The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS, BASIS OF PRESENTATION
AND GOING CONCERN
Unless otherwise indicated, any reference to “the
Company”, “our company”, “we”, “us”, or “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., a Nevada corporation (the “Company”)
was established for the purpose of designing, building, testing, and selling Edge Computing Systems for the Industrial Internet. The Company
is currently devoting substantially all its efforts in identifying, developing and marketing engineered products, software and services
for applications in the Industrial Internet which involves collecting and processing data collected from a wide variety of industrial
systems and machines.
The Company was incorporated in the state of New Jersey
on October 1, 2003 under the name of Creative Beauty Supply Corporation and commenced operations as of January 1, 2004. On November 30,
2007, the Board of Directors approved a plan to dispose of its wholesale and retail beauty supply business. On May 18, 2015, the Company
changed its name to Gotham Capital Holdings. From January 1, 2009 until July 28, 2017, the Company had no operations. On March 16, 2017,
the Board of Directors approved a name change to “IIOT-OXYS, Inc.” and authorized a change of domicile from New Jersey to
Nevada.
Impact of COVID-19
During the period ended September 30, 2022, the effects
of a new coronavirus (“COVID-19”) and related actions to attempt to control its spread began to impact our business.
The impact of COVID-19 on our operating results for the quarter ended September 30, 2022 was limited, in all material respects, due to
the government mandated numerous measures, including closures of businesses, limitations on movements of individuals and goods, and the
imposition of other restrictive measures, in its efforts to mitigate the spread of COVID-19 within the country.
On March 11, 2020, the World Health Organization designated
COVID-19 as a global pandemic. Governments around the world have mandated, and continue to introduce, orders to slow the transmission
of the virus, including but not limited to shelter-in-place orders, quarantines, significant restrictions on travel, as well as work restrictions
that prohibit many employees from going to work. Uncertainty with respect to the economic effects of the pandemic has introduced significant
volatility in the financial markets.
Basis of Presentation
The accompanying financial statements have been prepared
in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the
accounts of the Company. The financial statements and accompanying notes are the representations of the Company’s management, who
is responsible for their integrity and objectivity. In the opinion of the Company’s management, the financial statements reflect
all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.
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 $1,473,996, used cash flows in operating activities
of $471,561, and has an accumulated deficit of $9,005,473 as of September 30, 2022. 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 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.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following summary of significant accounting policies
of the Company is presented to assist in the understanding of the Company’s financial statements. These accounting policies conform
to GAAP in all material respects and have been consistently applied in preparing the accompanying condensed consolidated financial statements.
Interim Financial Statements
The accompanying unaudited interim financial statements
and related notes have been prepared in accordance with GAAP for interim financial information, and in accordance with the rules and regulations
of the United States Securities and Exchange Commission (“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 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 consolidated financial statements should be read in conjunction with the audited
financial statements of the Company for the year ended December 31, 2021.
Principles of Consolidation
The consolidated financial statements for September
30, 2022 and 2021, respectively, include the accounts of Company, and its wholly-owned subsidiaries OXYS Corporation and HereLab, Inc.
All significant intercompany balances and transactions have been eliminated.
Reclassifications
Certain amounts in the prior periods presented have
been reclassified to conform to the current period financial statement presentation. These reclassifications have no effect on previously
reported net income.
Use of Estimates
The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of accounts payable, accrued
liabilities and payable to related 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.
Cash and Cash Equivalents
The Company considers all highly liquid instruments
with maturity of three months or less at the time of issuance to be cash equivalents. The Company did not have any cash equivalents as
of September 30, 2022 and December 31, 2021. The Company reported a cash balance of $34,284 and $46,821 as of September 30, 2022 and December
31, 2021, respectively.
Accounts Receivable and Allowance for Doubtful
Accounts
Trade accounts receivable are carried at original
invoice amount less an estimate made for doubtful accounts. The Company determines the allowance for doubtful accounts by identifying
potential troubled accounts and by using historical experience and future expectations applied to an aging of accounts. Trade accounts
receivable are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are recorded as income
when received. The Company recorded accounts receivable of $16,380 and $11,280 at September 30, 2022 and December 31, 2021, and no allowance
for doubtful accounts was deemed necessary as of September 30, 2022 and December 31, 2021, respectively.
Long-Lived Assets
The Company regularly reviews the carrying value and
estimated lives of its long-lived assets to determine whether indicators of impairment may exist that warrant adjustments to the carrying
value or estimated useful lives. The determinants used for this evaluation include management’s estimate of the asset’s ability
to generate positive income from operations and positive cash flow in future periods as well as the strategic significance of the assets
to the Company’s business objectives.
Definite-lived intangible assets are amortized on
a straight-line basis over the estimated periods benefited and are reviewed when appropriate for possible impairment.
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.
Revenue Recognition
The Company’s revenue is derived primarily from
providing services under contractual agreements. The Company recognizes revenue in accordance with ASC Topic No. 606, Revenue from
Contracts with Customers (“ASC 606”) which was adopted on January 1, 2018.
According to ASC 606, the Company recognizes revenue
based on the following criteria:
|
· |
Identification of a contract or contracts, with a customer. |
|
· |
Identification of the performance obligations in the contract. |
|
· |
Determination of contract price. |
|
· |
Allocation of transaction price to the performance obligation. |
|
· |
Recognition of revenue when, or as, performance obligation is satisfied. |
The Company used a practical expedient available under
ASC 606-10-65-1(f)4 that permits it to consider the aggregate effect of all contract modifications that occurred before the beginning
of the earliest period presented when identifying satisfied and unsatisfied performance obligations, transaction price, and allocating
the transaction price to the satisfied and unsatisfied performance obligations.
The Company has elected to treat shipping and handling
activities as cost of sales. Additionally, the Company has elected to record revenue net of sales and other similar taxes.
Concentration of Credit Risk
Financial instruments that potentially expose the
Company to concentrations of risk consist primarily of cash and cash equivalents which are generally not collateralized. The Company’s
policy is to place its cash and cash equivalents with high quality financial institutions, in order to limit the amount of credit exposure.
Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”), up to $250,000. At
September 30, 2022 and December 31, 2021, the Company had no amounts in excess of the FDIC insurance limit.
Fair Value of Financial Instruments and Fair Value
Measurements
ASC 820, “Fair Value Measurements and Disclosures”,
requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure
fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that
is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1 applies to assets or liabilities for which
there are quoted prices in active markets for identical assets or liabilities.
Level 2 applies to assets or liabilities for which
there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities
in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less
active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated
by, observable market data. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially
the full term of the asset or liability.
Level 3 applies to assets or liabilities for which
there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or
liabilities.
The Company’s consolidated financial instruments
consist of cash and cash equivalents, accounts receivable, prepaid expenses, accounts payable, accrued liabilities, notes payable and
related parties payable. The Company believes that the recorded values of all the financial instruments approximate their current fair
values because of their nature and respective maturity dates or durations.
Income Taxes
The Company accounts for income taxes using the asset
and liability method in accordance with ASC 740, “Income Taxes”. The asset and liability method provide that deferred
tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting
and tax basis of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are
measured using the currently enacted tax rates and laws. The Company records a valuation allowance to reduce deferred tax assets to the
amount that is believed more likely than not to be realized.
The Company follows the provisions of ASC 740-10,
“Accounting for Uncertain Income Tax Positions.” When tax returns are filed, it is highly certain that some positions
taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position
taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of
a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes
it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes,
if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition
threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with
the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described
above should be reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any
associated interest and penalties that would be payable to the taxing authorities upon examination.
Convertible Debt and Convertible Preferred Stock
When the Company issues convertible debt or convertible
preferred stock, it first evaluates the balance sheet classification of the convertible instrument in its entirety to determine whether
the instrument should be classified as a liability under ASC 480, Distinguishing Liabilities from Equity, and second whether the
conversion feature should be accounted for separately from the host instrument. A conversion feature of a convertible debt instrument
or certain convertible preferred stock would be separated from the convertible instrument and classified as a derivative liability if
the conversion feature, were it a standalone instrument, meets the definition of an “embedded derivative” in ASC 815, Derivatives
and Hedging. Generally, characteristics that require derivative treatment include, among others, when the conversion feature is not
indexed to the Company’s equity, as defined in ASC 815-40, or when it must be settled either in cash or by issuing stock that is
readily convertible to cash. When a conversion feature meets the definition of an embedded derivative, it would be separated from the
host instrument and classified as a derivative liability carried on the consolidated balance sheet at fair value, with any changes in
its fair value recognized currently in the consolidated statements of operations.
Effective January 1, 2022, we early adopted ASU 2020-06,
“Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s
Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” using the
modified retrospective method of adoption. ASU 2020-06 simplifies the accounting for convertible instruments by removing certain separation
models in Subtopic 470- 20, Debt—Debt with Conversion and Other Options, for convertible instruments. Under ASU 2020-06,
the embedded conversion features no longer are separated from the host contract for convertible instruments with conversion features that
are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums
accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at
its amortized cost as long as no other features require bifurcation and recognition as derivatives. By removing those separation models,
the interest rate of convertible debt instruments typically will be closer to the coupon interest rate when applying the guidance in Topic
835, Interest. We now account for our Convertible Notes as single liabilities measured at amortized cost. As a result, the adoption of
the guidance had a material impact on the consolidated financial statements and accompanying notes, resulting in adjustments of $371,125,
$313,976 and $57,149 to the opening balance of additional paid-in capital, retained earnings, and long-term debt, respectively, as of
January 1, 2022. We have updated our debt note (Note 5) with additional and modified disclosures as required by the standard upon
adoption.
Recent Accounting Pronouncements
In December 2019, the Financial Accounting Standards
Board issued Accounting Standards Update (“ASU”) ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the
Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes
certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.
This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, and interim
periods within fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the
impact of this guidance on its consolidated financial statements.
Other accounting standards that have been issued or
proposed by FASB and do not require adoption until a future date are not expected to have a material impact on the consolidated financial
statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated
to its financial condition, results of operations, cash flows or disclosures.
NOTE 3 - NOTE RECEIVABLE
On April 4, 2022, the Company executed an unsecured
convertible promissory note with the principal sum of $200,000 (“Note”) with a company incorporated under the laws of the
Province of British Columbia. The Note bears an original issuance discount of $7,500 and matures on April 4, 2024. The interest on the
Note will begin to accrue at the rate of 10% per annum from the date of the Note, and will continue to accrue on the outstanding principal
until the entire balance is paid or converted into shares of common stock equal to 3.23% of the fully diluted share capital of the borrower
on the conversion date. The terms of the Note require the borrower to prepay (i) within 30 days of April 4, 2022, the first twelve months
of interest totaling $20,000, and (ii) within six months of April 4, 2022, the interest for the second twelve months under the Note totaling
$20,000. The Company will have the right, at its option on the maturity date, to convert all the principal sum into the common stock equal
to 3.23% of the fully diluted share capital of the borrower as of the conversion date. On April 4, 2022, the Company paid to the borrower
$192,500 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. The Company recorded interest income earned on the Note of $5,041 and $9,808 for the three months and nine
months ended September 30, 2022, and interest income of $945 and $1,839 for the three months and nine months ended September 30, 2022.
The Company recorded unearned interest of $10,192 and unamortized original debt discount of $5,661 at September 30, 2022.
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
at September 30, 2022 and December 31, 2021 amounted to $261,062 and $298,085, respectively.
Intangible Assets Net of Amortization | |
| | |
| |
| |
September 30, 2022 | | |
December 31, 2021 | |
Intangible Assets | |
$ | 495,000 | | |
$ | 495,000 | |
Accumulated amortization | |
| (233,938 | ) | |
| (196,915 | ) |
Intangible Assets, net | |
$ | 261,062 | | |
$ | 298,085 | |
The Company determined that none of its intangible
assets were impaired as of September 30, 2022 and December 31, 2021, respectively, Amortizable intangible assets are amortized using the
straight-line method over their estimated useful lives of ten years. Amortization expense of finite-lived intangibles was $12,477 and
$12,477 for the three months ended September 30, 2022 and 2021, and $37,023 and $37,295 for the nine months ended September 30, 2022 and
2021, respectively.
The following table summarizes the Company’s
estimated future amortization expense of intangible assets with finite lives as of September 30:
Schedule of future amortization | |
| | |
| |
| Amortization
Expense | |
2022 (Remainder of the year) | |
$ | 12,477 | |
2023 | |
| 49,500 | |
2024 | |
| 49,500 | |
2025 | |
| 49,500 | |
2026 | |
| 49,500 | |
Thereafter | |
| 50,585 | |
Total | |
$ | 261,062 | |
NOTE 5 - COMMITMENTS AND CONTINGENCIES
On June 11, 2020, the Company entered into a Debt
Forgiveness Agreement with the CEO, pursuant to which the CEO forgave $185,000 of accrued and unpaid consulting fees owed to him pursuant
to his consulting agreement with the Company. On June 12, 2020, the Company entered into an amendment effective January 1, 2020 to the
Consulting Agreement with the CEO. The amendment stated that from January 1, 2020 until April 23, 2020, the Consultant shall be paid an
hourly wage of $12.75 per hour for services performed. From April 24, 2020 onward, the Consultant shall be paid an hourly wage of $48.08
an hour for services performed. Fees may accrue at the discretion of management. At any time, the Consultant shall have the right to convert
any accrued and unpaid fees into shares of Common Stock of the Company. The conversion price shall equal 90% multiplied by the market
price (representing a discount rate of 10%). On June 4, 2021, the Consulting Agreement of the CEO terminated pursuant to its terms. On
June 2, 2022, the Board approved an Employment Agreement with the CEO dated effective April 1, 2022 whereby, the CEO will receive an annual
salary of $100,000 which accrues unless converted into shares of common stock of the Company at a stipulated conversion rate. If the Company
reaches $1,000,000 in cumulative sales over a 12-month period, the annual salary will increase to $150,000 commencing the following month.
If the Company reaches $5,000,000 in cumulative sales over a 12-month period, the annual salary will increase to $200,000 commencing the
following month. The Company awarded the CEO an aggregate of 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 Company recorded $151,204 and $145,844 in salaries payable to the CEO as of September 30, 2022 and December 31, 2021, respectively.
On June 11, 2020, the Company entered into a Debt
Forgiveness Agreement with the COO, pursuant to which the COO forgave $103,250 of accrued and unpaid consulting fees owed to her pursuant
to her consulting agreement with the Company. On June 12, 2020, the Company entered into an amendment effective January 1, 2020 to
the Consulting Agreement with the COO. The amendment stated that from January 1, 2020 until April 23, 2020, the Consultant shall be paid
an hourly wage of $12.75 per hour for services performed. From April 24, 2020 onward, the Consultant shall be paid an hourly wage of $48.08
an hour for services performed. Fees may accrue at the discretion of management. At any time, the Consultant shall have the right to convert
any accrued and unpaid fees into shares of Common Stock of the Company. The conversion price shall equal 90% multiplied by the market
price (representing a discount rate of 10%).
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,
2024. The Company recorded $133,248 and $145,844 in salaries payable to the COO as of September 30, 2022 and December 31, 2021, 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, 2022 and December 31, 2021, respectively.
|
|
Schedule of convertible notes payable |
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
|
December 31,
2021 |
|
|
|
|
|
|
|
|
|
|
A. |
|
Convertible note payable to an investor with interest at 12% per annum, convertible at any time into shares of common stock at $0.008 per share. The balance of principal and accrued and unpaid interest is payable on maturity on March 1, 2023, 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 |
|
|
$ |
295,000 |
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
D. |
|
Convertible note payable to an investor with interest at 12% per annum, convertible at any time into shares of common stock at $0.008 per share. The balance of principal and accrued and unpaid interest is payable on March 1, 2023, 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 $0.01 per share. Principal and interest due on maturity on April 29, 2023. |
|
|
33,167 |
|
|
|
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 $0.0099 per share. Note was issued as payment for future fees to be incurred under the related Equity Financing Agreement. Principal and interest due on maturity on April 29, 2023. |
|
|
75,000 |
|
|
|
75,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
543,167 |
|
|
|
633,167 |
|
|
|
Less: deferred financing costs |
|
|
(75,700 |
) |
|
|
(75,700 |
) |
|
|
Less unamortized discount |
|
|
– |
|
|
|
(57,148 |
) |
|
|
Net balance |
|
|
467,467 |
|
|
|
500,319 |
|
|
|
Less current portion |
|
|
(363,167 |
) |
|
|
(233,167 |
) |
|
|
Long term portion |
|
$ |
104,300 |
|
|
$ |
267,152 |
|
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 May 23, 2022, the noteholder of Note A converted $90,000 of the principal note balance into 11,250,000 shares of the Company’s
common stock at the conversion price of $0.008 per share (Note 9).
On January 28,
2021, the noteholder of Note A agreed to extend the maturity date of the Senior Secured Convertible Promissory Note to March 1, 2022,
in exchange for the reduction of the conversion price to $0.01 per share, and all prior Events of Default (as defined in the Note A) including
penalties of $100,000 were waived, and all future Events of Default (as defined in the Note A) pertaining to the future payment of interest
were waived through maturity. On December 14, 2021, the Company entered into amendment to the Note A which limits the respective holder
to conversions resulting in beneficial ownership by the holder and its affiliates of no more than 4.99% of the outstanding shares of common
stock of the Company. The Company recorded $100,000 as extinguishment of debt in its statements of operations for the year ended December
31, 2021.
The Company recorded interest expense of $6,201 and
$22,631 for the three months and nine months ended September 30, 2022 compared to interest expense of $9,659 and $36,289 for the same
comparable periods of 2021. Accrued interest payable on Note A was $153,667 and $131,036 as of September 30, 2022 and December 31, 2021,
respectively.
The principal balance payable on Note A amounted to
$205,000 and $295,000 on September 30, 2022 and December 31, 2021, 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, 2022 of the Senior 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 (Note
9).
The Company recorded interest expense of $693 and
$2,057 on Note B for the three months and nine months ended September 30, 2022 compared to interest expense of $693 and $2,057 for the
same comparable periods of 2021. Accrued interest payable on Note B was $10,148 and $8,092 as of September 30, 2022 and December 31, 2021,
respectively. The principal balance payable on Note B amounted to $55,000 and $55,000 on September 30, 2022 and December 31, 2021, 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 January 28, 2021, the noteholder of Note D agreed
to extend the maturity date of the Senior Secured Convertible Promissory Note to March 1, 2022 in exchange for the reduction of the conversion
price to $0.01 per share, and all prior Events of Default (as defined in the Note D) including penalties of $10,000 were waived, and all
future Events of Default (as defined in the Note D) pertaining to the future payment of interest were waived through maturity. The Company
recorded $10,000 as extinguishment of debt in its statements of operations for the nine months ended September 30, 2021.
The Company recorded interest expense of $1,512
and $4,487 on Note D for the three months and nine months ended September 30, 2022 compared to interest expense of $1,512 and $4,603 for
the same comparable periods of 2021. Accrued interest payable on Note D was $19,185 and $14,698 as of September 30, 2022 and December
31, 2021, respectively. The principal balance payable on Note D amounted to $50,000 on September 30, 2022 and December 31, 2021, 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 Senior 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, 2022 compared to interest expense of $3,781 and $11,219 for
the same comparable periods of 2021. Accrued interest payable on Note E was $44,909 and $14,698 as of September 30, 2022 and December
31, 2021, respectively. The principal balance payable on Note E amounted to $125,000 and $125,000 on September 30, 2022 and December 31,
2021, respectively.
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 Senior Secured Convertible Promissory Note to April 29, 2023. All other terms and conditions of the
Note F remain the same. On February 1, 2021, the noteholder of Note F converted the principal balance of $66,833 of its convertible promissory
note and $5,177 of accrued interest into 7,200,000 shares of common stock of the Company. On November 4, 2021, the noteholder of Note
F agreed to extend the maturity date of the Note F from October 29, 2021 to April 29, 2022 in exchange of receiving 625,000 shares of
common stock valued at $5,563 as commitment fee for extending the maturity date of Note F.
The Company recorded interest expense of $836 and
$2,481 on Note F for the three months and nine months ended September 30, 2022 compared to interest expense of $836 and $3,067 for the
same comparable periods of 2021. Accrued interest payable on Note F was $4,193 and $1,712 as of September 30, 2022 and December 31, 2021,
respectively. The principal balance payable on Note F amounted to $33,167 on September 30, 2022 and December 31, 2021, 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 Senior Secured Convertible Promissory Note to April 29, 2023. All other terms and conditions of the
Note G remain the same. On November 4, 2021, the noteholder of Note G agreed to extend the maturity date of the Note G from October 29,
2021 to April 29, 2022 in exchange of receiving 625,000 shares of common stock valued at $5,563 as commitment fee for extending the maturity
date of Note G.
The Company recorded interest expense of $1,890 and
$5,610 on Note G for the three months and nine months ended September 30, 2022 compared to interest expense of $1,890 and $5,610 for the
same comparable periods of 2021. Accrued interest payable on Note G was $15,349 and $9,740 as of September 30, 2022 and December 31, 2021,
respectively. The principal balance payable of Note G amounted to $75,000 at September 30, 2022 and December 31, 2021, 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 and nine months ended September 30, 2022 and 2021:
Schedule of earnings per share | |
| | |
| |
| |
Three Months Ended September 30, | |
| |
2022 | | |
2021 | |
Net loss attributable to common stockholders (basic) | |
$ | (49,204 | ) | |
$ | (331,433 | ) |
| |
| | | |
| | |
Shares used to compute net loss per common share, basic and diluted | |
| 287,269,793 | | |
| 209,650,048 | |
| |
| | | |
| | |
Net loss per share attributable to common stockholders, basic and diluted | |
$ | (0.00 | ) | |
$ | (0.00 | ) |
| |
| | |
| |
| |
Nine Months Ended September 30, | |
| |
2022 | | |
2021 | |
Net loss attributable to common stockholders (basic) | |
$ | (775,217 | ) | |
$ | (818,211 | ) |
| |
| | | |
| | |
Shares used to compute net loss per common share, basic and diluted | |
| 256,358,480 | | |
| 188,036,903 | |
| |
| | | |
| | |
Net loss per share attributable to common stockholders, basic and diluted | |
$ | (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.
The following outstanding common stock equivalents
have been excluded from diluted net loss per common share for the nine months ended September 30, 2022 and 2021, respectively, because
their inclusion would be anti-dilutive:
Schedule of anti-dilutive shares | |
| | |
| |
| |
As of September 30, | |
| |
2022 | | |
2021 | |
Warrants to purchase common stock | |
| 2,868,397 | | |
| 2,868,397 | |
Potentially issuable shares related to convertible notes payable and convertible preferred stock | |
| 351,967,716 | | |
| 322,132,917 | |
Potentially issuable unvested shares to directors and officers | |
| 14,000,000 | | |
| 1,200,000 | |
Potentially issuable vested shares to a consultant | |
| – | | |
| 150,000 | |
Total anti-dilutive common stock equivalents | |
| 368,836,113 | | |
| 326,351,314 | |
NOTE 8 - RELATED PARTIES
At September 30, 2022 and December 31, 2021, 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, 2022 and 2021, respectively. The Company has
recorded $1,000 and $750 of rent payable to the stockholder in accounts payable as of September 30, 2022 and December 31, 2021, respectively.
NOTE 9 - STOCKHOLDERS' EQUITY
The Company
has an authorized capital of 1,000,000,000 shares, $0.001 par value common stock, and 10,000,000 shares of $0.001 par value preferred
stock at September 30, 2022. The Company has 309,083,423 shares and 220,254,396 shares of common stock, and 25,896 shares and 25,845 shares
of preferred stock, issued and outstanding as of September 30, 2022 and December 31, 2021, 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 27, 2022 to September 30, 2022, the investor purchased 77,479,027 shares of common stock for a
cash consideration of $481,657. The shares sold to the investor were valued at 80% of the lowest traded price of common stock during the
ten consecutive days preceding the relevant purchase date.
On February 23, 2022, the Company issued to a consultant
for services rendered, pursuant to a consulting agreement, 100,000 shares of common stock valued at the fair market price on the date
of issuance of $900.
On May 23, 2022, the noteholder of Note A converted
$90,000 of the principal note balance into 11,250,000 shares of the Company’s common stock at the agreed conversion price of $0.008
per share (Note 6).
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. The common shares vested pursuant to the 2022 Plan amounted to 0
shares at September 30, 2022 and the 14,000,000
remain unvested as of that date. For the three months and nine months ended September 30, 2022, the Company recorded $3,617
and $12,221
as stock compensation expense for the 764,384 shares and 1,512,329 shares payable to an officer and a director that remain unvested
as of September 30, 2022.
Shares earned and issued related to the consulting
agreements are issued under the 2017 Stock Incentive Plan and the 2019 Stock Incentive Plan (Note 4). Vesting of the shares is subject
to acceleration of vesting upon the occurrence of certain events such as a Change of Control (as defined in the agreement) or the listing
of the Company’s common stock on a senior exchange.
A summary of the status of the Company’s non-vested
shares as of September 30, 2022 and 2021, and changes during the six months period then ended, is presented below:
Summary of non-vested shares | |
| | |
| |
2022 Plan | |
Non-vested Shares of Common Stock | | |
Weighted Average Fair Value | |
Balance at December 31, 2021 | |
| – | | |
$ | – | |
Awarded | |
| 14,000,000 | | |
| – | |
Vested | |
| – | | |
| 0.008081 | |
Forfeited | |
| – | | |
| – | |
Balance at September 30, 2022 | |
| 14,000,000 | | |
$ | – | |
| |
| | | |
| | |
2017 Plan and 2019 Plan | |
| | | |
| | |
Balance at December 31, 2020 | |
| 3,600,000 | | |
$ | 0.30 | |
Awarded | |
| – | | |
| – | |
Vested | |
| (3,600,000 | ) | |
| 0.30 | |
Forfeited | |
| – | | |
| – | |
Balance at September 30, 2021 | |
| – | | |
$ | 0.30 | |
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.
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 25,896 shares of preferred stock issued
and outstanding at September 30, 2022 and December 31, 2021, 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.
Liquidation: Upon any liquidation, dissolution
or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders shall be entitled to receive
out of the assets, whether capital or surplus, of the Corporation an amount equal to the Stated Value, plus any accrued and unpaid dividends
thereon and any other fees or liquidated damages then due and owing thereon under this Certificate of Designation, for each share of Series
B Convertible Preferred Stock before any distribution or payment shall be made to the holders of any Junior Securities, and if the assets
of the Corporation shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Holders shall be
ratably distributed among the Holders in accordance with the respective amounts that would be payable on such shares if all amounts payable
thereon were paid in full.
Conversion: Each
share of Series B Convertible Preferred Stock shall be convertible, at any time and from time to time from and after the Original
Issue Date at the option of the Holder thereof, into that number of shares of common stock (subject to the limitations) determined
by dividing the Stated Value of such share of Series B Convertible Preferred Stock by the Conversion Price. The Conversion Price for
the Series B Convertible Preferred Stock shall be the amount equal to the lowest traded price for the Company’s common stock
for the fifteen (15) Trading Days immediately preceding the date of such conversion. All such foregoing determinations will be
appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction that
proportionately decreases or increases the common stock during such measuring period. Following an event of default, the Conversion
price shall equal the lower of: (a) the then applicable Conversion Price; or (b) a price per share equaling 80% of the lowest
traded price for the Company’s common stock during the ten (10) trading days preceding the relevant Conversion.
Redemption: The Series B Convertible
Preferred Stock may be redeemed by payment of the stated value thereof, with the following premiums based on the time of the
redemption.
|
· |
115% of the stated value if the redemption takes place within 90 days of issuance; |
|
|
|
|
· |
120% of the stated value if the redemption takes place after 90 days and within 120 days of issuance |
|
|
|
|
· |
125% of the stated value if the redemption takes place after 120 days and within 180 days of issuance; and |
|
|
|
|
· |
each share of Preferred Stock is redeemed one year from the day of issuance |
On November 19, 2020, pursuant to the terms of a Securities
Purchase Agreement dated November 16, 2020 (the “SPA”), the Company entered into a new preferred equity financing agreement
with GHS Investments, LLC (“GHS”) in the amount of up to $600,000. The SPA provides for GHS’s purchase, from
time to time, of up to 600 shares of the newly-designated Series B Convertible Preferred Stock. The initial closing under the SPA consisted
of 45 shares of Series B Convertible Preferred Stock, stated value $1,200 per share, issued to GHS for an initial purchase price of $45,000,
or $1,000 per share. At the Company’s option, and subject to the terms of the SPA and the Certificate of Designation for the Series
B Convertible Preferred Stock (the “COD”), additional closings in the amount of 40 shares of Series B Convertible Preferred
Stock for a total purchase price of $40,000 may take place at a rate of up to once every 30 days. In connection with the initial closing
in the amount of 45 shares of Series B Convertible Preferred Stock, the Company issued an additional 25 shares of Series B Convertible
Preferred Stock to GHS as a service fee.
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 $84,000 as amortization. The Company recalculated the value of the derivative liability associated with the convertible
note and recorded a gain of $25,701 and a loss of $7,755 for the three months ended September 30, 2022 and 2021, respectively, and recorded
a gain of $28,848 and a gain of $79,211 for the nine months ended September 30, 2022 and 2021, respectively, in connection with the change
in fair market value of the derivative liability. In addition, the Company recorded $2,541 and $2,541 as preferred stock dividend for
the three months ended September 30, 2022 and 2021, and $7,539 and $7,539 for the nine months ended September 30, 2022 and 2021, respectively,
payable to GHS. Preferred stock dividend payable to GHS was $18,779 and $11,240 as of September 30, 2022 and December 31, 2021, respectively.
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,
$1,700 as interest expense, $102,000 as Series B Convertible Preferred Stock a mezzanine liability, and $102,000 as amortization. The
Company recalculated the value of the derivative liability associated with the convertible note and recorded a gain of $31,208 and a loss
of $10,348 for the three months ended September 30, 2022 and 2021, respectively, and recorded a gain of $40,096 and $93,358 for the nine
months ended September 30, 2022 and 2021, respectively, in connection with the change in fair market value of the derivative liability.
In addition, the Company recorded $3,085 and $3,085 as preferred stock dividend for the three months ended September 30, 2022 and 2021,
and $9,155 and $9,155 for the nine months ended September 30, 2022 and 2021, respectively, payable to GHS. Preferred stock dividend payable
to GHS was $21,898 and $12,743 as of September 30, 2022 and December 31, 2021, respectively.
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, $15,025
as day one loss on the derivative, $10,200 as interest expense, and $10,200 as Series B Convertible Preferred Stock mezzanine liability,
and $61,200 as amortization. The Company recalculated the value of the derivative liability associated with the convertible note and recorded
a gain of $18,725 for the three months ended September 30, 2022, and a gain of $17,667 for the nine months ended September 30, 2022, in
connection with the change in fair market value of the derivative liability. In addition, the Company recorded $1,851 as preferred stock
dividend for the three months ended September 30, 2022, and $4,728 as preferred dividend for the nine months ended September 30, 2022,
payable to GHS. Preferred stock dividend payable to GHS was $4,728 as of September 30, 2022.
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 $163,200 as amortization. The Company recalculated the value of the derivative liability associated with the convertible note and
recorded 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 of $4,936 and $10,194 for the
three months and nine months ended September 30, 2022 payable to GHS. Preferred stock dividend payable to GHS was $10,194 as of September
30, 2022.
The Company valued the fair value using the Black-Scholes
option pricing model at September 30, 2022, with the following assumptions: conversion exercise price - $0.0031, the closing stock price
of the Company's common stock on the date of valuation - $0.0032, an expected dividend yield - 0%, expected volatility – 177.44%,
risk-free interest rate – 4.05%, and an expected term – 1.5 years.
As a result of receipt of cash proceeds relating to
Series B Convertible Preferred Stock, the Company recorded derivative liability of $328,839 and $212,816 at September 30, 2022 and December
31, 2021, respectively. In addition, preferred stock dividend payable was $55,600 and $23,983 at September 30, 2022 and December 31, 2021,
respectively, and loss on derivatives for the three months and nine months ended
September 30, 2022 was $5,504 and $207,447, and for the three months and nine months ended September 30, 2021 was $0 and $0, respectively.
Warrants
A summary of the status of the Company’s warrants
as of September 30, 2022 and 2021, and changes during the three months then ended, is presented below:
Summary of warrant activity | |
| | |
| | |
| |
| |
Shares Under Warrants | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Life | |
Outstanding at December 31, 2020 | |
| – | | |
| – | | |
| | |
Issued | |
| 2,868,397 | | |
$ | 0.00084 | | |
| 3.4 Years | |
Exercised | |
| – | | |
| – | | |
| | |
Expired/Forfeited | |
| – | | |
| – | | |
| | |
Outstanding at September 30, 2021 | |
| 2,868,397 | | |
$ | 0.00084 | | |
| 2.7 Years | |
| |
| | | |
| | | |
| | |
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 | | |
| 1.7 Years | |
NOTE 10 - SUBSEQUENT EVENTS
Management has evaluated subsequent events through
the date of this Report, the date the financial statements were available to be issued, noting the following items that would impact the
accounting for events or transactions in the current period or require additional disclosure.
On October 16, 2022, pursuant to the Equity Financing
Agreement, the Company sold 6,130,677 shares of its common stock for cash consideration of $12,038 and paid sales commissions of $241.
On November 1, 2022, pursuant to the Equity Financing
Agreement, the Company sold 6,364,961 shares of its common stock for cash consideration of $10,936 and paid sales commissions of $219.
Report of Independent
Registered Public Accounting Firm
To the Board of Directors and
Stockholders of IIOT-OXYS, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets
of IIOT-OXYS, Inc. (the Company) as of December 31, 2021 and 2020, and the related statements of operations, stockholders’ equity
(deficit), and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred
to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position
of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year
period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Consideration of the Company’s Ability
to Continue as a Going Concern
The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. As more fully described in Note 1 to the financial statements, the
Company has incurred net losses since inception and has negative cash flows from operations. These factors raise substantial doubt about
the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in
Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding
of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Haynie & Company
Haynie & Company
Salt Lake City, Utah
Firm ID: 457
April 14, 2022
We have served as the Company’s auditor
since 2018.
IIOT-OXYS, Inc. and Subsidiaries
Consolidated Balance Sheets
| |
| | | |
| | |
| |
December 31, 2021 | | |
December 31, 2020 | |
ASSETS | |
| | | |
| | |
Current Assets | |
| | | |
| | |
Cash and Cash Equivalents | |
$ | 46,821 | | |
$ | 103,074 | |
Accounts Receivable, Net | |
| 11,280 | | |
| – | |
Prepaid Expenses | |
| 7,773 | | |
| 2,427 | |
Total Current Assets | |
| 65,874 | | |
| 105,501 | |
| |
| | | |
| | |
Intangible Assets, Net | |
| 298,085 | | |
| 347,856 | |
| |
| | | |
| | |
Total Assets | |
$ | 363,959 | | |
$ | 453,357 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | |
| | | |
| | |
Current Liabilities | |
| | | |
| | |
Accounts Payable | |
$ | 161,171 | | |
$ | 169,914 | |
Accrued Liabilities | |
| 247,155 | | |
| 147,490 | |
Deferred Revenue | |
| 46,425 | | |
| 46,425 | |
Notes Payable, net of discounts of $57,148 and $111,781 at December 31, 2021 and 2020, respectively | |
| 233,167 | | |
| 953,219 | |
Shares Payable to Related Parties | |
| – | | |
| 730,836 | |
Salaries Payable to Related Parties | |
| 273,926 | | |
| 407,271 | |
Derivative Liability | |
| 212,816 | | |
| 315,782 | |
Total Current Liabilities | |
| 1,174,660 | | |
| 2,770,937 | |
| |
| | | |
| | |
PPP Liability | |
| – | | |
| 36,700 | |
Notes Payable | |
| 267,152 | | |
| – | |
Due to Stockholders | |
| 1,000 | | |
| 1,000 | |
Total Liabilities | |
| 1,442,812 | | |
| 2,808,637 | |
| |
| | | |
| | |
Commitments and Contingencies (Note 4) | |
| – | | |
| – | |
| |
| | | |
| | |
Series B Convertible Preferred Stock, 600 Shares Designated, $0.001 Par Value, $1,200 Stated Value; 155 Shares Issued and Outstanding at December 31, 2021 and 2020, Respectively. Liquidation Preference $186,000 as of December 31, 2021 and 2020, respectively | |
| 186,000 | | |
| 186,000 | |
| |
| | | |
| | |
Stockholders' Equity (Deficit) | |
| | | |
| | |
Preferred Stock Series A, $0.001 Par Value, 10,000,000 Shares authorized; 25,896 shares and 25,845 Shares Issued and Outstanding at December 31, 2021 and 2020, Respectively | |
| 26 | | |
| 26 | |
Common Stock $0.001 Par Value, 1,000,000,000 shares Authorized; 220,254,395 Shares and 145,110,129 Shares Issued and Outstanding at December 31, 2021 and 2020, Respectively | |
| 220,255 | | |
| 145,111 | |
Additional Paid in Capital | |
| 7,059,098 | | |
| 4,794,261 | |
Accumulated Deficit | |
| (8,544,232 | ) | |
| (7,480,678 | ) |
Total Stockholders' Equity (Deficit) | |
| (1,264,853 | ) | |
| (2,541,280 | ) |
| |
| | | |
| | |
Total Liabilities and Stockholders' Equity (Deficit) | |
$ | 363,959 | | |
$ | 453,357 | |
The accompanying notes are an integral part of these consolidated financial statements.
IIOT-OXYS, Inc. and Subsidiaries
Consolidated Statements of Operations
| |
| | | |
| | |
| |
For The Years Ended December 31, | |
| |
2021 | | |
2020 | |
Revenues | |
$ | 11,280 | | |
$ | 36,771 | |
| |
| | | |
| | |
Cost of Sales | |
| 2,040 | | |
| 15,044 | |
| |
| | | |
| | |
Gross Profit | |
| 9,240 | | |
| 21,727 | |
| |
| | | |
| | |
Operating Expenses | |
| | | |
| | |
Bank Service Charges | |
| 229 | | |
| 5,478 | |
Office Expenses | |
| 29,281 | | |
| 12,940 | |
Organization Costs | |
| – | | |
| 36,030 | |
Payroll Expense | |
| 301,707 | | |
| 137,220 | |
Professional | |
| 508,153 | | |
| 802,135 | |
Patent License Fee | |
| – | | |
| 4,932 | |
Amortization of Intangible Assets | |
| 49,771 | | |
| 49,636 | |
Total Operating Expenses | |
| 889,141 | | |
| 1,048,371 | |
| |
| | | |
| | |
Other Income (Expense) | |
| | | |
| | |
Gain (Loss) on Change in FMV of Derivative Liability | |
| 102,966 | | |
| (220,325 | ) |
Loss on Derivative | |
| – | | |
| (239,396 | ) |
Gain (Loss) on Extinguishment of Debt | |
| 120,000 | | |
| (16,205 | ) |
Interest Expense | |
| (430,999 | ) | |
| (737,541 | ) |
Other Income | |
| 46,700 | | |
| 5,000 | |
Total Other Income (Expense) | |
| (161,333 | ) | |
| (1,208,467 | ) |
| |
| | | |
| | |
Net Loss Before Income Taxes | |
| (1,041,234 | ) | |
| (2,235,111 | ) |
| |
| | | |
| | |
Provision for Income Tax | |
| – | | |
| – | |
| |
| | | |
| | |
Net Loss | |
$ | (1,041,234 | ) | |
$ | (2,235,111 | ) |
| |
| | | |
| | |
Convertible Preferred Stock Dividend | |
| (22,320 | ) | |
| (1,663 | ) |
| |
| | | |
| | |
Net Loss Attributable to Common Stockholders | |
$ | (1,063,554 | ) | |
$ | (2,236,774 | ) |
| |
| | | |
| | |
Net Loss Per Share Attributable to Common Stockholders - Basic and Diluted | |
$ | (0.01 | ) | |
$ | (0.02 | ) |
| |
| | | |
| | |
Weighted Average Shares Outstanding Attributable to Common Stockholders
- Basic and Diluted | |
| 195,264,873 | | |
| 110,119,684 | |
The accompanying notes are an integral
part of these consolidated financial statements.
IIOT-OXYS, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
For the Years Ended December 31, 2021 and 2020
|
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Preferred
Stock | |
Common
Stock | |
Additional | |
| |
| |
|
Shares | |
Amount | |
Shares | |
Amount | |
Paid-In
Capital | |
Accumulated
Deficit | |
Total
Stockholders' Equity (Deficit) | |
Balance - December 31, 2019 |
| – | |
$ | – | |
| 43,313,547 | |
$ | 43,314 | |
$ | 3,077,972 | |
$ | (5,040,307 | ) |
$ | (1,919,021 | ) |
Preferred Stock Issued in Exchange of Shares Exchange |
| 25,845 | |
| 26 | |
| – | |
| – | |
| 424,092 | |
| – | |
| 424,118 | |
Common Stock Issued for Conversion of Convertible Note
Payable |
| – | |
| – | |
| 51,950,000 | |
| 51,950 | |
| 10,686 | |
| – | |
| 62,636 | |
Common Stock issued for Conversion of Detachable Warrants |
| – | |
| – | |
| 40,802,082 | |
| 40,802 | |
| (40,802 | ) |
| – | |
| – | |
Relief of Derivative Liabilities |
| – | |
| – | |
| – | |
| – | |
| 235,393 | |
| – | |
| 235,393 | |
Warrants Issued for Default of Convertible Note Payables |
| – | |
| – | |
| – | |
| – | |
| 163,433 | |
| – | |
| 163,433 | |
Changes in FMV of Warrants Related to Convertible Note
Payables |
| – | |
| – | |
| – | |
| – | |
| 203,597 | |
| (203,597 | ) |
| – | |
Beneficial Conversion Feature Discount on Note Payable |
| – | |
| – | |
| – | |
| – | |
| 26,833 | |
| – | |
| 26,833 | |
Common Stock Issued for Extinguishment of Debt |
| – | |
| – | |
| 6,760,000 | |
| 6,760 | |
| 9,991 | |
| – | |
| 16,751 | |
Common Stock Issued to Officers for Services |
| – | |
| – | |
| 2,284,500 | |
| 2,285 | |
| 683,066 | |
| – | |
| 685,351 | |
Net Loss |
| – | |
| – | |
| – | |
| – | |
| – | |
| (2,236,774 | ) |
| (2,236,774 | ) |
Balance - December 31, 2020 |
| 25,845 | |
| 26 | |
| 145,110,129 | |
| 145,111 | |
| 4,794,261 | |
| (7,480,678 | ) |
| (2,541,280 | ) |
|
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Common Stock Issued for Conversion of Convertible Note
Payable |
| – | |
| – | |
| 32,350,978 | |
| 32,351 | |
| 291,169 | |
| – | |
| 323,520 | |
Common Stock Sold for Cash |
| – | |
| – | |
| 35,500,000 | |
| 35,500 | |
| 497,000 | |
| – | |
| 532,500 | |
Common Stock Issued for Extension of Notes Payable |
| – | |
| – | |
| 1,250,000 | |
| 1,250 | |
| 9,875 | |
| – | |
| 11,125 | |
Common Stock Issued for Financing Commitment |
| – | |
| – | |
| 1,800,000 | |
| 1,800 | |
| (1,800 | ) |
| – | |
| – | |
Preferred Stock Sold for Cash |
| 51 | |
| – | |
| – | |
| – | |
| 51,000 | |
| – | |
| 51,000 | |
Beneficial Conversion Feature Discount on Notes Payable |
| – | |
| – | |
| – | |
| – | |
| 360,000 | |
| – | |
| 360,000 | |
Commission Paid for Raising Capital |
| – | |
| – | |
| – | |
| – | |
| (11,650 | ) |
| – | |
| (11,650 | ) |
Common Stock Issued for Accrued Compensation |
| – | |
| – | |
| 3,693,288 | |
| 3,693 | |
| 1,061,093 | |
| – | |
| 1,064,786 | |
Common Stock Issued for Services |
| – | |
| – | |
| 550,000 | |
| 550 | |
| 8,150 | |
| – | |
| 8,700 | |
Net Loss |
| – | |
| – | |
| – | |
| – | |
| – | |
| (1,063,554 | ) |
| (1,063,554 | ) |
Balance - December 31, 2021 |
| 25,896 | |
$ | 26 | |
| 220,254,395 | |
$ | 220,255 | |
$ | 7,059,098 | |
$ | (8,544,232 | ) |
$ | (1,264,853 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
IIOT-OXYS, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
|
| |
| |
|
For The Years Ended December 31, | |
|
2021 | |
2020 | |
Cash Flows From Operating Activities |
| | |
| | |
Net Loss |
$ | (1,063,554 | ) |
$ | (2,236,774 | ) |
Adjustments to Reconcile Net Loss to Net Cash (Used) By Operating Activities |
| | |
| | |
Loss on Extinguishment of Debt |
| – | |
| 16,205 | |
Loss on Issuance of Default Warrants |
| – | |
| 163,433 | |
Loss due to Change in Fair Market Value of Derivative Liability |
| – | |
| 220,325 | |
Loss on Derivative Liability |
| – | |
| 239,396 | |
Preferred Stock Issued for Services |
| – | |
| 8,794 | |
Penalty and Fees Incurred due to Default Increase in Notes Payable |
| – | |
| 162,976 | |
Forgiveness of PPP Loan |
| (36,700 | ) |
| – | |
Debt discount on notes payable |
| (129,380 | ) |
| – | |
Beneficial conversion feature |
| 360,000 | |
| 106,388 | |
Amortization of Intangible Assets |
| 49,771 | |
| 49,636 | |
Amortization of Series B Preferred Stock to redemption |
| – | |
| 186,000 | |
Changes in Operating Assets and Liabilities |
| | |
| | |
(Increase) Decrease in: |
| | |
| | |
Accounts Receivable |
| (11,280 | ) |
| 28,004 | |
Prepaid Expense |
| (5,346 | ) |
| 1,283 | |
Increase (Decrease) in: |
| | |
| | |
Accounts Payable |
| (8,743 | ) |
| 5,352 | |
Accrued Liabilities |
| 110,789 | |
| 92,483 | |
Derivative liability |
| (102,966 | ) |
| – | |
Deferred Revenue |
| – | |
| 46,425 | |
Shares Payable to Related Parties |
| 342,650 | |
| 728,892 | |
Salaries Payable to Related Parties |
| (133,345 | ) |
| 64,044 | |
Net Cash Used by Operating Activities |
| (628,103 | ) |
| (117,138 | ) |
|
| | |
| | |
Cash Flows From Financing Activities |
| | |
| | |
Cash Received from Convertible Note Payable |
| 521,850 | |
| 129,300 | |
Cash Payments of Notes Payable |
| – | |
| (100,000 | ) |
Proceeds from sale of Series B Preferred Stock |
| 50,000 | |
| 130,000 | |
Proceeds from PPP Loan |
| – | |
| 36,700 | |
Net Cash Provided By Financing Activities |
| 571,850 | |
| 196,000 | |
|
| | |
| | |
Net Decrease in Cash and Cash Equivalents |
| (56,253 | ) |
| 78,862 | |
|
| | |
| | |
Cash and Cash Equivalents - Beginning of Period |
| 103,074 | |
| 24,212 | |
|
| | |
| | |
Cash and Cash Equivalents - End of Period |
$ | 46,821 | |
$ | 103,074 | |
|
| | |
| | |
Supplement Disclosures of Cash Flow Information |
| | |
| | |
Interest Paid During the Period |
$ | – | |
$ | – | |
Income Taxes Paid During the Period |
$ | – | |
$ | – | |
|
| | |
| | |
Supplemental Disclosures of Non-Cash Investing and Financing Activities |
| | |
| | |
Discount on Notes Payable |
$ | 26,833 | |
$ | 26,833 | |
Conversion of Convertible Notes Payable and Derivative Liabilities |
$ | 288,029 | |
$ | 288,029 | |
Warrant Anti-Dilution Issuance |
$ | 203,597 | |
$ | 203,597 | |
Discount on Series B Preferred Stock |
$ | 186,000 | |
$ | 186,000 | |
The accompanying notes are an integral part of these consolidated financial statements.
IIOT-OXYS, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements
December 31, 2021 and 2020
NOTE 1 - NATURE OF OPERATIONS, BASIS OF PRESENTATION
AND GOING CONCERN
Unless otherwise indicated, any reference to “the
Company”, “our company”, “we”, “us”, or “our” refers to IIOT-OXYS, Inc., a Nevada
corporation, and as applicable to its wholly-owned subsidiaries, OXYS Corporation, a Nevada corporation, and HereLab, Inc., a Delaware
corporation.
IIOT-OXYS, Inc., a Nevada corporation (the “Company”)
was originally established for the purpose of designing, building, testing, and selling Edge Computing Systems for the Industrial Internet.
The Company is currently devoting substantially all its efforts in identifying, developing and marketing engineered products, software
and services for applications in the Industrial Internet which involves collecting and processing data collected from a wide variety of
industrial systems and machines.
We were incorporated in the state of New Jersey
on October 1, 2003 under the name of Creative Beauty Supply Corporation and commenced operations as of January 1, 2004. On November 30,
2007, our Board of Directors approved a plan to dispose of our wholesale and retail beauty supply business. On May 18, 2015, we changed
our name to Gotham Capital Holdings. From January 1, 2009 until July 28, 2017, we had no operations. On March 16, 2017, our Board of Directors
approved to change our name to “IIOT-OXYS, Inc.” and authorized a change of domicile from New Jersey to Nevada.
Impact of COVID-19
During the year ended December 31, 2021, the effects
of a new coronavirus (“COVID-19”) and related actions to attempt to control its spread began to impact our business. The impact
of COVID-19 on our operating results for the year ended December 31, 2021 was limited, in all material respects, due to the government
mandated numerous measures, including closures of businesses, limitations on movements of individuals and goods, and the imposition of
other restrictive measures, in its efforts to mitigate the spread of COVID-19 within the country.
On March 11, 2020, the World Health Organization
designated COVID-19 as a global pandemic. Governments around the world have mandated, and continue to introduce, orders to slow the transmission
of the virus, including but not limited to shelter-in-place orders, quarantines, significant restrictions on travel, as well as work restrictions
that prohibit many employees from going to work. Uncertainty with respect to the economic effects of the pandemic has introduced significant
volatility in the financial markets.
Basis of Presentation
The accompanying financial statements have been
prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include
the accounts of the Company. The financial statements and accompanying notes are the representations of the Company’s management,
who is responsible for their integrity and objectivity. In the opinion of the Company’s management, the financial statements reflect
all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.
Principles of Consolidation
The consolidated financial statements for the
years ended December 31, 2021 and 2020, respectively, include the accounts of Company, and its wholly-owned subsidiaries OXYS Corporation
and HereLab, Inc. All significant intercompany balances and transactions have been eliminated.
Reclassifications
Certain amounts in the prior periods presented
have been reclassified to conform to the current period financial statement presentation. These reclassifications have no effect on previously
reported net income.
Use of Estimates
The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of accounts payable, accrued
liabilities and payable to related party. The Company bases its estimates and assumptions on current facts, historical experience and
various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.
The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there
are material differences between the estimates and the actual results, future results of operations will be affected.
Going Concern
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the
Company has suffered continuing operating losses, used cash flows in operating activities of $628,103
and has an accumulated deficit of $8,544,232
as of December 31, 2021. 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
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 12 months by generating cash through
additional borrowings and/or sale of equity securities, as needed. However, there can be no assurance that the Company will be able to
generate sufficient liquidity to maintain its operations. The financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The following summary of significant accounting
policies of the Company is presented to assist in the understanding of the Company’s financial statements. These accounting policies
conform to GAAP in all material respects and have been consistently applied in preparing the accompanying financial statements.
Cash and Cash Equivalents
The Company considers all highly liquid instruments
with maturity of three months or less at the time of issuance to be cash equivalents. The Company reported a cash balance of $46,821 and
$103,074 as of December 31, 2021 and 2020, respectively.
Accounts Receivable and Allowance for Doubtful
Accounts
Trade accounts receivable are carried at original
invoice amount less an estimate made for doubtful accounts. The Company determines the allowance for doubtful accounts by identifying
potential troubled accounts and by using historical experience and future expectations applied to an aging of accounts. Trade accounts
receivable are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are recorded as income
when received. There was no allowance for doubtful accounts as of December 31, 2021 and December 31, 2020, respectively.
Long-Lived Assets
The Company regularly reviews the carrying value
and estimated lives of its long-lived assets to determine whether indicators of impairment may exist that warrant adjustments to the carrying
value or estimated useful lives. The determinants used for this evaluation include management’s estimate of the asset’s ability
to generate positive income from operations and positive cash flow in future periods as well as the strategic significance of the assets
to the Company’s business objectives.
Definite-lived intangible assets are amortized
on a straight-line basis over the estimated periods benefited and are reviewed when appropriate for possible impairment.
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.
Revenue Recognition
The Company’s revenue is derived primarily
from providing services under contractual agreements. The Company recognizes revenue in accordance with ASC Topic No. 606, Revenue
from Contracts with Customers (“ASC 606”) which was adopted on January 1, 2018.
According to ASC 606, the Company recognizes revenue
based on the following criteria:
|
· |
Identification of a contract or contracts, with a customer. |
|
· |
Identification of performance obligations in the contract. |
|
· |
Determination of contract price. |
|
· |
Allocation of transaction price to the performance obligation. |
|
· |
Recognition of revenue when, or as, performance obligation is satisfied. |
The Company used a practical expedient available
under ASC 606-10-65-1(f)4 that permits it to consider the aggregate effect of all contract modifications that occurred before the beginning
of the earliest period presented when identifying satisfied and unsatisfied performance obligations, transaction price, and allocating
the transaction price to the satisfied and unsatisfied performance obligations.
The Company has elected to treat shipping and
handling activities as cost of sales. Additionally, the Company has elected to record revenue net of sales and other similar taxes.
Concentration of Credit Risk
Financial instruments that potentially expose
the Company to concentrations of risk consist primarily of cash and cash equivalents which are generally not collateralized. The Company’s
policy is to place its cash and cash equivalents with high quality financial institutions, in order to limit the amount of credit exposure.
Accounts at each institution are insured by the Federal Deposit Insurance Corporation (FDIC), up to $250,000. At December 31, 2021 and
December 31, 2020, the Company had no amounts in excess of the FDIC insurance limit.
Fair Value of Financial Instruments and Fair
Value Measurements
ASC 820, “Fair Value Measurements and
Disclosures”, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring
fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used
to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of
input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure
fair value:
Level 1 applies to assets or liabilities for which
there are quoted prices in active markets for identical assets or liabilities.
Level 2 applies to assets or liabilities for which
there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities
in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less
active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated
by, observable market data. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially
the full term of the asset or liability.
Level 3 applies to assets or liabilities for which
there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or
liabilities.
The Company’s consolidated financial instruments
consist principally of cash, prepaid expenses, accounts payable, accrued liabilities, notes payable and related parties payable. The Company
believes that the recorded values of all the financial instruments approximate their current fair values because of their nature and respective
maturity dates or durations.
Income Taxes
The Company accounts for income taxes using the
asset and liability method in accordance with ASC 740, “Income Taxes”. The asset and liability method provide that
deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial
reporting and tax basis of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities
are measured using the currently enacted tax rates and laws. The Company records a valuation allowance to reduce deferred tax assets to
the amount that is believed more likely than not to be realized.
The Company follows the provisions of ASC 740-10,
“Accounting for Uncertain Income Tax Positions.” When tax returns are filed, it is highly certain that some positions
taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position
taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of
a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes
it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes,
if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition
threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with
the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described
above should be reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any
associated interest and penalties that would be payable to the taxing authorities upon examination.
Convertible Debt and Convertible Preferred
Stock
When the Company issues convertible debt or convertible
preferred stock, it first evaluates the balance sheet classification of the convertible instrument in its entirety to determine whether
the instrument should be classified as a liability under ASC 480, Distinguishing Liabilities from Equity, and second whether the
conversion feature should be accounted for separately from the host instrument. A conversion feature of a convertible debt instrument
or certain convertible preferred stock would be separated from the convertible instrument and classified as a derivative liability if
the conversion feature, were it a standalone instrument, meets the definition of an “embedded derivative” in ASC 815, Derivatives
and Hedging. Generally, characteristics that require derivative treatment include, among others, when the conversion feature is not
indexed to the Company’s equity, as defined in ASC 815-40, or when it must be settled either in cash or by issuing stock that is
readily convertible to cash. When a conversion feature meets the definition of an embedded derivative, it would be separated from the
host instrument and classified as a derivative liability carried on the consolidated balance sheet at fair value, with any changes in
its fair value recognized currently in the consolidated statements of operations.
If a conversion feature does not meet the conditions
to be separated and accounted for as an embedded derivative liability, the Company then determines whether the conversion feature is “beneficial”.
A conversion feature would be considered beneficial if the conversion feature is “in the money” when the host instrument is
issued or, under certain circumstances, later. If convertible debt contains a beneficial conversion feature (“BCF”), the amount
of the amount of the proceeds allocated to the BCF reduces the balance of the convertible debt, creating a discount which is amortized
over the debt’s term to interest expense in the consolidated statements of operations.
When a convertible preferred stock contains a
BCF, after allocating the proceeds to the BCF, the resulting discount is either amortized over the period beginning when the convertible
preferred stock is issued up to the earliest date the conversion feature may be exercised, or if the convertible preferred stock is immediately
exercisable, the discount is fully amortized at the date of issuance. The amortization is recorded similar to a dividend.
Convertible debt is accounted for under the ASC
470-20, Debt – Debt with Conversion and Other Options.
Recent Accounting Pronouncements
In December 2019, the Financial Accounting Standards
Board issued Accounting Standards Update (“ASU”) ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting
for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions
to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance
is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, and interim periods within
fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of this
guidance on its consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt
with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible
instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are
required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share calculation
in certain areas. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2023, although
early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance on its financial statements.
Other accounting standards that have been issued
or proposed by FASB and do not require adoption until a future date are not expected to have a material impact on the consolidated financial
statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated
to its financial condition, results of operations, cash flows or disclosures.
NOTE 3 - INTANGIBLE ASSETS
The Company’s intangible assets comprise
of intellectual property revolving around their field tests, sensor integrations, and board designs. Intangible assets, net of amortization
at December 31, 2021 and 2020 amounted to $298,085
and $347,856,
respectively.
Schedule of intangible assets |
| |
| |
|
December 31,2021 | |
December 31,2020 | |
Intangible Assets |
$ | 495,000 | |
$ | 495,000 | |
Accumulated amortization |
| (196,915 | ) |
| (147,144 | ) |
Intangible Assets, net |
$ | 298,085 | |
$ | 347,856 | |
At December 31, 2021 and 2020, respectively, the
Company determined that none of its intangible assets were impaired. 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 $49,771 and $49,636 for the
years ended December 31, 2021 and 2020, respectively.
The following table summarizes the Company’s
estimated future amortization expense of intangible assets with finite lives as of December 31, 2021:
Schedule of future amortization |
|
|
|
|
|
|
Amortization expense |
|
2022 |
|
$ |
49,500 |
|
2023 |
|
|
49,500 |
|
2024 |
|
|
49,500 |
|
2025 |
|
|
49,500 |
|
Thereafter |
|
|
100,085 |
|
Total |
|
$ |
298,085 |
|
NOTE 4 - COMMITMENTS AND CONTINGENCIES
In prior years, the Company entered into consulting
agreements with one director, three executive officers, and one engineer of the Company, which include commitments to issue shares of
the Company’s common stock from the Company’s Stock Incentive Plans. All the agreements have been terminated and shares have
been issued in conjunction with the related separation agreements. According to the terms of the three agreements, 1,319,000 shares vested
in 2019, 2,400,000 shares vested in 2020, and 3,600,000 shares of common stock vested in 2021.
In the event that the agreement is terminated
by either party pursuant to the terms of the agreement, all unvested shares which have been earned shall vest on a pro-rata basis as of
the effective date of the termination of the agreement and all unearned, unvested shares shall be terminated.
The value of the shares was assigned at fair market
value on the effective date of the agreement and the pro-rata number of shares earned was calculated and amortized at the end of each
reporting period. The Company has accrued $0 and $730,836 in shares payable in conjunction with these agreements as of December 31, 2021
and 2020, respectively. A summary of these agreements is as follows.
On March 11, 2019, the Company’s Board of
Directors approved the Consulting Agreement dated effective June 4, 2018 with its CEO. The term of the agreement is for three years beginning
as of the effective date, unless terminated earlier pursuant to the agreement and is automatically renewable for one-year terms upon the
consent of the parties. The services to be provided by the CEO pursuant to the agreement are those customary for the position in which
the CEO is serving. As of the effective date, the Company shall issue to the CEO an aggregate of 3,060,000 shares of the Company’s
common stock which vest as follows:
| 1. | 560,000 shares on the first-year anniversary of the effective
date; |
| 2. | 1,000,000 shares on the second-year anniversary of the effective
date; and |
| 3. | 1,500,000 shares on the third-year anniversary of the effective
date. |
The shares are issued under the 2019 Stock Incentive
Plan. Vesting of the shares is subject to acceleration of vesting upon the occurrence of certain events such as a Change of Control (as
defined in the agreement) or the listing of the Company’s common stock on a senior exchange. As of December 31, 2021 and 2020, 3,060,000
shares and 1,560,000 shares had vested and issued, respectively.
On June 11, 2020, the Company entered into a Debt
Forgiveness Agreement with the CEO, pursuant to which the CEO forgave $185,000 of accrued and unpaid consulting fees owed to him pursuant
to his consulting agreement with the Company. On June 12, 2020, the Company entered into an amendment effective January 1, 2020 to the
Consulting Agreement with the CEO. The amendment stated that from January 1, 2020 until April 23, 2020, the Consultant shall be paid an
hourly wage of $12.75 per hour for services performed. From April 24, 2020 onward, the Consultant shall be paid an hourly wage of $48.08
an hour for services performed. Fees may accrue at the discretion of management. At any time, the Consultant shall have the right to convert
any accrued and unpaid fees into shares of Common Stock of the Company. The conversion price shall equal 90% multiplied by the market
price (representing a discount rate of 10%). As of December 31, 2021 and 2020, the Company recorded $145,844 and $138,602 is in salaries
payable to related parties due and payable to the CEO, respectively.
On March 11, 2019, the Company’s Board of
Directors approved the Consulting Agreement dated effective October 1, 2018 with its COO. The term of the agreement is for three years
beginning as of the effective date, unless terminated earlier pursuant to the agreement and is automatically renewable for one-year terms
upon the consent of the parties. The services to be provided by the COO pursuant to the agreement are those customary for the position
in which the COO is serving. As of the effective date, the Company shall issue to the COO an aggregate of 2,409,000 shares of the Company’s
common stock which vest as follows:
| 1. | 409,000 shares on the first-year anniversary of the effective
date; |
| 2. | 800,000 shares on the second-year anniversary of the effective
date; and |
| 3. | 1,200,000 shares on the third-year anniversary of the effective
date. |
The shares are issued under the 2017 Stock Incentive
Plan. Vesting of the shares is subject to acceleration of vesting upon the occurrence of certain events such as a Change of Control (as
defined in the agreement) or the listing of the Company’s common stock on a senior exchange. As of December 31, 2021 and 2020, 24,090,000
shares and 1,209,000 shares, respectively, had vested and issued, respectively.
On June 11, 2020, the Company entered into a Debt
Forgiveness Agreement with the COO, pursuant to which the COO forgave $103,250 of accrued and unpaid consulting fees owed to her pursuant
to her consulting agreement with the Company. On June 12, 2020, the Company entered into an amendment effective January 1, 2020 to
the Consulting Agreement with the COO. The amendment stated that from January 1, 2020 until April 23, 2020, the Consultant shall be paid
an hourly wage of $12.75 per hour for services performed. From April 24, 2020 onward, the Consultant shall be paid an hourly wage of $48.08
an hour for services performed. Fees may accrue at the discretion of management. At any time, the Consultant shall have the right to convert
any accrued and unpaid fees into shares of Common Stock of the Company. The conversion price shall equal 90% multiplied by the market
price (representing a discount rate of 10%). As of December 31, 2021 and 2020, the Company recorded $128,081 and $139,078 in salaries
payable to related parties due and payable to the COO, respectively.
On March 11, 2019, the Company’s Board of
Directors approved the Amended and Restated Consulting Agreement dated effective April 23, 2018 with its CTO. The term of the agreement
is for three years beginning as of the effective date, unless terminated earlier pursuant to the agreement and is automatically renewable
for one-year terms upon the consent of the parties. The services to be provided by the CTO pursuant to the agreement are those customary
for the position in which the CTO is serving. As of the effective date, the Company shall issue to the CTO an aggregate of 1,800,000 shares
of the Company’s common stock which vest as follows:
| 1. | 300,000 shares on the first-year anniversary of the effective
date; |
| 2. | 600,000 shares on the second-year anniversary of the effective
date; and |
| 3. | 900,000 shares on the third-year anniversary of the effective
date. |
As part of the Amended and Restated Consulting
Agreement dated effective April 23, 2018 the CTO shall receive a monthly fee of $9,375 which accrues unless converted into shares of common
stock of the Company at a conversion rate specified in the agreement. Until the Company closes a minimum $500,000 capital raise, the monthly
fee accrues and, upon the closing of such a capital raise, $3,125 of the monthly fee will be paid to the CTO in cash and the remainder
will continue to accrue. Upon the closing of a capital raise of at least $2,000,000, the entire monthly fee will be paid to the CTO in
cash and all accrued and unpaid monthly fees will be paid by the Company within one year of the closing of such a capital raise.
On April 1, 2021, the Company and CTO mutually
agreed to terminate the Amended and Restated Consulting Agreement. The Company and CTO agreed to settle for 843,288 shares of common stock
for past services which were valued at the fair value of $270,493. The Company issued 843,288 shares of common stock to the CTO on April
12, 2021. As of December 31, 2021 and 2020, 0 shares and 900,000 shares had vested and issued, respectively.
On June 11, 2020, the Company entered into a Debt
Forgiveness Agreement with the CTO pursuant to which the CTO forgave $82,475 of accrued and unpaid consulting fees owed to him pursuant
to his consulting agreement with the Company. On June 12, 2020, the Company entered into an amendment effective January 1, 2020 to
the Consulting Agreement with the CTO. The amendment stated that from January 1, 2020 until April 23, 2020, the Consultant shall be paid
an hourly wage of $12.75 per hour for services performed. From April 24, 2020 onward, the Consultant shall be paid an hourly wage of $48.08
an hour for services performed. Fees may accrue at the discretion of management. At any time, the Consultant shall have the right to convert
any accrued and unpaid fees into shares of Common Stock of the Company. The conversion price shall equal 90% multiplied by the market
price (representing a discount rate of 10%).
Effective March 31, 2021, the Company entered
into a Termination Agreement (the “Termination Agreement”) with the CTO, pursuant to which the CTO resigned and from
all positions within the Company and any of its subsidiaries. In addition, the Termination Agreement provided for the payment of $11,144
in reimbursable expenses and $130,451 in accrued and unpaid consulting fees to the CTO within five business days of the effective date.
The Termination Agreement also provided for the issuance to the CTO 843,288 shares of the Company’s Common Stock within five business
days of the effective date. As of December 31, 2021 and 2020, the Company recorded
$0 and $129,590 in salaries payable to related parties due and payable to the CTO, respectively.
NOTE 5 - CONVERTIBLE
NOTES PAYABLE
The following table summarizes the outstanding
balance of convertible notes payable, interest and conversion rates as of December 31, 2021 and December 31, 2020, respectively.
|
Schedule of convertible notes payable |
| | |
| | |
|
|
December
31, 2021 | |
December
31, 2020 | |
|
|
| |
| |
A. |
Convertible note
payable to an investor with interest at 12% per annum, convertible at any time into shares of common stock at $0.10 per share. Interest
is payable quarterly with the balance of principal and interest due on maturity on March 1, 2023. The note is secured by substantially
all the assets of the Company. |
$ | 295,000 | |
$ | 600,000 | |
|
|
| | |
| | |
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 | |
|
|
| | |
| | |
C. |
Convertible note payable to
an investor with interest at 12% per annum. On February 3, 2021, the investor settled the note and accrued interest, in exchange
for common stock of the Company. |
| – | |
| 50,000 | |
|
|
| | |
| | |
D. |
Convertible note payable to
an investor with interest at 12% per annum. $10,000 of the principal is currently convertible into shares of common stock at $0.01
per share, with remaining principal and interest convertible into shares of common stock at $0.10 per share. Interest is payable
quarterly with the balance of principal and interest due on maturity on March 1, 2023. The note is secured by substantially all the
assets of the Company. |
| 50,000 | |
| 60,000 | |
|
|
| | |
| | |
E. |
Convertible note payable to
a related party with interest at 12% per annum, convertible at any time into shares of common stock at $0.00084 per share. Interest
is payable quarterly with the balance of principal and interest due on maturity on August 2, 2022. The note is secured by substantially
all the assets of the Company. |
| 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 $0.01 per share. Principal and
interest due on maturity on April 29, 2022. |
| 33,167 | |
| 100,000 | |
|
|
| | |
| | |
G. |
Convertible
note payable to an investor with interest at 10% per annum, convertible at any time into shares of common stock at $0.0099 per share.
Note was issued as payment for future fees to be incurred under the related Equity Financing Agreement. Principal and interest due
on maturity on April 29, 2022. |
| 75,000 | |
| 75,000 | |
|
|
| | |
| | |
|
|
| 633,167 | |
| 1,065,000 | |
|
Less unamortized
discount |
| (57,148 | ) |
| (111,781 | ) |
|
Net balance |
| 576,019 | |
| 953,219 | |
|
Less current
portion |
| (233,167 | ) |
| (953,219 | ) |
|
|
$ | 267,152 | |
$ | – | |
| A. | January 18, 2018 Convertible Note and Warrants (“Note A”) |
On January 18, 2018, the Board of Directors of
the Company approved a non-public offering of up to $1,000,000 aggregate principal amount of its 12% Senior Secured Convertible Notes.
The notes are convertible, in whole or in part, into shares of the Company’s common stock, at any time at a rate of $0.65 per share
with fractions rounded up to the nearest whole share, unless paid in cash at the Company’s election. The notes bear interest at
a rate of 12% per annum and interest payments will be made on a quarterly basis. The notes matured on January 15, 2020.
The notes are governed by a Securities Purchase
Agreement and are secured by all the assets of the Company pursuant to a Security and Pledge Agreement. In addition to the issuance of
the notes in the offering, the Company’s Board of Directors approved, as part of the offering, the issuance of warrants to purchase
one share of the Company’s common stock for 50% of the number of shares of common stock issuable upon conversion of each note. Each
warrant is immediately exercisable at $0.75 per share, contains certain anti-dilution down-round features and expires on January 15, 2023.
If the Company ever defaults on the loan, the warrants to be issued will increase from 50% of the number of shares of common stock issuable
upon conversion to 100%.
On March 7, 2019, the Board of Directors of the
Company approved Amendment No. 1 to the 12% Senior Secured Convertible Promissory Note and the Warrant Agreement, each issued January
22, 2018, respectively, to the note holder. The amendments (i) extend the maturity date of the note to March 1, 2021 and extend the term
of the warrants to March 6, 2024, (ii) lower the conversion price of the note and the exercise price of the warrants to $0.20 and $0.30,
respectively, and (iii) add an adjustment to the conversion and exercise price of the note and warrants, respectively, in the event the
Company does not achieve certain milestones during calendar 2019. The fair value of the warrants is $25,162 determined using the Black-Scholes
valuation model with the following assumptions: expected term of 2.5 years; risk free interest rate of 2.6%; and volatility of 127%. The
effective conversion rate resulted in a discount of $23,956 and is amortized to interest expense using the effective interest method over
the term of the note. The Company recognized a loss on extinguishment of debt of $221,232 related to the decrease in conversion price.
On January 1, 2020, the Company failed to achieve
certain milestones during calendar 2019 and, as such, the conversion/exercise prices of the note and warrants were adjusted to $0.10 and
$0.15, respectively. This resulted in an adjustment to retained earnings of $201 based on the change in fair value.
Effective January 15, 2020, the Company went into
technical default of the note agreement as a result of not making the December 31, 2019 interest payment within the required period. As
a result, the principal was increased by 20%, or $100,000, and the Company was required to issue an additional 384,615 warrants at the
then effective exercise price of $0.15 per share. The fair value of the warrants was $44,297, determined using the Black-Scholes valuation
model with the following assumptions: expected term of 4.14 years; risk free interest rate of 1.6%; and volatility of 243%. Due to the
default, this value was immediately expensed.
As of March 31, 2020, the exercise price of the
warrants was further adjusted to $0.00084 as a result of the down-round features being triggered. This resulted in an adjustment to retained
earnings of $71 based on the change in fair value.
On
January 28, 2021, the noteholder of Note A agreed to extend the maturity date of the Senior Secured Convertible Promissory Note to March
1, 2022, in exchange for the reduction of the conversion price to $0.01 per share, and all prior Events of Default (as defined in the
Note A) including penalties of $100,000 were waived, and all future Events of Default (as defined in the Note A) pertaining to the future
payment of interest were waived through maturity. On December
14, 2021, the Company entered into amendment to the Note A which limits the respective holder to conversions resulting in beneficial ownership
by the holder and its affiliates of no more than 4.99% of the outstanding shares of common stock of the Company. The
Company recorded $100,000 as extinguishment of debt in its statements of operations for the year ended December 31, 2021. The Company
recorded $300,000 as the beneficial conversion feature discount on note payable of $500,000 on January 28, 2021. On
March 14, 2022, the noteholder of Note A, effective March 1, 2022, agreed to extend the maturity date of the Senior Secured Convertible
Note to March 1, 2023 in exchange for the reduction of the conversion price to $0.008 per share and one-year extensions as long as the
Note A is not in default.
On February 4, 2021, the noteholder A converted
the principal balance of $50,000 of its convertible promissory note into 5,000,000 shares of common stock of the Company (Note 9). On
April 15, 2021, the noteholder A converted the principal balance of $75,000 of its convertible promissory note into 7,500,000 shares of
common stock of the Company (Note 9). On July 28, 2021, the noteholder A converted the principal balance of $80,000 of its convertible
promissory note into 8,000,000 shares of common stock of the Company (Note 9). The conversion shares totaled 42,603,642 and 6,858,244
shares of common stock, upon conversion of the total principal and accrued interest of $426,036 and $685,824, as of December 31, 2021
and 2020, respectively.
The Company amortized the beneficial conversion
feature discount to interest expense of $254,660 and $12,060 for the years ended December 31, 20221 and 2020, respectively. The unamortized
discount totaled $45,340 and $1,978 at December 31, 2021 and 2020, respectively. In addition, the Company recorded interest expense of
$45,212 and $70,701 for the year ended December 31, 2021 and 2020, respectively. Accrued interest payable on Note A was $131,036 and $85,824
as of December 31, 2021 and 2020, respectively.
The principal balance payable on Note A amounted
to $295,000 and $600,000 on December 31, 2021 and 2020, respectively.
| B. | January 2019 Convertible Note and Warrants (“Note B”) |
On January 22, 2019, the Company entered into
a Securities Purchase Agreement and Security and Pledge Agreement with a single investor and issued a Secured Convertible Promissory Note
to the investor in the principal amount of $55,000. In addition to the note, the Company issued to the investor 36,667 warrants. Each
warrant is immediately exercisable at $0.75 per share, contains certain anti-dilution down-round features and expires on January 22, 2024.
If the Company ever defaults on the loan, the warrants to be issued will increase from 50% of the number of shares of common stock issuable
upon conversion to 100%. The warrants are considered equity instruments based on the Company’s adoption of ASU 2017-11.
As of March 31, 2020, the exercise price of the
warrants was adjusted to $0.00084 as a result of the down-round features being triggered. This resulted in an adjustment to retained earnings
of $7 based on the change in fair value.
The unpaid principal balance of the note and accrued
interest is $55,000 and $8,092 at December 31, 2021 and $55,000 and $5,342 as of December 31, 2020, respectively. The Company recorded
interest expense of $2,750 and $2,758 for the years ended December 31, 2021 and 2020, respectively. The Company amortized the discount
to interest expense $0 and $194 for the years ended December 31, 2021 and 2020, respectively. The unamortized discount on the Note B was
$0 at December 31, 2021 and 2020, respectively. This note and accrued interest is due to a related party. On June 12, 2020, this note
was amended to extend the maturity date to March 1, 2022, and all events of default were waived. The conversion
shares totaled 78,864,418 and 75,426,918 shares of common stock upon the conversion of the total principal and accrued interest of $63,092
and $60,342 as of December 31, 2021 and 2020, respectively. On April 6, the Noteholder of Note B agreed to extend the maturity date of
the Note B to March 1, 2024.
C and D. March 2019 Convertible Note
and Warrants (“Note C”) and (“Note D”)
On March 7, 2019, the Board of Directors of the
Company approved a non-public offering of up to $500,000 aggregate principal amount of its 12% Senior Secured Convertible Notes (Note
C and Noted D), collectively called “Notes” unless specifically specified otherwise. The Notes are convertible, in whole or
in part, into shares of the Company’s common stock, at any time at a rate of $0.20 per share with fractions rounded up to the nearest
whole share, unless paid in cash at the Company’s election. The Notes bear interest at a rate of 12% per annum and interest payments
will be made on a quarterly basis. The Notes matured on March 1, 2021. The conversion price of the Notes is also subject to adjustments
if the Company does not achieve certain milestones during the calendar year 2019.
The Notes are governed by a Securities Purchase
Agreement and are secured by all the assets of the Company pursuant to a Security and Pledge Agreement. Funding is subject to the occurrence
of certain milestones, as stated in the SPA. In addition to the issuance of the Notes in the offering, the Company’s Board of Directors
approved, as part of the offering, the issuance of warrants to purchase one share of the Company’s common stock for 50% of the number
of shares of common stock issuable upon conversion of each Note. Each warrant is immediately exercisable at $0.30 per share and expires
five years from the issuance date. The exercise price of the warrants is also subject to adjustments if the Company does not achieve certain
milestones during the calendar year 2019.
On March 6, 2019, the Company entered into SPAs
and Security and Pledge Agreements with its first two investors (Note C and Note D) in the offering and issued Notes to the investors
in the principal amount of $50,000 each totaling in the aggregate if $100,000. Subscription funds were received by the Company from the
investors on March 6, 2019. In addition to the Notes, the Company issued to the investors an aggregate of 250,000 warrants. Each warrant
is immediately exercisable at $0.30 per share, contains certain anti-dilution down-round features and expires on March 6, 2024. If the
Company ever defaults on the loan the warrants to be issued will increase from 50% of the number of shares of common stock issuable upon
conversion to 100%. The warrants are considered equity instruments based on the Company’s adoption of ASU 2017-11.
The proceeds received upon issuing the Notes and
warrants were allocated to each instrument on a relative fair value basis. The initial fair value of the warrants was $12,646 determined
using the Black-Scholes valuation model with the following assumptions: expected term of 2.5 years; risk free interest rate of 2.5%; and
volatility of 127%. The effective conversion rate resulted in a discount of $11,226 and is amortized to interest expense using the effective
interest method over the term of the Notes.
On January 1, 2020, the Company failed to achieve
certain milestones during calendar 2019 and, as such, the conversion/exercise prices of the Notes and warrants were adjusted to $0.10
and $0.15, respectively. This resulted in an adjustment to retained earnings of $131 based on the change in fair value.
Effective January 15, 2020, the Company went into
technical default of the Note agreement as a result of not making the December 31, 2019 interest payment within the required period. As
a result, the principal was increased by 20%, or $20,000, in aggregate, and the Company was required to issue an additional 250,000 warrants
at the then effective exercise price of $0.15 per share. The fair value of the warrants was $28,793, determined using the Black-Scholes
valuation model with the following assumptions: expected term of 4.14 years; risk free interest rate of 1.6%; and volatility of 243%.
Due to the default, this value was immediately expensed.
As of March 31, 2020, the exercise price of the
warrants was further adjusted to $0.00084 as a result of the down-round features being triggered. This resulted in an adjustment to retained
earnings of $46 based on the change in fair value.
On September 21, 2020, these Notes were amended
to reduce the conversion price of an aggregate of $20,000 of the total outstanding principal value of $120,000 from $0.10 to $0.01 per
share. The remaining aggregate principal of $100,000 remains convertible at $0.10 per share. This modification to the Notes was considered
substantial (i. e. the change in fair value of the conversion feature was greater than 10% of the carrying value of the debt). As a result,
the modification was accounted for as an extinguishment of debt, resulting in the recognition of an extinguishment loss of $18,360 for
the year ended December 31, 2020.
On October 15, 2020, the holder of Note C converted
$10,000 of the principal note amount into 1,000,000 shares of common stock.
On January 28, 2021, the noteholder of Note C
agreed to extend the maturity date of the Senior Secured Convertible Promissory Note to March 1, 2022 in exchange for the reduction of
the conversion price to $0.01 per share, and all prior Events of Default (as defined in the Note C) including penalties of $10,000 were
waived, and all future Events of Default (as defined in the Note C) pertaining to the future payment of interest were waived through maturity.
The Company recorded $10,000 as extinguishment of debt in its statements of operations for the year ended December 31, 2021. The Company
recorded $30,000 as debt discount on note payable and amortized it to interest expense since the Note C was converted into common stock
of the Company immediately. The Company amortized the discount to interest expense of $30,000 and $2,037 for the year ended December 31,
2021 and 2020, respectively. The unamortized discount was $0 and $0 at December 31, 2021 and 2020, respectively. In addition, the Company
recorded interest expense on Note C of $460 and $6,686 for the years ended December 31, 2021 and 2020, respectively. Accrued interest
payable on Note C was $0 and $6,050 at December 31, 2021 and December 31, 2020, respectively.
On January 28, 2021, the noteholder of Note C
converted the principal balance of $40,000 of its convertible promissory note and $6,510 of accrued interest, into 4,650,978 shares of
common stock of the Company (Note 9). The principal balance payable on Note C amounted to $0 and $50,000 on December 31, 2021 and 2020.
On
January 28, 2021, the noteholder of Note D agreed to extend the maturity date of the Senior Secured Convertible Promissory Note to March
1, 2022 in exchange for the reduction of the conversion price to $0.01 per share, and all prior Events of Default (as defined in the Note
D) including penalties of $10,000 were waived, and all future Events of Default (as defined in the Note D) pertaining to the future payment
of interest were waived through maturity. On December 14, 2021, the Company entered into
amendment to the Note D which limits the respective holder to conversions resulting in beneficial ownership by the holder and its affiliates
of no more than 4.99% of the outstanding shares of common stock of the Company. The
Company recorded $10,000 as extinguishment of debt in its statements of operations for the year ended December 31, 2021. The Company recorded
$30,000 as the beneficial conversion feature discount on note payable of $50,000 on January 28, 2021. The Company amortized the beneficial
conversion feature discount to interest expense of $25,466 and $1,019 for the years ended December 31, 2021 and 2020, respectively. The
unamortized discount was $4,534 and $0 at December 31, 2021 and 2020, respectively. In addition, the Company recorded interest expense
of $6,115 and $7,070 for the years ended December 31, 2021 and 2020, respectively. Accrued interest payable on Note D was $14,698 and
$6,768 as of December 31, 2021 and 2020, respectively. The principal balance payable on Note D amounted to $50,000 and $60,000 on December
31, 2021 and 2020, respectively.
On March 14, 2022, the noteholder of Note D, effective
march 1, 2022, agreed to extend the maturity date of the Senior Secured Convertible Note to March 1, 2023 in exchange for the reduction
of the conversion price to $0.008 per share and one-year extensions as long as the Note D is not in default.
The conversion shares of Note D totaled 6,469,754
and 1,588,520 shares of common stock upon the conversion of the total principal and accrued interest of $64,698 and $68,582 as of December
31, 2021 and 2020, respectively.
| E. | August 2019 Convertible Note and Warrants (“Note E”) |
On August 2, 2019, the Company entered into a
Securities Purchase Agreement with an investor for the purchase of a 12% Secured Convertible Note in the principal amount of up to $125,000.
The note is convertible, in whole or in part, into shares of the Company’s common stock, at any time at a rate of $0.08 per share
with fractions rounded up to the nearest whole share, unless paid in cash at the Company’s election. The note bears interest at
a rate of 12% per annum and interest payments will be made on a quarterly basis. The note matured on August 2, 2021. $75,000, $25,000,
and $25,000 subscription funds were received by the Company from the investor on August 2, 2019, September 6, 2019, and October 16, 2019,
respectively. In addition to the note, the Company issued to the investor an aggregate of 781,250 warrants. The warrants were considered
equity instruments based on the Company’s adoption of ASU 2017-11.
The proceeds received upon issuing the note and
warrants were allocated to each instrument on a relative fair value basis. The initial fair value of the warrants was $71,035 determined
using the Black-Scholes valuation model with the following assumptions: expected term of 2.5 years; risk free interest rate of 1.6%; and
volatility of 132%. The effective conversion rate resulted in a discount of $104,941 and is amortized to interest expense using the effective
interest method over the term of the note.
Effective January 30, 2020, the Company went into
technical default of the note agreement as a result of not making the December 31, 2019 interest payment within the required period. As
a result, the Company was required to issue an additional 781,250 warrants at the then effective exercise price of $0.12 per share. The
fair value of the warrants was $90,342, determined by using the Black-Scholes valuation model with the following assumptions: expected
term of 4.76 years; risk free interest rate of 1.6%; and volatility of 233%. Due to the default, this value was immediately expensed.
As of March 31, 2020, the exercise price of the
warrants was adjusted to $0.00084 as a result of the down-round features being triggered. This resulted in an adjustment to retained earnings
of $70 based on the change in fair value.
On August 2, 2021, the noteholder of Note E agreed
to extend the maturity date of the Senior Secured Convertible Promissory Note to August 2, 2022. All other terms and conditions of the
Note E remain the same. The Company amortized the debt discount on Note E to interest expense of $34,104 and $52,539 for the years ended
December 31, 2021 and 2020, respectively. The unamortized discount was $0 and $34,104 at December 31, 2021 and 2020, respectively. The
Company recorded interest expense of $15,000 and $15,051 on Note E for the years ended December 31, 2021 and 2020, respectively. Accrued
interest payable on Note E was $33,690 and $18,690 as of December 31, 2021 and 2020, respectively. The principal balance payable on Note
E amounted to $125,000 and $125,000 on December 31, 2021 and 2020, respectively. The maturity date of the Note E is August 2, 2022. This
note is payable to a related party. The conversion shares totaled 188,916,781 shares of common stock upon conversion of the total principal
and accrued interest of $158,690 as of December 31, 2021.
| F. | August 29, 2019 Convertible Note and Warrants (“Note F”) |
On August 29, 2019, the Company entered into a
Securities Purchase Agreement with an investor for the purchase of a Convertible Promissory Note in the principal amount of up to $105,000.
The Note is not convertible within 180 days of receipt of funds for the first closing and is then convertible, in whole or in part, into
shares of the Company’s Common Stock at a rate of $0.20 per share. Upon an “Event of Default,” as defined in the note,
the conversion price becomes the “Variable Conversion Price” which is defined in the note as “60% multiplied by the
Marked Price.” “Market Price” is defined in the note as “the lowest one (1) Trading Price (as defined in the note)
for the common stock during the twenty-five (25) Trading Day period ending on the last complete Trading Day prior to the Conversion Date.”
The note bears interest at a rate of 10% per annum with principal and accrued and unpaid interest payable six months from the receipt
of funds for each tranche under the note. Subscription funds of $30,000 were received by the Company from the investor on September 6,
2019 for which the Company paid a purchase price of $35,000. In addition to the notes, the Company issued to the investor an aggregate
of 175,000 warrants. The warrants are considered equity instruments based on the Company’s adoption of ASU 2017-11.
The proceeds received upon issuing the notes and
warrants were allocated to each instrument on a relative fair value basis. The initial fair value of the warrants was $15,868 determined
using the Black-Scholes valuation model with the following assumptions: expected term of 2.5 years; risk free interest rate of 1.4%; and
volatility of 132%. The effective conversion rate resulted in a discount of $10,378 and is amortized to interest expense using the effective
interest method over the term of the notes.
As of March 31, 2020, the exercise price of the
warrants was adjusted to $0.00084 and the number of warrants was increased to 41,666,667 as a result of the down-round features being
triggered. This resulted in an adjustment to retained earnings of $203,002 based on the change in fair value.
During the three months ended March 31, 2020,
the note went into default upon passing its maturity date. As a result, a default penalty of $26,250 was recorded and added to the principal
balance. In addition, the conversion price became the “Variable Conversion Price” as defined above. This note became convertible
into a variable number of shares of common stock for which there is no floor to the number of shares that might be required to be issued.
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.
The Company valued the conversion feature on the
date of default resulting in initial liability of $159,888, which was immediately expensed as loss on derivative. At each conversion date,
the Company recalculated the value of the derivative liability associated with the convertible note recording a gain (loss) in connection
with the change in fair market value. In addition, the pro-rata portion of the derivative liability as compared to the portion of the
convertible note converted was reclassed to additional paid-in capital. For the year ended December 31, 2020, the Company recorded a loss
of $114,051 related to the change of fair value of the derivative liability to additional paid-in capital.
Upon issuance and at each conversion, reporting
period date, and extinguishment date, the Company valued the conversion feature using the Black-Scholes option pricing model with the
following assumptions: conversion prices ranging from $0.0008 to $0.0073, the closing stock price of the Company's common stock on the
date of valuation ranging from $0.0022 to $0.021, an expected dividend yield of 0%, expected volatility ranging from 459% to 574%, risk-free
interest rates ranging from 0.11% to 0.39%, and an expected term of 0.25 years.
On May 20, 2020, the second closing of the Convertible
Promissory Note occurred pursuant to which the Company paid a purchase price of $35,000 and received gross proceeds of $29,300. In addition
to the issuance of the note, the Company issued to the holder warrants to purchase one share of the Company’s Common Stock for 100%
of the number of shares of Common Stock issuable upon conversion of the funds received in the second closing. Each warrant is immediately
exercisable at $0.20 per share, unless adjusted, and expires on May 20, 2025.
On July 29, 2020, the Company entered into a Settlement
and Mutual Release Agreement with the lender pursuant to which the Company paid $100,000 to the lender in exchange for the full extinguishment
of the remaining principal amount and all accrued and unpaid interest and penalties associated with the Convertible Promissory Note dated
August 29, 2019 issued to the lender (approximately $62,000). All remaining unexercised warrants to purchase the Company’s Common
Stock issued to the lender were also extinguished pursuant to the Settlement Agreement. Upon receipt of the Settlement Amount by the lender,
the lender agreed to release all reserved shares of the Company’s Common Stock. The Settlement Agreement also provides for a full
mutual release of the parties. The settlement payment was allocated to the extinguished debt and warrants based on their relative fair
values. The difference in the settlement amount allocated to the debt components, including the related derivative liability, and the
actual value of the debt components of $2,155 was recorded as a gain on extinguishment for the year ended December 31, 2020. The settlement
amount allocated to the warrants of $1,609 was recorded as a reduction to additional paid-in capital. In addition, the remaining unamortized
discount was fully amortized to interest expense upon the settlement.
On February 1, 2021, the noteholder of Note F
converted the principal balance of $66,833 of its convertible promissory note and $5,177 of accrued interest into 7,200,000 shares of
common stock of the Company (Note 9). The Company recorded amortization of debt to interest expense of $1,925 and $25,484 for the years
ended December 31, 2021 and 2020, leaving an unamortized debt balance of $3,637 and $0 at December 31, 2021 and 2020, respectively. The
Company recorded interest expense of $3,903 and $742 for the years ended December 31, 2021 and 2020, respectively. Accrued interest payable
on Note F was $1,712 and $2,986 as of December 31, 2021 and 2020, respectively. The principal balance payable on Note F amounted to $33,167
and $100,000 on December 31, 2021 and 2020, respectively. The noteholder of Note F agreed to extend the maturity date of the note from
April 29, 2021 to April 29, 2022 (Note 11). The conversion shares totaled 3,487,893 shares of common stock upon conversion of the total
principal and accrued interest of $34,879 as of December 31, 2021.
G . July
2020 Equity Financing Arrangement (“Note G”)
On July 29, 2020, the Company entered an Equity
Financing Agreement and Registration Rights Agreement with an investor, pursuant to which the investor agreed to purchase up to $5,000,000
in shares of the Company’s Common Stock, from time to time over the course of 36 months after effectiveness of a registration statement
on Form S-1 of the underlying shares of Common Stock.
In connection with entering into the Equity Financing
Agreement, on July 29, 2020, the Company issued to the investor a Convertible Promissory Note in the principal amount of $100,000 (the
“$100k Note”). The $100k Note matured on April 29, 2021 upon which time all accrued and unpaid interest was due and payable.
Interest accrued on the $100k Note at 10% per annum based on a 360-day year. The $100k Note was convertible at any time, upon the election
of the investor, into shares of the Company’s Common Stock at $0.01 per share. The $100k Note was subject to various “Events
of Default,” which were disclosed in the $100k Note. Upon the occurrence of an uncured “Event of Default,” the $100k
Note will become immediately due and payable and will be subject to penalties and adjustments to the conversion price (the lesser of:
(a) $0.01 or (b) 70% multiplied by the Market Price (as defined in the $100k Note) (representing a discount rate of 30%). Upon the issuance
of the $100k Note, the Company has agreed to reserve one times the number of shares of Common Stock into which the $100k Note is convertible
and, 101 days from the issuance of the $100k Note, the Company will reserve two-and-a-half times the number of shares of Common Stock
into which the $100k Note is convertible. Within three Trading Days (as defined in the $100k Note) of the sale by the investor of all
of the Common Stock issued upon the conversion of the $100k Note, the Company is required to issue to investor a number of shares of Common
Stock priced at the lowest traded price for the relevant Trading Day, which represents the difference between $130,000 and the net proceeds
to the investor from the sale of aggregate Common Stock issued upon the conversion of the $100k Note.
Also, in connection with entering into the Equity
Financing Agreement, on July 29, 2020, the Company issued to the investor a Convertible Promissory Note in the principal amount of $75,000
(the “$75k Note”). No proceeds were received for this note as it was issued to offset future transaction costs related
to any future issuances of equity under the agreement. As a result, the amount has been capitalized as deferred offering costs in the
accompanying balance sheet and will be offset against any future proceeds received under the agreement. The $75k Note matures on April
29, 2022 upon which time all accrued and unpaid interest will be due and payable. Interest accrues on the $75k Note at 10% per
annum based on a 360-day year. The $75k Note is convertible at any time, upon the election of the investor, into shares of the Company’s
Common Stock at $0.01 per share. The $75k Note is subject to various “Events of Default,” which are disclosed in the $75k
Note. Upon the occurrence of an uncured “Event of Default,” the $75k Note will become immediately due and payable (multiplied
by 130% of the unpaid principal and accrued and unpaid interest) and will be subject to penalties and adjustments to the conversion price
(the lesser of: (a) $0.01 or (b) 70% multiplied by the Market Price (as defined in the $75k Note) (representing a discount rate of 30%).
Upon the issuance of the $75k Note, the Company has agreed to reserve one time the number of shares of Common Stock into which the $75k
Note is convertible and, 101 days from the issuance of the $75k Note, the Company will reserve two-and-a-half times the number of shares
of Common Stock into which the $75k Note is convertible.
As of December 31, 2021 and 2020, the unpaid principal
balance of Note G was $75,000, and the accrued interest was $9,740 and $2,240. The Company recorded interest expense of $7,500 and $5,226
for the years ended December 31, 2021 and 2020, respectively. The Company recorded amortization of debt to interest expense of $1,925
and $25,484 for the years ended December 31, 2021 and 2020, leaving an unamortized debt balance of $3,637 and $0 at December 31, 2021
and 2020, respectively. The conversion shares totaled 8,473,973 shares of common stock upon conversion of the total principal and accrued
interest of $84,740 as of December 31, 2021.
NOTE 6 - 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 and nine months ended December 31, 2021 and 2020:
Schedule of earnings per share | |
| | | |
| | |
| |
Year ended December 31, | |
| |
2021 | | |
2020 | |
Net loss attributable to common stockholders (basic) | |
$ | (1,063,554 | ) | |
$ | (2,236,774 | ) |
| |
| | | |
| | |
Shares used to compute net loss per common share, basic and diluted | |
| 195,264,873 | | |
| 110,119,684 | |
| |
| | | |
| | |
Net loss per share attributable to common stockholders, basic and diluted | |
$ | (0.01 | ) | |
$ | (0.02 | ) |
Basic net loss per share is calculated by dividing
net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing
net loss by the weighted-average number of common shares and common share equivalents outstanding for the period. Common stock equivalents
are only included when their effect is dilutive. The Company’s potentially dilutive securities which include stock options, convertible
debt, convertible preferred stock and common stock warrants have been excluded from the computation of diluted net loss per share as they
would be anti-dilutive. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares
outstanding due to the Company’s net loss position.
The following outstanding common stock equivalents
have been excluded from diluted net loss per common share for the years ended December 31, 2021 and 2020, respectively, because their
inclusion would be anti-dilutive:
Schedule
of antidilutive shares | |
| | | |
| | |
| |
As of December 31, | |
| |
2021 | | |
2020 | |
Warrants to purchase common stock | |
| 2,868,397 | | |
| 2,868,397 | |
Potentially issuable shares related to convertible notes payable | |
| 328,816,461 | | |
| 273,594,437 | |
Potentially issuable vested shares to directors and officers | |
| – | | |
| 2,400,000 | |
Potentially issuable unvested shares to officers | |
| – | | |
| 3,600,000 | |
Total anti-dilutive common stock equivalents | |
| 331,684,858 | | |
| 282,462,834 | |
NOTE 7 - PAYCHECK PROTECTION PROGRAM LOAN
The Company applied for and received funding from
the Payroll Protection Program (the “PPP Loan”) in the amount of $36,700 under the Coronavirus Aid, Relief and Economic
Security Act (the “CARES Act”). The PPP Loan matures on April 23, 2022 and bears interest at a rate of 1.0% per annum.
Monthly amortized principal and interest payments are deferred for six months after the date of disbursement (subject to further
deferral pursuant to the terms of the Paycheck Protection Flexibility Act of 2020). The Promissory Note contains events of default and
other provisions customary for a loan of this type. The Paycheck Protection Program provides that the use of PPP Loan amount shall be
limited to certain qualifying expenses and may be partially or wholly forgiven in accordance with the requirements set forth in the CARES
Act. On August 31, 2021, the Company received a notification from the Small Business Administration approving the forgiveness of the PPP
Loan in the amount of $36,700. The Company recorded the PPP Loan of $0 and $36,700 as a liability on its Balance Sheet at December 31,
2021 and 2020, respectively.
Supplemental Target Advance
On July 7, 2021 and July 8, 2021, a commercial
bank granted to the Company two payments of $5,000 each, under the authority and regulations of the U. S. Small Business Administration
Supplemental Target Advance of the Coronavirus Aid, Relief, and Economic Security Act (The “CARES Act”). Such advances amounted
to $10,000 and does not need to be repaid. The Company recorded $10,000 as other income in its statements of operations for the year ended
December 31, 2021.
NOTE 8 - RELATED PARTIES
At December 31, 2021 and 2020, the amount due
to two stockholders was $1,000 relating to depositing funds for opening bank accounts for the Company.
The Company leases its current office facility
on a month-to-month basis at a monthly rent of $250 starting January 1, 2020. For the year ended December 31, 2021 and 2020, rent expense
earned by the stockholder amounted to $3,000 and $3,000, respectively. The Company has recorded $750 and $16,500 of rent payable to the
stockholder in accounts payable as of December 31, 2021 and 2020, respectively.
The Company recorded professional fees paid to
officers and a director amounting to $7,182 and $0 for the year ended December 31, 2020 and 2019, respectively.
The Company awarded shares payable to officers
and a director valued at $349,657 and $728,892 for the years ended December 31, 2021 and 2020, respectively, pursuant to the terms of
an exchange agreement (Note 4). Shares payable to officers and a director were $0 and $730,836 at December 31, 2021 and 2020, respectively.
The officers and a director converted shares payable valued at $1,062,986 into 3,543,288 shares of common stock for the year ended December
31, 2021, and shares payable valued at $415,350 into 15,845 shares of Series A Supervoting Convertible Preferred Stock during the year
ended December 31, 2020. No convertible preferred stock was issued to related parties in 2021.
NOTE 9 - STOCKHOLDERS' EQUITY
Common Stock
The Company has an authorized capital of 1,000,000,000
shares of $0.001 par value common stock and 10,000,000 shares of $0.001 par value preferred stock at December 31, 2021. The Company had
220,254,395 shares and 145,110,129 shares of common stock, and 25,896 shares and 25,845 shares of preferred stock, issued and outstanding
as of December 31, 2021 and 2020, respectively.
On January 4, 2021, pursuant to the authorization
and approval previously provided by the stockholders, the Company filed a Certificate of Amendment to its Articles of Incorporation with
the Secretary of State of Nevada to increase its authorized shares of common stock, $0.001 par value per share, from 190,000,000 shares
to 1,000,000,000 shares, which filing became effective on January 18, 2021.
Common Stock
Holders of shares of common stock are entitled
to one vote for each share on all matters to be voted on by the stockholders. Holders of common stock do not have cumulative voting rights.
Holders of common stock are entitled to share ratably in dividends, if any, as may be declared from time to time by the Board of Directors
in its discretion from funds legally available, therefore. In the event of liquidation, dissolution, or winding up of the Company, the
holders of common stock are entitled to share pro rata in all assets remaining after payment in full of all liabilities. All of the outstanding
shares of common stock are fully paid and non-assessable. Holders of common stock have no preemptive rights to purchase the Company’s
common stock. There are no conversion or redemption rights or sinking fund provisions with respect to the common stock.
On January 28, 2021, the noteholder of Note C
converted the principal balance of $40,000 of its convertible promissory note and $6,510 of accrued interest, into 4,650,978 shares of
common stock of the Company (Note 5).
On February 1, 2021, the noteholder of Note F
converted the principal balance of $66,833 of its convertible promissory note and $5,177 of accrued interest into 7,200,000 shares of
common stock of the Company (Note 5).
On February 4, 2021, the noteholder of Note A
converted the principal balance of $50,000 of its convertible promissory note into 5,000,000 shares of common stock of the Company (Note
5).
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. On February 26, 2021, March 16, 2021, April 14, 2021 and August 3, 2021, the investor purchased
8,000,000 shares, 8,400,000 shares, 8,900,000 shares and 10,200,000 shares of common stock for a cash consideration of $120,000, $126,000,
$133,500, and $153,000, respectively.
On April 1, 2021, the Company’s Chief Technology
Officer resigned from his employment with the Company. In settlement of the Company’s total obligations with the officer upon separation,
the Company issued 843,288 shares of its common stock valued at $252,986 as award shares payable pursuant to the Stock Incentive Plan
for services performed (Note 8).
On April 15, 2021, the noteholder of Note A converted
the principal balance of $75,000 of its convertible promissory note into 7,500,000 shares of common stock of the Company (Note 5).
On May 20, 2021, the Company issued to a consultant
for services rendered, pursuant to a consulting agreement, 500,000 shares of common stock valued at the fair market price on the date
of issuance of $7,800.
On May 20, 2021, the Company issued to a consultant
for services, pursuant to a consulting agreement, 50,000 shares of common stock valued at the fair market price on the date of issuance
of $900.
On June 15, 2021, the Company issued 1,500,000
shares of common stock valued at $450,000 to Company’s Chief Executive Officer in satisfaction of accrued shares payable compensation
(Note 8).
On July 28, 2021, the noteholder of Note A converted
the principal balance of $80,000 of its convertible promissory note into 8,000,000 shares of common stock (Note 5).
On November 23, 2021, the noteholders of Notes
F and G agreed to extend the maturity date of their Convertible Promissory Notes in exchange of receiving 1,250,000 shares of common stock
valued at the fair market price of $11,125 on the date of issuance (Note 6).
On December 21, 2021, the Company issued 1,800,000
shares of common stock to the noteholder of Note F as commitment fee for making equity financing available to the Company. The Company
recorded the fair value of such common stock issued at the fair market price of $15,300 on the date of issuance of common stock.
On December 21, 2021, the Company issued 1,200,000
shares of common stock to its Chief Operating Officer valued at $360,000, and issued 150,000 shares of common stock to a consultant valued
at $1,800 in satisfaction of accrued shares payable compensation (Note 8).
As a result of all common stock issuances, the
Company recorded 220,254,396 shares and 145,110,130 shares of common stock issued and outstanding at December 31, 2021 and December 31,
2020, respectively.
Stock Incentive Plans
On December 14, 2017 (the “Effective Date”),
the Board of Directors of the Company approved the 2017 Stock Inventive Plan (the “2017 Plan”). Awards may be made under the
2017 Plan for up to 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 Effective Date but awards previously granted may extend beyond that date. Awards
may consist of both incentive and non-statutory options, restricted stock units, stock appreciation rights, and restricted stock awards.
On March 11, 2019 (the “Effective Date”)
the Board of Directors of the Company approved the 2019 Stock Incentive Plan (the “2019 Plan”). Awards may be made under the
Plan for up to 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 Plan
after the expiration of 10 years from the Effective Date but awards previously granted may extend beyond that date. Awards may consist
of both incentive and non-statutory options, restricted stock units, stock appreciation rights, and restricted stock awards.
Shares earned and issued related to the consulting
agreements are issued under the 2017 Plan and the 2019 Plan (Note 4). Vesting of the shares is subject to acceleration of vesting upon
the occurrence of certain events such as a Change of Control (as defined in the agreement) or the listing of the Company’s common
stock on a senior exchange.
A summary of the status of the Company’s
non-vested shares as December 31, 2021 and 2020 and changes during the year then ended, is presented below:
Summary of non-vested shares | |
| | | |
| | |
| |
Non-vested
Shares of
Common Stock | | |
Weighted
Average
Fair Value | |
Balance at December 31, 2019 | |
| 6,000,000 | | |
$ | 0.30 | |
Awarded | |
| – | | |
| – | |
Vested | |
| (2,400,000 | ) | |
| 0.30 | |
Forfeited | |
| – | | |
| – | |
Balance at December 31, 2020 | |
| 3,600,000 | | |
| 0.30 | |
Awarded | |
| – | | |
| – | |
Vested | |
| (3,600,000 | ) | |
| 0.30 | |
Forfeited | |
| – | | |
| – | |
Balance at December 31, 2021 | |
| – | | |
$ | 0.30 | |
Preferred Stock
Series A Supervoting Convertible Preferred
Stock
On July 2, 2020, the Board of Directors of the
Corporation had authorized issuance of 15,600 shares of preferred stock, $0.001 par value per share, designated as Series A Supervoting
Preferred Stock.
Dividends: Initially, there will be no
dividends due or payable on the Series A Supervoting Preferred Stock. Any future terms with respect to dividends shall be determined by
the Board consistent with the Corporation’s Articles of Incorporation.
Liquidation and Redemption Rights: Upon
the occurrence of a Liquidation Event (as defined below), the holders of Series A Supervoting Preferred Stock are entitled to receive
net assets on a pro-rata basis. Each holder of Series A Supervoting Preferred Stock is entitled to receive ratably any dividends declared
by the Board, if any, out of funds legally available for the payment of dividends. Liquidation Event means (i) the liquidation, dissolution
or winding-up, whether voluntary or involuntary, of the corporation, (ii) the purchase or redemption by the corporation of the shares
of any class of stock or the merger or consolidation of the corporation with or into any other corporation or corporations, or (iii) the
sale, license or lease of all or substantially all, or any material part of, the Corporation’s assets.
Conversion: Each holder of Series A Supervoting
Preferred Stock may voluntarily convert its shares into shares of common stock of the Corporation at a rate of 1:100 (as may be adjusted
for any combinations or splits with respect to such shares).
Rank: All shares of the Series A Supervoting
Preferred Stock shall rank senior to the Corporation’s (A) common stock, par value $0.001 per share, and any other class or series
of capital stock of the Corporation hereafter created.
Voting Rights:
| A. | If at least one share of Series A Super Voting Preferred Stock is issued and outstanding,
then the total aggregate issued shares of Series A Super Voting Preferred Stock at any given time, regardless of their number, shall have
voting rights equal to 20 times the sum of: i) the total number of shares of Common stock which are issued and outstanding at the time
of voting, plus ii) the total number of shares of all Series of Preferred stocks which are issued and outstanding at the time of voting. |
| B. | Each individual share of Series A Super Voting Preferred Stock shall have the voting
rights equal to: |
[twenty times the
sum of: {all shares of Common stock issued and outstanding at the time of voting + all shares of Series A and any newly designated Preferred
stock issued and outstanding at the time of voting}]
Divided by:
[the number of
shares of Series A Super Voting Preferred Stock issued and outstanding at the time of voting]
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.
On November 9, 2020, the Company awarded a director
for services rendered, 1,000,000 shares of common stock valued at its fair value on the date of issuance of $8,600 and concurrently, exchanged
the common stock for Series A Supervoting Convertible Preferred Stock, and accrued interest of $168 relating to the outstanding convertible
note which was convertible into common stock, was converted into Series A Supervoting Convertible Preferred Stock. The Company issued
12,000 shares of Series A Supervoting Convertible Preferred Stock in exchange of $8,768 of services rendered and accrued interest for
the year ended December 31, 2020.
On December 31, 2020, the officers and a director
converted $685,350 of their vested shares payable compensation costs into 2,284,500 shares of the Company’s common stock and $415,350
of their unrecognized compensation costs into 13,845 shares of the Company’s Series A Convertible Preferred Stock. As a result,
total unrecognized compensation costs related to the non-vested share-based compensation arrangements awarded to employees were $730,836
and $1,102,645 as of December 31, 2020 and 2019, respectively. That cost is expected to be recognized over a weighted-average period of
0.5 years and 1.4 years as of December 31, 2020 and December 31, 2019, respectively. The total fair value of shares compensation recognized
during the year ended December 31, 2020 and 2019, was $728,892 and $685,416, respectively.
The Company did not issue any Series A Supervoting
Convertible Preferred Stock during the year ended December 31, 2021. The Company had 25,845 shares of Series A Supervoting Convertible
Preferred Stock issued and outstanding at December 31, 2021 and December 31, 2020, respectively.
Series B Convertible Preferred Stock Equity
Financing
On November 16, 2020, the Board of Directors of
the Corporation had authorized issuance of up to 600 shares of preferred stock, $0.001 par value per share, designated as Series B Convertible
Preferred Stock. Each share of Preferred Stock shall have a par value of $0.001 per share and a stated value of $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.
Liquidation: Upon any liquidation, dissolution
or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders shall be entitled to receive
out of the assets, whether capital or surplus, of the Corporation an amount equal to the Stated Value, plus any accrued and unpaid dividends
thereon and any other fees or liquidated damages then due and owing thereon under this Certificate of Designation, for each share of Series
B Convertible Preferred Stock before any distribution or payment shall be made to the holders of any Junior Securities, and if the assets
of the Corporation shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Holders shall be
ratably distributed among the Holders in accordance with the respective amounts that would be payable on such shares if all amounts payable
thereon were paid in full.
Conversion: Each share of Series B Convertible
Preferred Stock shall be convertible, at any time and from time to time from and after the Original Issue Date at the option of the Holder
thereof, into that number of shares of common stock (subject to the limitations) determined by dividing the Stated Value of such share
of Series B Convertible Preferred Stock by the Conversion Price. The Conversion Price for the Series b Convertible Preferred Stock shall
be the amount equal to the lowest traded price for the Company’s common stock for the fifteen (15) Trading Days immediately preceding
the date of such conversion. All such foregoing determinations will be appropriately adjusted for any stock dividend, stock split, stock
combination, reclassification or similar transaction that proportionately decreases or increases the common stock during such measuring
period. Following an event of default, the Conversion price shall equal the lower of : (a) the then applicable Conversion Price; or (b)
a price per share equaling 80% of the lowest traded price for the Company’s common stock during the ten (10) trading days preceding
the relevant Conversion.
Redemption: The Series B Convertible Preferred
Stock may be redeemed by payment of the stated value thereof, with the following premiums based on the time of the redemption.
| · | 115% of the stated value if the redemption takes
place within 90 days of issuance; |
| · | 120% of the stated value if the redemption takes
place after 90 days and within 120 days of issuance |
| · | 125% of the stated value if the redemption takes
place after 120 days and within 180 days of issuance; and |
| · | each share of Preferred Stock is redeemed one
year from the day of issuance |
On November 19, 2020, pursuant to the terms of
a Securities Purchase Agreement dated November 16, 2020 (the “SPA”), the Company entered into a new preferred equity financing
agreement with GHS Investments, LLC (“GHS”) in the amount of up to $600,000. The SPA provides for GHS’s purchase, from
time to time, of up to 600 shares of the newly-designated Series B Convertible Preferred Stock. The initial closing under the SPA consisted
of 45 shares of Series B Convertible Preferred Stock, stated value $1,200 per share, issued to GHS for an initial purchase price of $45,000,
or $1,000 per share. At the Company’s option, and subject to the terms of the SPA and the Certificate of Designation for the Series
B Convertible Preferred Stock (the “COD”), additional closings in the amount of 40 shares of Series B Convertible Preferred
Stock for a total purchase price of $40,000 may take place at a rate of up to once every 30 days. In connection with the initial closing
in the amount of 45 shares of Series B Convertible Preferred Stock, the Company issued an additional 25 shares of Series B Convertible
Preferred Stock to GHS as a commitment fee.
The Company’s ability to conduct additional
closings under the SPA is subject to certain conditions, including the following:
|
· |
The Company’s continued compliance with all covenants and agreements under the SPA and the COD, with no uncured defaults under the Company’s agreements with GHS; |
|
· |
The continued quotation of the Company’s common stock on the over-the-counter market or another trading market or exchange; |
|
· |
The average daily dollar trading volume for the Company’s common stock for the 30 trading days preceding each additional closing must be at least $10,000 per day; and |
|
· |
The closing market price for the Company’s common stock must be at least $0.01 for each of the 30 trading days preceding each additional closing. |
No additional closings may take place after the
two-year anniversary of the SPA, or once the entire $600,000 amount has been funded. If the average daily dollar trading volume for the
Company’s common stock for the 30 trading days preceding a particular additional closing is at least $50,000 per day, the Company
may, at its option, increase the amount of that additional closing to 75 shares of Series B Convertible Preferred Stock ($75,000).
The Series B Convertible Preferred Stock is classified
as temporary equity, as it is convertible upon issuance at an amount equal to the lowest traded price for the Company’s common stock
for the fifteen trading days immediately preceding the date of conversion.
Based on the requirements of ASC 815, Derivatives
and Hedging, the conversion feature represents an embedded derivative that is required to be bifurcated and accounted for as a separate
derivative liability. The derivative liability is originally recorded at its estimated fair value and is required to be revalued at each
conversion event and reporting period. Changes in the derivative liability fair value are reported in operating results each reporting
period.
On November 19, 2020 (the date of receipt of cash
proceeds of $45,000 issuance), the Company valued the conversion feature of the derivative and recorded an initial derivative liability
of $103,267, $58,267 as day one loss on the derivative, $39,000 as interest expense, and $84,000 as Series B Convertible Preferred Stock
mezzanine liability and $84,000 as amortization. At December 31, 2020, the Company recalculated the value of the derivative liability
associated with the convertible note and recorded a loss of $39,266 in connection with the change in fair market value of the derivative
liability. In addition, the Company recorded $900 as sales commission to complete this financing as of December 31, 2020. The Company
recalculated the value of derivative liability associated with the convertible note in connection with the change in the fair market value
of the derivative liability and recorded a gain of $48,683 for the year ended December 31, 2021. In addition, the Company recorded $10,080
and $1,160 as preferred dividend payable to GHS for the years ended December 31, 2021 and 2020, respectively.
On November 19, 2020, December 31, 2020, March
31, 2021, June 30, 2021, September 30, 2021 and December 31, 2021, the Company valued the conversion feature using the Black-Scholes option
pricing model with the following assumptions: conversion exercise prices ranging from $0.004 to $0.0141, the closing stock price of the
Company's common stock on the date of valuation ranging from $0.0070 to $0.0184, an expected dividend yield of 0%, expected volatility
ranging from 200.53% to 440.99%, risk-free interest rates ranging from 0.07% to 0.38%, and an expected term of 1.50 to 0.38 years.
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 conversion feature of the derivative and recorded an initial derivative liability
of $106,241, $1,700 as interest expense, $102,000 as Series B Convertible Preferred Stock a mezzanine liability and $102,000 as amortization.
At December 31, 2020, the Company recalculated the value of the derivative liability associated with the convertible note recording a
loss of $67,008 in connection with the change in fair market value of the derivative liability. In addition, the Company recorded $503
as preferred stock dividend payable to GHS as of December 31, 2020. At December 31, 2021, the Company recalculated the value of derivative
liability and recorded a gain of $54,223 in connection with the change in fair market value of the derivative liability. The Company recorded
$12,240 as preferred stock dividend expense for the year ended December 31, 2021 and $12,743 as preferred stock dividend payable as of
December 31, 2021.
On December 16, 2020, December 31, 2020, March
31, 2021, June 30, 2021, September 30, 2021 and December 31, 2021, the Company valued the conversion feature using the Black-Scholes option
pricing model with the following assumptions: conversion exercise prices ranging from $0.004 to $0.0141, the closing stock price of the
Company's common stock on the date of valuation ranging from $0.0063 to $0.0184, an expected dividend yield of 0%, expected volatility
ranging from 431.65% to 200.59%, risk-free interest rates ranging from 0.39% to 0.07%, and an expected term of 1.50 to 0.46 years.
As a result of receipt of cash proceeds relating
to Series B Convertible Preferred Stock, the Company recorded derivative liability of $212,816 and $315,782 and Series B Convertible Preferred
Stock liability of $186,000 and $186,000 at December 31, 2021 and 2020, respectively.
Warrants
A summary of the status of the Company’s
warrants as of December 31, 2021 and 2020 and changes during the years then ended, is presented below:
Summary of warrant activity | |
| | | |
| |
|
| |
Shares Under Warrants | | |
Weighted Average Exercise Price | |
Weighted Average Remaining Contractual Life |
Outstanding at December 31, 2019 | |
| 1,627,532 | | |
$0.21 | |
4.5 Years |
Issued | |
| 43,082,532 | | |
$0.01 | |
4.4 Years |
Exercised | |
| – | | |
– | |
|
Expired/Forfeited | |
| (41,666,667 | ) | |
– | |
|
Outstanding at December 31, 2020 | |
| 3,043,397 | | |
$0.01229 | |
4.0 Years |
Issued | |
| – | | |
– | |
|
Exercised | |
| – | | |
– | |
|
Expired/Forfeited | |
| (175,000 | ) | |
$0.20 | |
|
Outstanding at December 31, 2021 | |
| 2,868,397 | | |
$0.00084 | |
3.4 Years |
NOTE 10 - INCOME TAXES
Income tax expense for the year ended December
31, 2021 and 2020 is summarized as follows:
Schedule of components of income tax expense (benefit) | |
| | | |
| | |
| |
December 31, 2021 | | |
December 31, 2020 | |
Deferred: | |
| | | |
| | |
Federal | |
$ | (223,346 | ) | |
$ | (469,723 | ) |
State | |
| (51,582 | ) | |
| (108,484 | ) |
Change in valuation allowance | |
| 274,929 | | |
| 578,206 | |
Income tax expense (benefit) | |
$ | – | | |
$ | – | |
The following is a reconciliation of the provision
for income taxes at the U.S. federal income tax rate to the income taxes reflected in the Statement of Operations:
Schedule of effective income tax rate reconciliation | |
| | | |
| | |
| |
December 31, 2021 | | |
December 31, 2020 | |
Tax at statutory tax rate | |
| 21.00% | | |
| 21.00% | |
State taxes | |
| 4.85% | | |
| 4.85% | |
Other permanent items | |
| – | | |
| – | |
Valuation allowance | |
| -25.85% | | |
| -25.85% | |
Income tax expense | |
| – | | |
| – | |
The tax effects of temporary differences that
gave rise to significant portions of deferred tax assets and liabilities at December 31, 2021 and 2020 are as follows:
Schedule of deferred tax assets and liabilities | |
| | | |
| | |
| |
December 31, 2021 | | |
December 31, 2020 | |
Deferred tax assets: | |
| | | |
| | |
Net operating loss carry forward | |
$ | 1,465,996 | | |
$ | 1,287,319 | |
Total gross deferred tax assets | |
| 1,465,996 | | |
| 1,287,319 | |
Less: valuation allowance | |
| (1,465,996 | ) | |
| (1,287,319 | ) |
Net deferred tax assets | |
$ | – | | |
$ | – | |
Deferred income taxes are provided for the tax
effects of transactions reported in the financial statements and consist of deferred taxes related primarily to differences between the
bases of certain assets and liabilities for financial and tax reporting. The deferred taxes represent the future tax return consequences
of those differences, which will either be deductible or taxable when the assets and liabilities are recovered or settled.
On December 22, 2017, the 2017 Tax Cuts and Jobs
Act (the “Tax Reform Act”) was enacted into law and the new legislation contains several key tax provisions that impact the
Company, including a reduction of the corporate income tax rate to 21% effective for tax years beginning after December 31, 2017 and the
Transition Tax, among others. The staff of the US Securities and Exchange Commission (SEC) has recognized the complexity of reflecting
the impacts of the Tax Reform Act, and issued guidance in Staff Accounting Bulletin 118 (“SAB 118”) in December 2017, which
clarifies accounting for income taxes under ASC 740 if information is not yet available or complete and provides for up to a one-year
period in which to complete the required analyses and accounting (the measurement period). Adjustments to incomplete and unknown amounts
will be recorded and disclosed prospectively during the measurement period. The Company has completed the required analysis and
accounting for substantially all the effects. Except for the reduction of the income tax rate from 34% to 21%, there were no
material impact on the Company’s financial statements.
At December 31, 2021 and 2020, the Company had
accumulated net operating losses of approximately $8,340,000 and $7,481,000, respectively, for U.S. federal and Massachusetts income tax
purposes available to offset future taxable incomes. The net operating losses generated in tax years prior to December 31, 2017, can be
carry forward for twenty years, whereas the net operating losses generated after December 31, 2017 can be carry forward indefinitely.
Management determined that it was unlikely that the Company’s deferred tax assets would be realized and have provided for a full
valuation allowance associated with the net deferred tax assets.
At December 31, 2021
and 2020, the Company’s deferred income tax assets and valuation allowance were $1,465,996 and $1,287,319, respectively.
In the ordinary course of business, the Company’s
income tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessment
by these taxing authorities. Accordingly, the Company believes that it is more likely than not that it will realize the benefits of tax
positions it has taken in its tax returns or for the amount of any tax benefit that exceeds the cumulative probability threshold in accordance
with FASB ASC 740. Differences between the estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate,
are not expected to have a material adverse effect on the Company’s financial position. The Company believes its tax positions are
all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits.
As of December 31, 2021, tax years 2020, 2019, and 2018 remain open for examination by the Internal Revenue Service and the Massachusetts
Division of Revenue. The Company has received no notice of audit from the Internal Revenue Service or the Massachusetts Division of Revenue for
any of the open tax years.
NOTE 11 - SUBSEQUENT EVENTS
Management has evaluated subsequent events through
the date of this Report, the date the financial statements were available to be issued, noting the following items that would impact the
accounting for events or transactions in the current period or require additional disclosure.
On February 7, 2022, the Company sold 51 shares
of Series B preferred stock to GHS Investments, LLC for a cash consideration of $51,000. The Company paid a sales commission of $1,000.
On March
14, 2022, the Company entered into amendments to each of the Notes A and D effective March 1, 2022 which extend the maturity dates to
March 1, 2023, reduce the conversion price to $0.008 per share, add an additional Event of Default (as defined in the Notes) that the
closing price of the shares of Common Stock on the Trading Market (as defined in the Notes) is less than $0.008 per share for ten (10)
consecutive Trading Days (as defined in the Notes), and adding automatic one-year extensions as long at either Note is not in default.
On March
18, 2022, the Board of Directors of the Company approved the 2022 Stock Incentive Plan (the “Plan”). Awards may be
made under the Plan for up to 20,000,000 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 Plan. No awards can be granted under the
Plan after the expiration of 10 years from the Effective Date but awards previously granted may extend beyond that date. Awards may consist
of both incentive and non-statutory options, restricted stock units, stock appreciation rights, and restricted stock awards.
On March
24, 2022, the Company issued 136 shares of Series B Preferred stock to GHS Investments, LLC at the purchase price of $1,000 per share
for cash proceeds of $136,000.
On April 4, 2022 (the
“Issuance Date”), the Company was issued a 10% Unsecured Convertible Promissory Note (the “Note”) in the principal
amount of $200,000 by Aretas Sensor Networks Inc., a company incorporated under the laws of the Province of British Columbia (“Aretas”).
The purchase price of the Note was $192,500 with a discount of $7,500. The Note matures on April 4, 2024 at which time the Company has
the option to either receive the principal amount or shares of Aretas representing 3.23% of the fully-diluted share capital of Aretas.
Within 30 days of the Issuance Date of the Note, an interest payment of $20,000 is due and, within six months of the Issuance Date, a
final interest payment of $20,000 is due. The Note may be prepaid at any time by Aretas upon 10 days’ written notice to the Company.
Upon an Event of Default, as defined in the Note, interest will accrue at 20% and, if conversion shares are not issued to the Company
by Aretas, Aretas will pay to the Company $1,000 per day until the shares are issued.
On April 6, 2022, the Company and noteholder of
Note B agreed to extend the maturity date of the promissory note to March 1, 2024.
On April 8, 2022, the Company sold 7,828,223 shares
of common stock to GHS Investments LLC for $98,635.60. The Company paid selling commissions to the broker of $1,972.71.