preferred Stock mezzanine liability, and $85,000 as amortization.

 

The Company recalculated the value of the derivative liability associated with this convertible preferred stock and recorded a gain of $24,056 and a loss of $5,280 for the three months and nine months ended September 30, 2023, and a gain of $31,208 and $40,096 for the three months and nine months ended September 30, 2022, in connection with the change in fair market value of the derivative liability. The Company recorded preferred stock dividend expense of $3,085 and $9,155 for the three months and nine months ended September 30, 2023, and $3,085 and $9,155 for the three months and nine months ended September 30, 2022. The Company recorded $34,138 and $24,983 as preferred stock dividend payable as of September 30, 2023 and December 31, 2022, respectively. Derivative liability payable for this transaction totaled $93,262 and $87,982 at September 30, 2023 and December 31, 2022, and Series B Convertible Preferred Stock mezzanine liability was $102,000 at September 30, 2023 and December 31, 2022, respectively.

 

The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0009 to $0.0141, the closing stock price of the Company's common stock on the date of valuation ranging from $0.00105 to $0.0184, an expected dividend yield of 0%, expected volatility ranging from 160.41% to 437.59%, risk-free interest rates ranging from 0.07% to 5.46%, and an expected term ranging from 0.21 years to 1.50 years.

 

 

 

 20 

 

 

December 20, 2021

 

On December 20, 2021, pursuant to the terms of the SPA, GHS purchased an additional 51 shares of Series B Convertible Preferred Stock for gross proceeds of $51,000. The Company paid $1,000 in selling commissions to complete this financing.

 

The Company recalculated the value of the derivative liability associated with this convertible preferred stock recording a gain of $14,434 and a loss of $3,168 for the three months and nine months ended September 30, 2023, in connection with the change in fair market value of the derivative liability. The Company recorded preferred stock dividend expense of $1,851 and $5,493 for the three months and nine months ended September 30, 2023. The Company recorded preferred stock dividend payable of $13,058 and $7,565 as of September 30, 2023 and December 31, 2022, respectively. Derivative liability payable for this transaction totaled $55,957 and $52,789 at September 30, 2023 and December 31, 2022 and Series B Convertible Preferred Stock mezzanine liability was $60,200 at September 30, 2023 and December 31, 2022, respectively.

 

The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0009 to $0.0050 the closing stock price of the Company's common stock on the date of valuation ranging from $0.00105 to $0.0070, an expected dividend yield of 0%, expected volatility ranging from 174.58% to 221.64%, risk-free interest rates ranging from 0.39% to 5.46%, and an expected term of 1.50 years.

 

February 7, 2022

 

On February 7, 2022, pursuant to the terms of the SPA, GHS purchased an additional 51 shares of Series B Convertible Preferred Stock for gross proceeds of $51,000. The Company paid $1,000 in selling commissions to complete this financing.

 

On February 7, 2022 (the date of receipt of cash proceeds of $51,000 issuance), the Company valued the fair value of the derivative and recorded an initial derivative liability of $65,025, $14,025 as day one loss on the derivative, $10,200 as interest expense, and $10,200 as Series B Convertible Preferred Stock mezzanine liability, and $51,000 as amortization.

 

The Company recalculated the value of the derivative liability associated with this convertible preferred stock recording a gain of $14,434 and a loss of $19,952 for the three months and nine months ended September 30, 2023, and a gain of $18,725 and a gain of $17,667 for the three months and nine months ended September 30, 2022, in connection with the change in fair market value of the derivative liability. The Company recorded preferred stock dividend expense of $1,851 and $5,493 for the three months and nine months ended September 30, 2023, and preferred stock dividend expense of $1,851 and $4,728 for the three months and nine months ended September 30, 2022. The Company recorded preferred stock dividend payable of $12,072 and $6,579 as of September 30, 2023 and December 31, 2022, respectively. Derivative liability payable for this transaction totaled $55,957 and $52,789 at September 30, 2023 and December 31, 2022 and Series B Convertible Preferred Stock mezzanine liability was $61,200 at September 30, 2023 and December 31, 2022, respectively.

 

The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0009 to $0.0096, the closing stock price of the Company’s common stock on the date of valuation ranging from $0.00105 to $0.0172, an expected dividend yield of 0%, expected volatility ranging from 160.35% to 190.27%, risk-free interest rates ranging from 1.09% to 5.46%, and an expected term of 1.35 to 1.5 years.

 

March 24, 2022

 

On March 24, 2022, pursuant to the terms of the SPA, GHS purchased an additional 136 shares of Series B Convertible Preferred Stock for gross proceeds of $136,000. The Company paid $2,720 in selling commissions to complete this financing.

 

On March 24, 2022 (the date of receipt of cash proceeds of $136,000 issuance), the Company valued the fair value of the derivative and recorded an initial derivative liability of $328,422, $192,422 as day one loss on the derivative, $27,200 as interest expense, and $27,200 as Series B Convertible Preferred Stock mezzanine liability, and $136,000 as amortization.

 

 

 

 21 

 

 

The Company recalculated the value of the derivative liability associated with the convertible note at September 30, 2023 and 2022, and recorded a gain of $38,490 and a loss of $8,448 for the three months and nine months ended September 30, 2023 and a gain of $49,934 and $190,813 for the three months and nine months ended September 30, 2022, in connection with the change in fair market value of the derivative liability. In addition, the Company recorded preferred stock dividend expense of $4,936 and $14,648 for the three months and nine months ended September 30, 2023, and $4,936 and $10,194 for the three months and nine months ended September 30, 2022. Preferred stock dividend payable to GHS for this derivative totaled $24,842 and $15,131 at September 30, 2023 and December 31, 2022. Derivative liability payable for this transaction totaled $149,220 and $140,772 at September 30, 2023 and December 31, 2022, respectively, and Series B Convertible Preferred Stock mezzanine liability was $163,200 at September 30, 2023 and December 31, 2022.

 

The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0009 to $0.0096, the closing stock price of the Company’s common stock on the date of valuation ranging from $0.00105 to $0.0183, an expected dividend yield of 0%, expected volatility ranging from 160.35% to 190.27%, risk-free interest rates ranging from 1.55% to 5.46%, and an expected term of 1.48 to 1.5 years.

 

November 17, 2022

 

On November 17, 2022, pursuant to the terms of the SPA, GHS purchased an additional 61 shares of Series B Convertible Preferred Stock for gross proceeds of $61,000. The Company paid $1,220 in selling commissions to complete this financing.

 

On November 17, 2022 (the date of receipt of cash proceeds of $61,000 issuance), the Company valued the fair value of the derivative and recorded an initial derivative liability of $54,072, $6,928 as day one gain on the derivative, $12,200 as interest expense, and $12,200 as Series B Convertible Preferred Stock mezzanine liability, and $61,000 as amortization.

 

The Company recalculated the value of the derivative liability associated with the convertible note at September 30, 2023 and recorded a gain of $17,264 and a loss of $3,789 for the three months and nine months ended September 30, 2023, in connection with the change in fair market value of the derivative liability. In addition, the Company recorded preferred stock dividend expense of $2,214 and $6,570 for the three months and nine months ended September 30, 2023. Preferred stock dividend payable to GHS for this derivative totaled $7,629 and $1,059 at September 30, 2023 and December 31, 2022. Derivative liability payable for this transaction totaled $66,929 and $63,140 at September 30, 2023 and December 31, 2022, respectively, and Series B Convertible Preferred Stock mezzanine liability was $73,200 at September 30, 2023 and December 31, 2022.

 

The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0009 to $0.0020, the closing stock price of the Company’s common stock on the date of valuation ranging from $0.00105 to $0.0022, an expected dividend yield of 0%, expected volatility ranging from 174.58% to 190.27%, risk-free interest rates ranging from 4.64% to 5.46%, and an expected term of 1.5 years.

 

 

 

 

 

 22 

 

 

August 24, 2023

 

On August 24, 2023, pursuant to the terms of the SPA, GHS purchased 62 shares of Series B Convertible Preferred Stock for gross proceeds of $62,000. The Company paid $1,240 in selling commissions to complete this financing.

 

On August 24, 2023 (the date of receipt of cash proceeds of $62,000 issuance), the Company valued the fair value of the derivative and recorded an initial derivative liability of $61,679, $321 as day one gain on the derivative, $12,400 as interest expense, and $12,400 as Series B Convertible Preferred Stock mezzanine liability, and $62,000 as amortization.

 

The Company recalculated the value of the derivative liability associated with the convertible note at September 30, 2023 and recorded a loss of $6,400 for the three months and nine months ended September 30, 2023, in connection with the change in fair market value of the derivative liability. In addition, the Company recorded preferred stock dividend expense of $905 for the three months and nine months ended September 30, 2023. Preferred stock dividend payable to GHS for this derivative totaled $905 at September 30, 2023. Derivative liability payable for this transaction totaled $68,078 at September 30, 2023 and Series B Convertible Preferred Stock mezzanine liability was $74,400 at September 30, 2023.

 

The Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0009 to $0.0014, the closing stock price of the Company’s common stock on the date of valuation ranging from $0.00105 to $0.0015, an expected dividend yield of 0%, expected volatility ranging from 189.98% to 190.27%, risk-free interest rates ranging from 5.39% to 5.46%, and an expected term of 1.5 years.

 

As a result of issuance of derivative instruments, the Company recorded a derivative liability of $566,153 and $469,873 as of September 30, 2023 and December 31, 2022, and Series B Convertible Preferred Stock liability of $619,200 as of September 30, 2023 and $544,800 as of December 31, 2022, respectively.

 

Warrants

 

A summary of the status of the Company’s warrants as of September 30, 2023 and 2022, and changes during the nine months then ended, is presented below:

            
   Shares Under Warrants   Weighted Average Exercise Price   Weighted Average Remaining Contractual Life 
Outstanding at December 31, 2021             
Issued   2,868,397   $0.00084    2.4 Years 
Exercised             
Expired/Forfeited             
Outstanding at September 30, 2022   2,868,397   $0.00084    2.0 Years 
                
Outstanding at December 31, 2022             
Issued   2,868,397   $0.00084    1.4 Years 
Exercised             
Expired/Forfeited             
Outstanding at September 30, 2023   2,868,397   $0.00084    0.7 Years 

 

NOTE 10 – SUBSEQUENT EVENT

 

On October 17, 2023, The Company issued to a director, an officer and two advisors, in the aggregate of 3,200,000 shares of common stock as the year 1 anniversary shares pursuant to the terms of the 2022 Stock Incentive Plan (see Note 5).

 

  

 

 

 23 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contain certain forward-looking statements. Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events; are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited to, those discussed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022. We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements

 

Basis of Presentation

 

The financial information presented below and the following Management Discussion and Analysis of the Consolidated Financial Condition, Results of Operations, Stockholders’ Equity and Cash Flow for the quarterly periods ended September 30, 2023 and 2022 gives effect to our acquisition of OXYS Corporation (“OXYS”) on July 28, 2017. In accordance with the accounting reporting requirements for the recapitalization related to the “reverse merger” of OXYS, the financial statements for OXYS have been adjusted to reflect the change in the shares outstanding and the par value of the common stock of OXYS. Additionally, all intercompany transactions between the Company and OXYS have been eliminated.

 

Forward-Looking Statements

 

Statements in this management’s discussion and analysis of financial condition and results of operations contain certain forward-looking statements. To the extent that such statements are not recitations of historical fact, such statements constitute forward looking statements which, by definition involve risks and uncertainties. Where in any forward-looking statements, if we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result or be achieved or accomplished.

  

Factors that may cause differences between actual results and those contemplated by forward-looking statements include those discussed in “Risk Factors” and are not limited to the following:

 

  · the unprecedented impact of COVID-19 pandemic on our business, customers, employees, subcontractors and supply chain, consultants, service providers, stockholders, investors and other stakeholders;
  · the impact of conflicts between the Russian Federation and Ukraine and Israel in on our operations;
  · geo-political events, such as the crisis in Ukraine and Israel, government responses to such events and the related impact on the economy both nationally and internationally;
  · general market and economic conditions;
  · our ability to maintain and grow our business with our current customers;
  · our ability to meet the volume and service requirements of our customers;
  · industry consolidation, including acquisitions by us or our competitors;
  · capacity utilization and the efficiency of manufacturing operations;
  · success in developing new products;
  · timing of our new product introductions;
  · new product introductions by competitors;
  · the ability of competitors to more fully leverage low-cost geographies for manufacturing or distribution;

 

 

 

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  · product pricing, including the impact of currency exchange rates;
  · effectiveness of sales and marketing resources and strategies;
  · adequate manufacturing capacity and supply of components and materials;
  · strategic relationships with our suppliers;
  · product quality and performance;
  · protection of our products and brand by effective use of intellectual property laws;
  · the financial strength of our competitors;
  · the outcome of any future litigation or commercial dispute;
  · barriers to entry imposed by competitors with significant market power in new markets;
  · government actions throughout the world; and
  · our ability to service secured debt, when due.

 

You should not rely on forward-looking statements in this document. This management’s discussion contains forward looking statements that involve risks and uncertainties. We use words such as “anticipates,” “believes,” “plans,” “expects,” “future,” “intends,” and similar expressions to identify these forward-looking statements. Prospective investors should not place undue reliance on these statements, which apply only as of the date of this document. Our actual results could differ materially from those anticipated in these forward-looking statements.

 

Critical Accounting Policies

 

The following discussions are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. These financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States.

 

The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingencies. We continually evaluate the accounting policies and estimates used to prepare the financial statements. We base our estimates on historical experiences and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management.

 

Trends and Uncertainties

 

On July 28, 2017, we closed the reverse acquisition transaction under the Securities Exchange Agreement dated March 16, 2017, as reported in our Current Report on Form 8-K filed with the Commission on August 3, 2017. Following the closing, our business has been that of OXYS, Inc. and HereLab, Inc., our wholly owned subsidiaries. Our operations have varied significantly following the closing since, prior to that time, we were an inactive shell company.

 

Impact of COVID-19

 

The global COVID-19 pandemic continues to present uncertainty and unforeseeable risks to the Company’s operations and business plan. The Company has closely monitored recent developments, including the lifting of COVID-19 safety measures, the spread of new strains or variants of the coronavirus (such as the Delta and Omicron variants), and supply chain and labor shortages. Thus, the full impact of the COVID-19 pandemic on the business and operations remains uncertain and will vary depending on the pandemic’s future impact on the third parties with whom the Company does business, as well as any legal or regulatory consequences resulting therefrom. The Company has been following the recommendations of health authorities to minimize exposure risk for its team members and may take further actions that alter our operations, including any required by federal, state or local authorities, or that it determines are in the best interests of its employees and other third parties with whom the Company does business.

 

 

 

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Historical Background

 

We were incorporated in the State of New Jersey on October 1, 2003 under the name of Creative Beauty Supply of New Jersey Corporation and subsequently changed our name to Gotham Capital Holdings, Inc. on May 18, 2015. We commenced operations in the beauty supply industry as of January 1, 2004. On November 30, 2007, our Board of Directors approved a plan to dispose of our wholesale and retail beauty supply business. From January 1, 2009 until July 28, 2017, we had no operations and were a shell company.

 

On March 16, 2017, our Board of Directors adopted resolutions, which were approved by shareholders holding a majority of our outstanding shares, to change our name to “IIOT-OXYS, Inc.”, to authorize a change of domicile from New Jersey to Nevada, to authorize a 2017 Stock Awards Plan, and to approve the Securities Exchange Agreement (the “OXYS SEA”) between the Company and OXYS Corporation (“OXYS”), a Nevada corporation incorporated on August 4, 2016.

 

Under the terms of the OXYS SEA we acquired 100% of the issued voting shares of OXYS in exchange for 34,687,244 shares of our Common Stock. We also cancelled 1,500,000 outstanding shares of our Common Stock and changed our management to Mr. DiBiase who also served in management of OXYS. Also, one of our principal shareholders entered into a consulting agreement with OXYS to provide consulting services during the transition. The OXYS SEA was effective on July 28, 2017, and our name was changed to “IIOT-OXYS, Inc.” at that time. Effective October 26, 2017, our domicile was changed from New Jersey to Nevada.

 

At the present time, we have two, wholly-owned subsidiaries which are OXYS Corporation and HereLab, Inc. (an entity immaterial to our operations), through which our operations are conducted.

 

General Overview

 

IIOT-OXYS, Inc., a Nevada corporation (the “Company”), and OXYS, were originally established for the purposes of designing, building, testing, and selling Edge Computing systems for the Industrial Internet. Both companies were, and presently are, early-stage technology startups that are largely pre-revenue in their development phase. HereLab (an entity immaterial to our operations) is also an early-stage technology development company. We received our first revenues in the last quarter of 2017, continued to realize revenues until 2020 when the pandemic hit, and we realized nominal revenues through 2021 to the present.

 

We develop hardware, software and algorithms that monitor, measure and predict conditions for energy, structural, agricultural and medical applications. We use domain-specific Artificial Intelligence to solve industrial and environmental challenges. Our engineered solutions focus on common sense approaches to machine learning, algorithm development and hardware and software products.

 

We use off the shelf components, with reconfigurable hardware architecture that adapts to a wide range of customer needs and applications. We use open-source software tools, while still creating proprietary content for customers, thereby reducing software development time and cost. The software works with the hardware to collect data from the equipment or structure that is being monitored.

 

We focus on developing insights. We develop algorithms that help our customers create insights from vast data streams. The data collected is analyzed and reports are created for the customer. From these insights, the customer can act to improve their process, product or structure.

 

 

 

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Results of Operations for the Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022 (Unaudited)

 

For the three months ended September 30, 2023, we earned revenues of $19,714 and incurred related cost of sales of $4,871. Our operating expenses were $102,272 which included professional fees of $13,861, payroll costs of $53,825, amortization of intangible assets of $12,477, and general and administrative expenses of $22,109. We recorded net other income of $42,138 consisting of gain of $122,089 due to change in fair market value of derivative liability, interest income on note receivable of $8,205, gain on a derivative of $321 and interest expense of $14,077. We also recorded $17,383 as preferred stock dividend on convertible preferred stock for the three months ended September 30, 2023. As a result, we incurred a net loss of $62,674 for the three months ended September 30, 2023.

 

For the three months ended September 30, 2022, we earned revenues of $23,003 and related cost of sales of $5,140. Our operating expenses were $158,818 which included professional fees paid to consultants of $35,454, payroll costs of $109,595, amortization of intangible assets of $12,477, and general and administrative expenses of $13,770. We recorded net other income of $111,137, consisting of interest expense of $14,913 on notes payable due to amortization of debt discount and interest payable on notes payable, loss on derivates of $5,504, offset by gain on change in the fair market value of derivative liability of $125,568. We also recorded $6,909 as preferred stock dividend on convertible preferred stock for the three months ended September 30, 2022. As a result, we incurred a net loss of $49,204 for the three months ended September 30, 2022.

 

During the current and prior period, we did not record an income tax benefit due to the uncertainty associated with the Company’s ability to utilize the deferred tax assets.

 

Results of Operations for the Nine months Ended September 30, 2023 Compared to the Nine months Ended September 30, 2022 (Unaudited)

 

For the nine months ended September 30, 2023, we earned revenues of $98,286 and incurred related cost of sales of $30,330. Our operating expenses were $410,757 which included professional fees of $138,027, payroll costs of $194,083, amortization of intangible assets of $37,023, and general and administrative expenses of $41,623. We recorded net other expenses of $131,297 consisting of a loss $34,600 due to change in fair market value of derivative liability, gain on a derivative of $321, interest income on note receivable of $19,983, interest expense of $117,001 on the convertible promissory notes. We also recorded preferred stock dividend on convertible preferred stock of $49,803 for the nine months ended September 30, 2023. As a result, we incurred a net loss of $523,901 for the nine months ended September 30, 2023.

 

For the nine months ended September 30, 2022, we earned revenues of $39,503 and related cost of sales of $5,650. Our operating expenses were $580,472 which included professional fees of $143,193, payroll costs of $350,543, amortization of intangible assets of $37,023, and general and administrative expenses of $49,713. We recorded net other expenses of $196,981, consisting of interest expense of $278,605 on notes payable due to amortization of debt discount and interest payable on notes payable, loss on derivates of $207,447, offset by gain on change in the fair market value of derivative liability of $277,424 and interest income of $11,647 on note receivable. We also recorded $31,617 as preferred stock dividend on convertible preferred stock for the nine months ended September 30, 2022. As a result, we incurred a net loss of $775,217 for the nine months ended September 30, 2022.

 

During the current and prior period, we did not record an income tax benefit due to the uncertainty associated with the Company’s ability to utilize the deferred tax assets.

 

The first nine months of revenue in 2023 was a substantial improvement over the same period in 2022 (an increase of 149%), and we have already met our commitment for 2023 revenue to exceed that in 2022. We expect revenue to moderate in the fourth quarter of 2023, as our ability to raise funding to fuel sales & marketing efforts has been limited. Potential future revenue growth is possible, pending adequate funding for sales and marketing efforts and building on the strength of the following factors:

 

·Our current DOT Bridge Monitoring Contract and overall Structural Health Monitoring (“SHM”) vertical is the foundation of our revenue stream. The current monitoring revenue will continue through the fourth quarter of 2023. Discussions with our main contractor to the DOT for extensions and expansions continue to be favorable. We also continue to believe that prospects with our current DOT state, and DOT contacts in two other northeast states bode well for future business in mid-2024. There is still potential for local municipalities in our current northeast state to contribute revenue in 2024.

 

 

 

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·Our Smart Manufacturing vertical is benefiting from the progress on our CNC SaaS contract that commenced in June 2023, and will continue through the fourth quarter of 2023. Initial public endorsements and promotional videos have been released and additional videos are planned for release in the fourth quarter of 2023. These endorsements and promotional videos along with grass-roots sales & marketing efforts have generated additional sales leads for potential paid CNC POCs and additional SaaS contracts, which may contribute to revenue in the fourth quarter of 2023 and beyond. It is also expected these endorsements will also strengthen our position to secure additional POCs for other discrete manufacturing processes, including metal stamping, plastic injection molding, plastic extrusion, and automated assembly and test.
   
·Our strategic partnership development continues to be a “force multiplier” for us. The strength of our Aingura IIoT, S.L. partnership provides supplemental expertise, equipment and software, which ensures we continue to bring value to our customers. We will also continue to develop our other previously announced partnerships.

 

Despite these strengths, we continue to face significant headwinds and we have not been able to raise material funds for ongoing operations through our existing financing agreements due to market conditions. Our CEO and COO have not received any compensation since mid-April (their salaries have accrued), and the lack of funds has severely limited sales and marketing efforts. Our management is working to secure funding from our lead investor to pay for ongoing expenses and the leadership team is considering many options for both the short and long term. These options depend largely upon our ability to continue to raise funds and implement a marketing and sales plan. In the event we are unable to raise adequate funds, management may need to consider other options such as pursuing suitable companies to merge with or acquire us.

 

We believe that our business development in these industries has potential for success, due to the strength of their size and growth. The global smart manufacturing (also known as Industry 4.0) was $97.6 billion in 2022 and will reach $228.3 billion by 2027 (CAGR 18.5%)1, and the worldwide SHM industry was $2.0 billion in 2021 and will reach $4.0 billion by 2027 (CAGR of 14.6%).2

 

Given the valuable real-world data we have collected, our Artificial Intelligence (“AI”) Machine Learning algorithms we have developed, compelling use cases and marketing collateral developed from our data and algorithms, combined with our experienced leadership, savvy technological talent, and operational execution excellence, we believe continued annual revenue growth is possible, if adequate funding for sales and marketing efforts can be secured.

 

Liquidity and Capital Resources for the Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022 (Unaudited)

 

At September 30, 2023, we reported a cash balance of $17,790 as a result of decrease of $15,546 from the $33,336 cash balance at December 31, 2022. This decrease was primarily as a result of net cash used in operating activities of $129,417 and net cash provided by financing activities of $113,871.

  

Operating Activities

 

Net cash flows used in operating activities for the nine months ended September 30, 2023 was $129,417, primarily attributed to the net loss of $523,901, stock compensation expense of $825, discount received on note receivable of $2,805, amortization of debt discount on notes payable and preferred stock of $12,400, and amortization of intangible assets of $37,023. The Company recorded changes in operating assets and liabilities of $347,041 primarily attributable to decrease in accounts receivable of $18,021, increase in prepaid expenses and other current assets of $10,028, decrease in accounts payable of $38,108, increase in accrued liabilities of $125,434, increase in derivative liabilities of $96,279, decrease in unearned interest of $5,151, increase in shares payable to related parties of $3,870, and increase in salaries payable to related parties of $156,724.

 

Net cash flows used in operating activities for the nine months ended September 30, 2022 was $471,561, primarily attributable to net loss of $775,217, stock compensation expense of $900, discount on note receivable of $5,661, amortization of debt discount on notes payable and preferred stock of $37,400, and amortization of intangible assets of $37,023. The Company recorded a net change in operating assets and liabilities of $222,672 attributable to net increase in accounts receivable of $5,100, decrease in accounts payable of $1,588, net increase in accrued liabilities of $80,398, net increase in derivative liabilities of $116,023, increase in unearned interest of $10,192, and net increase in shares payable to related parties of $12,221, and a net increase in salaries payable to related parties of $10,526.

 

 

 

_______________________

 

1 https://www.marketsandmarkets.com/Market-Reports/industry-4-market-102536746.html

2 https://www.marketsandmarkets.com/Market-Reports/structural-health-monitoring-market-101431220.html

 

 

 

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Investing Activities

 

Net cash used in investing activities for the nine months ended September 30, 2023 was $0. Net cash used in investing activities for the nine months ended September 30, 2022 resulted due to cash advanced for a promissory note receivable totaling $200,000.

 

Financing Activities

 

Net cash provided by financing activities for the nine months ended September 30, 2023 was $113,871 primarily due to sales of our common stock of $54,195, Series B convertible preferred stock of $62,000 and paid $2,324 in costs for raising capital. Cash provided by financing activities for the nine months ended September 30, 2022 was $659,024 primarily due to cash received from sale of common stock of $481,657 and paid $9,633 in costs for raising capital, and cash received from sale of Series B convertible preferred stock of $187,000.

 

As a result of the above activities, the Company recorded a decrease in cash of $15,546 for the nine months ended September 30, 2023, and a decrease in cash of $12,537 for the same comparable period ended September 30, 2022, respectively.

 

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has suffered continuing operating losses, has a working capital deficit of $1,958,290, used cash flows in operating activities of $129,417, and has an accumulated deficit of $9,831,038 as of September 30, 2023. These factors, among others, raise a substantial doubt about the Company’s ability to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity capital expenditures or capital resources.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

As a smaller reporting company, the Company has elected not to provide the disclosure required by this item.

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

The Company has established disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and, as such, is accumulated and communicated to the Company’s Chief Executive Officer, Clifford L. Emmons, who serves as our principal executive officer, and to the Company’s Interim Chief Financial Officer, Karen McNemar, who serves as our principal financial and accounting officer, as appropriate to allow timely decisions regarding required disclosure. Mr. Emmons and Ms. McNemar, evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, as of September 30, 2023. Based on their evaluation, Mr. Emmons and Ms. McNemar concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2023.

 

Changes in Internal Control Over Financial Reporting

 

There has been no change in the Company’s internal control over financial reporting, as defined in Rules 13a-15(f) of the Exchange Act, during the Company’s quarter ended September 30, 2023, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

  

 

 

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PART II—OTHER INFORMATION

 

Item 6. Exhibits

 

 

SEC Ref. No. Title of Document
10.1* Amendment No. 5 to 12% Senior Secured Convertible Promissory Note dated effective March 1, 2023 with Sergey Gogin
10.2* Amendment No. 5 to 12% Senior Secured Convertible Promissory Note dated effective March 1, 2023 with YVSGRAMORAH LLC
10.3* Finder’s Fee Agreement dated August 17, 2023 with J.H. Darbie & Co., Inc.
10.4* Securities Purchase Agreement dated August 24, 2023 with GHS Investments, LLC
31.1* Rule 13a-14(a) Certification by Principal Executive Officer
31.2* Rule 13a-14(a) Certification by Principal Financial and Accounting Officer
32.1** Section 1350 Certification of Principal Executive Officer
32.2** Section 1350 Certification of Principal Financial and Accounting Officer
101.INS* Inline XBRL Instance Document
101.SCH* Inline XBRL Taxonomy Extension Schema Document
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document
104* Cover Page Interactive Data File (formatted in iXBRL, and included in exhibit 101)

 

*Filed with this Report.

**Furnished with this Report.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  IIOT-OXYS, Inc.
     
     
Date: November 13, 2023 By /s/ Clifford L. Emmons
    Clifford L. Emmons, Chief Executive Officer
    (Principal Executive Officer)
     
     
Date: November 13, 2023 By /s/ Karen McNemar
    Karen McNemar, Interim Chief Financial Officer
    (Principal Financial and Accounting Officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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