Table
of Contents
Filed Pursuant to Rule 424(b)(4)
Registration No. 333-269731
PRELIMINARY PROSPECTUS
IIOT-OXYS, INC.
150,000,000 Shares of Common Stock
The registrant identified in this Prospectus
may offer a number of shares of its common stock, which will consist of up to 150,000,000 shares of common stock to be
sold by GHS Investments LLC (“GHS”) pursuant to an Equity Financing Agreement (the “Equity Financing Agreement”)
dated November 1, 2021. As of the date hereof, 153,973,552 shares (including 1,800,000 commitment shares) have been sold to GHS under
the Equity Financing Agreement. If issued presently, the additional 150,000,000 shares of common stock registered for resale by GHS,
all of which have yet to be issued, would represent 27.18% of our issued and outstanding shares of common stock as of April 21, 2023.
Additionally, the additional 150,000,000 shares of our common stock registered for resale herein, all of which have yet to be issued,
would represent approximately 28.75% of the Company’s public float (all current free-trading shares not held by affiliates).
The registrant may sell all or a portion
of the shares being offered pursuant to this Prospectus at fixed prices and prevailing market prices at the time of sale, at varying prices,
or at negotiated prices. See the section of this Prospectus entitled “Plan of Distribution” for additional information.
We will not receive any proceeds from the sale
of the shares of our common stock by GHS. We will sell shares to GHS at a price equal to 90% of the lowest volume-weighted average price
of the Common Stock during the ten consecutive trading day period preceding the date on which we deliver a put notice to GHS (the “Purchase
Price”). There will be a minimum of ten trading days between put notices and the amount of shares sold will equal 110% of
the put amount.
GHS will be deemed to be an underwriter within
the meaning of the Securities Act of 1933, as amended (the “Securities Act”), and any broker-dealers or agents that
are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection
with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased
by them may be deemed to be underwriting commissions or discounts under the Securities Act.
Our common stock is traded on OTC Markets under
the symbol “ITOX.” On April 21, 2023, the reported closing price for our common stock was $0.0017 per share.
This offering is highly speculative, and these
securities involve a high degree of risk and should be considered only by persons who can afford the loss of their entire investment.
See “Risk Factors” beginning on page 6. Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy
of this Prospectus. Any representation to the contrary is a criminal offense.
The date of this Prospectus is May 8, 2023.
TABLE OF CONTENTS
You may only rely on the information contained
in this Prospectus or that we have referred you to. We have not authorized any person to give you any supplemental information or to make
any representations for us. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other
than the Common Stock offered by this Prospectus. This Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any Common Stock in any circumstances in which such offer or solicitation is unlawful. Neither the delivery of this Prospectus nor
any sale made in connection with this Prospectus shall, under any circumstances, create any implication that there has been no change
in our affairs since the date of this Prospectus is correct as of any time after its date. You should not rely upon any information about
our company that is not contained in this Prospectus. Information contained in this Prospectus may become stale. You should not assume
the information contained in this Prospectus or any Prospectus supplement is accurate as of any date other than their respective dates,
regardless of the time of delivery of this Prospectus, any Prospectus supplement or of any sale of the shares. Our business, financial
condition, results of operations, and Prospects may have changed since those dates. The selling stockholders are offering to sell and
seeking offers to buy shares of our common stock only in jurisdictions where offers and sales are permitted.
PROSPECTUS SUMMARY
This summary highlights information contained
elsewhere in this Prospectus and does not contain all of the information that you should consider in making your investment decision.
Before investing in our common stock, you should carefully read this entire Prospectus, including our financial statements and the related
notes and the information set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” in each case included elsewhere in this Prospectus.
Unless the context otherwise requires, references
to “we,” “our,” “us,” or the “Company” in this Prospectus mean IIOT-OXYS, Inc. on a consolidated
basis with its wholly-owned subsidiaries.
IIOT-OXYS, Inc., a Nevada corporation (the “Company”),
and OXYS, were originally established for the purposes of designing, building, testing, and selling Edge Computing systems for the Industrial
Internet. Both companies were, and presently are, early stage technology startups that are largely pre-revenue in their development
phase. The Company received its first revenues in the last quarter of 2017, has continued to realize revenues in 2022, and expects
to realize revenue growth in 2023 due to its business development pipeline.
We develop hardware, software and algorithms that
monitor, measure and predict conditions for energy, structural, agricultural and medical applications. We use domain-specific Artificial
Intelligence to solve industrial and environmental challenges. Our engineered solutions focus on common sense approaches to machine learning,
algorithm development and hardware and software products.
We design a system of hardware and software, assemble,
install, monitor data and apply our algorithms to help provide the customer insights.
We use off the shelf components, with reconfigurable
hardware architecture that adapts to a wide range of customer needs and applications. We use open-source software tools, while still creating
proprietary content for customers, thereby reducing software development time and cost. The software works with the hardware to collect
data from the equipment or structure that is being monitored.
We focus on developing insights. We develop algorithms
that help our customers create insights from vast data streams. The data collected is analyzed and reports are created for the customer.
From these insights, the customer can act to improve their process, product or structure.
OUR SOLUTIONS ACHIEVE TWO OBJECTIVES
ADD VALUE
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We show clear path to improved asset reliability, machine uptime, machine utilization, energy consumption, and quality. |
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We provide advanced algorithms and insights as a service. |
RISK MINIMIZATION
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We use simple measurements which are minimally invasive. |
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We do not interfere with command and control of critical equipment. |
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We do not interfere with machine control networks. |
HOW WE DO IT
Our location in Cambridge, Massachusetts is ideal
since market-leading Biotech, Medtech, and Pharma multinational firms have offices, manufacturing plants and/ or R&D centers in Cambridge
or the Greater Boston area, which gives us easier access to potential sales which, in turn, lowers our cost of sales. Additionally, we
continue to gain traction in the structural health monitoring, indoor air quality, and smart manufacturing industries. We, therefore,
have a range of opportunities as we continue to expand our customer base.
Our goals are to augment visual bridge inspection
with instrumentation and predictive algorithms for structural health monitoring; improve indoor air quality with our partner’s proprietary
sensors and our predictive analytics; and help Biotech, Pharma, and Medical Device companies realize the next wave of performance, productivity,
and quality gains for their organizations, through our Smart Manufacturing/Industry 4.0 technology and Artificial Intelligence (AI) and
Machine Learning algorithms.
We have a unique value proposition in a fast-growing
worldwide multi-billion USD market, and have positioned our business with strategic partners for accelerated growth. We are therefore
well-poised for growth in 2023 and beyond, as we execute our plans and acquire additional customers.
WHAT MARKETS WE SERVE
SMART MANUFACTURING – MEDICAL DEVICES,
BIOTECH, AND PHARMACEUTICAL SUPPLY CHAIN
We help our customers maintain machine uptime
and maximize operational efficiency. We also enable then to do energy monitoring, predictive maintenance that anticipates problems before
they happen, and improve part and process quality. We are on the operations side, not the patient-facing side. In this market vertical,
our customers must provide high-quality products that must also pass rigorous review by governing bodies such as the FDA. Here again,
we focus on machine uptime, operational efficiency, and predictive maintenance to avoid unplanned downtime.
SMART INFRASTRUCTURE
For bridges and other civil infrastructure, local,
state and federal agencies have limited resources. We help our clients prioritize how to spend limited funds by addressing those fixes
which need to be made first.
SMART BUILDINGS
Our Indoor Air Quality partner provides sensor
technology that is augmented by our AI and Machine Learning algorithms. These systems allow commercial landlords to ensure safe healthy
air quality for their properties and tenants.
OUR UNIQUE VALUE PROPOSITION
EDGE COMPUTING AS A COMPLIMENT TO CLOUD COMPUTING
Within the Internet of Things (“IoT”)
and Industrial Internet of Things (“IIoT”), most companies right now are adopting an approach which sends all sensor
data to the cloud for processing. We specialize in edge computing, where the data processing is done locally right where the data is collected.
We also have advanced cloud-based algorithms that implement various machine learning and artificial intelligence algorithms.
ADVANCED ALGORITHMS
We have sought to differentiate from our competitors
by developing advanced algorithms on our own and in collaboration with strategic partners. These algorithms are an essential part of the
edge computing strategy that convert raw data into actionable knowledge right where the data is collected without having to send the data
to the cloud first.
RECONFIGURABLE HARDWARE AND SOFTWARE
Instead of focusing on creating tools, we use
open-source tools to create proprietary content.
Company Information and History
We were incorporated in the State of New
Jersey on October 1, 2003 under the name of Creative Beauty Supply of New Jersey Corporation and subsequently changed our name to
Gotham Capital Holdings, Inc. on May 18, 2015. We commenced operations in the beauty supply industry as of January 1, 2004. On
November 30, 2007, our Board of Directors approved a plan to dispose of our wholesale and retail beauty supply business. From
January 1, 2009 until July 28, 2017, we had no operations and were a shell company.
On March 16, 2017, our Board of Directors adopted
resolutions, which were approved by shareholders holding a majority of our outstanding shares, to change our name to “IIOT-OXYS,
Inc.”, to authorize a change of domicile from New Jersey to Nevada, to authorize a 2017 Stock Awards Plan, and to approve the Securities
Exchange Agreement (the “OXYS SEA”) between the Company and OXYS Corporation (“OXYS”), a Nevada
corporation incorporated on August 4, 2016.
Under the terms of the OXYS SEA we acquired 100%
of the issued voting shares of OXYS in exchange for 34,687,244 shares of our Common Stock. We also cancelled 1,500,000 outstanding shares
of our Common Stock and changed our management to Mr. DiBiase who also served in management of OXYS. Also, one of our principal shareholders
entered into a consulting agreement with OXYS to provide consulting services during the transition. The OXYS SEA was effective on July
28, 2017, and our name was changed to “IIOT-OXYS, Inc.” at that time. Effective October 26, 2017, our domicile was changed
from New Jersey to Nevada.
At the present time, we have two, wholly-owned
subsidiaries which are OXYS Corporation and HereLab, Inc. (an entity immaterial to our operations), through which our operations
are conducted.
Our principal executive offices are located at
705 Cambridge Street, Cambridge, MA 02141. Our telephone number is (401) 307-3092. Our common stock is listed on the OTC Markets under
the symbol “ITOX.”
Our internet website address is www.oxyscorp.com.
Employees
As of April 21, 2023, we have two full-time
W-2 employees, including the CEO (and Interim CTO) and Interim CFO (and COO).
At the present time, except for the funding received
from Cambridge MedSpace LLC and Vidhyadhar Mitta in the form of secured notes, there are no conflicts of interest between the Company
and any of our officers and directors. This was determined as follows: i) none of their outside activities are soliciting business from
our customers or business contacts; ii) they are not soliciting our investors to invest in other ventures; and iii) they are not soliciting
our contract employees to leave us and join other efforts. At present, all our business services are provided by outside contractors.
GHS Equity Financing Agreement and Registration
Rights Agreement
On November 1, 2021, we entered into the Equity
Financing Agreement and Registration Rights Agreement (“Registration Rights Agreement”) with GHS. Under the terms of
the Equity Financing Agreement, GHS agreed to provide the Company with up to $2,500,000 upon effectiveness of a registration statement
on Form S-1 (the “Registration Statement”) filed with the U.S. Securities and Exchange Commission (the “Commission”).
Following effectiveness of the Registration Statement,
the Company shall have the discretion to deliver puts (each, a “Put”) to GHS and GHS will be obligated to purchase
shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) based on the investment
amount specified in each Put notice. The maximum amount that the Company shall be entitled to put to GHS in each Put notice shall not
be less than $10,000 nor exceed $500,000 and any single drawdown may not exceed 200% of the average daily trading dollar volume of the
Company’s Common Stock during the ten trading days preceding the Put. Pursuant to the Equity Financing Agreement, GHS and its affiliates
will not be permitted to purchase shares, and the Company may not request Puts from GHS, that would result in GHS’s beneficial ownership
equaling more than 4.99% of the Company’s outstanding Common Stock. The price of each share in a Put shall be equal to 90% of the
Purchase Price. There will be a minimum of ten trading days between Puts. Puts may be delivered by the Company to GHS until (i) the earlier
of twenty-four (24) months after the date of the Equity Financing Agreement, (ii) the date on which GHS has purchased an aggregate of
$2,500,000 worth of Common Stock under the terms of the Equity Financing Agreement; or (iii) upon mutual termination of the Equity Financing
Agreement. At the end of the Pricing Period (as defined in the Equity Financing Agreement), the Purchase Price will be established and
an amount of shares equaling 110% of the Put Amount (the “Put Shares”) will be delivered to GHS’s broker for
a particular Put. In accordance with the Equity Financing Agreement, the Company issued to GHS 1,800,000 shares of Common Stock in order
to offset transaction costs (the “Commitment Shares”).
The Registration Rights Agreement provides that
the Company shall (i) use its best efforts to file with the Commission the Registration Statement within 45 days of the date of the Registration
Rights Agreement; and (ii) use reasonable commercial efforts to have the Registration Statement declared effective by the Commission within
30 days after the date the Registration Statement is filed with the Commission, but in no event more than 90 days after the Registration
Statement is filed.
Summary of the Offering
Shares currently outstanding (1): |
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401,865,786 |
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Shares being offered: |
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150,000,000,
all of which are remaining to be issued. |
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Offering Price per share: |
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The selling stockholder may sell all or a portion of the shares being offered pursuant to this Prospectus at fixed prices and prevailing market prices at the time of sale, at varying prices or at negotiated prices. |
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Use of Proceeds: |
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We will not receive any proceeds from the sale of the shares of our common stock by the selling stockholder. |
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Trading Symbol: |
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ITOX |
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Risk Factors: |
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See “Risk Factors” beginning on page 6 herein and the other information in this Prospectus for a discussion of the factors you should consider before deciding to invest in shares of our common stock. |
(1) |
The number of shares of our Common Stock outstanding prior to and to
be outstanding immediately after this offering, as set forth in the table above, is based on 401,865,786
shares outstanding as of April 21, 2023, and excluding 150,000,000 shares of Common Stock issuable in this offering which
have yet to be issued. |
RISK FACTORS
Risks Related to Our Business
A pandemic, epidemic or outbreak of an infectious
disease in the markets in which we operate or that otherwise impacts our facilities or suppliers could adversely impact our business.
If a pandemic, epidemic, or outbreak of an infectious
disease including the recent outbreak of respiratory illness caused by a novel coronavirus (COVID-19) first identified in Wuhan,
Hubei Province, China, or other public health crisis were to affect our markets or facilities, our business could be adversely affected.
Consequences of the coronavirus outbreak are resulting in disruptions in or restrictions on our ability to travel. If such an infectious
disease broke out at our office, facilities or work sites, our operations may be affected significantly, our productivity may be affected,
our ability to complete projects in accordance with our contractual obligations may be affected, and we may incur increased labor and
materials costs. If the customers with which we contract are affected by an outbreak of infectious disease, service work may be delayed
or cancelled, and we may incur increased labor and materials costs. If our subcontractors with whom we work were affected by an outbreak
of infectious disease, our labor supply may be affected and we may incur increased labor costs. In addition, we may experience difficulties
with certain suppliers or with vendors in their supply chains, and our business could be affected if we become unable to procure essential
equipment, supplies or services in adequate quantities and at acceptable prices. Further, infectious outbreak may cause disruption to
the U.S. economy, or the local economies of the markets in which we operate, cause shortages of materials, increase costs associated with
obtaining materials, affect job growth and consumer confidence, or cause economic changes that we cannot anticipate. Overall, the potential
impact of a pandemic, epidemic or outbreak of an infectious disease with respect to our market or our facilities is difficult to predict
and could adversely impact our business. In response to the COVID-19 situation, federal, state and local governments (or other governments
or bodies) are considering placing, or have placed, restrictions on travel and conducting or operating business activities. At this time
those restrictions are very fluid and evolving. We have been and will continue to be impacted by those restrictions. Given that the type,
degree and length of such restrictions are not known at this time, we cannot predict the overall impact of such restrictions on us, our
customers, our subcontractors and supply chain, others that we work with or the overall economic environment. As such, the impact
these restrictions may have on our financial position, operating results and liquidity cannot be reasonably estimated at this time, but
the impact may be material. In addition, due to the speed with which the COVID-19 situation is developing and evolving, there is
uncertainty around its ultimate impact on public health, business operations and the overall economy; therefore, the negative impact on
our financial position, operating results and liquidity cannot be reasonably estimated at this time, but the impact may be material.
Escalating global tensions, including the
conflict between Russia and Ukraine, could negatively impact us.
The ongoing conflict between Russia and Ukraine
could lead to disruption, instability and volatility in global markets and industries that could negatively impact our operations. The
U.S. government and other governments in jurisdictions in which we operate have imposed severe sanctions and export controls against Russia
and Russian interests and threatened additional sanctions and controls. The impact of these measures, as well as potential responses to
them by Russia, is currently unknown and they could adversely affect our business, partners or customers.
Because of our continued losses, there is
substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.
Our financial statements as of and for the
years ended December 31, 2022 and 2021 were prepared assuming that we would continue as a going concern. Our significant cumulative losses
from operations as of December 31, 2022, raised substantial doubt about our ability to continue as a going concern. If the going-concern
assumption were not appropriate for our financial statements, then adjustments would be necessary to the carrying values of the assets
and liabilities, the reported revenues and expenses, and the balance sheet classifications used. Since December 31, 2022, we have
continued to experience losses from operations. We have continued to fund operations primarily through the sales of equity securities.
Nevertheless, we will require additional funding to complete much of our planned operations. Our ability to continue as a going concern
is subject to our ability to generate a profit (i.e. through partnerships such as our current partnerships with Aingura and Aretas) and/or
obtain necessary additional funding from outside sources, including obtaining additional funding from the sale of our securities. Except
for potential proceeds from the sale of equity in offerings by us and minimal revenues, we have no other source for additional funding.
Our continued net operating losses and stockholders’ deficiency increase the difficulty in meeting such goals and there can be
no assurances that such methods will prove successful.
We have debt which is secured by all our
assets. If there is an occurrence of an uncured event of default, the lenders can foreclose on all our assets, which would make any stock
in the Company worthless.
We have entered into several secured loan transactions
with investors (as disclosed herein), pursuant to which the outstanding debt was secured by all our assets. In the event we are unable
to make payments, when due, on our secured debt, the lenders may foreclose on all our assets. In the event the lenders foreclose on our
assets, any stock in the Company would have no value. Our ability to make payments on secured debt, when due, will depend upon our ability
to make profit from operations and to raise additional funds through equity or debt financings. At the moment, we have no funding commitments
that have not been previously disclosed, and we may not obtain any in the future.
Our future success is dependent upon the
success of partnerships with other similarly-situated entities.
Effective March 18, 2020, we entered into the
Collaboration Agreement with Aingura IIoT, S.L. (“Aingura”) pursuant to which Aingura appointed and authorized us to
act as the sales network of Aingura’s services and products. Aingura delivers engineered, high-tech solutions by implementing Smart
Factory Operational Architectures. The agreement has an initial term of one year from the execution date. Unless terminated prior, the
agreement automatically renews for successive annual periods, unless either party notifies the other in writing of its express intention
not to renew the agreement at least two months prior to the date of termination of the agreement. There are restrictive provisions in
the agreement that may prevent us from pursuing other business opportunities during the term of the agreement. In addition, if we are
unable to make sales under the agreement, we will not collect any sales commissions and our business could fail.
On October 3, 2022, we entered into an Agency
Agreement with Aretas Sensor Networks Inc., a company incorporated under the laws of the Province of British Columbia (“Aretas”),
pursuant to which Aretas appointed and authorized us to act as a sales representative for Aretas’ products. Aretas combines IoT
sensor technology, cloud-based platform, and machine learning/ AI for an end-to-end solution to ingest, collect, display, and analyze
IoT data to allow companies to make better decisions. The agreement has an initial term of one year from the execution date. Unless terminated
prior, the agreement automatically renews for successive annual periods, unless either party notifies the other in writing of its express
intention not to renew the agreement at least two months prior to the date of termination of the agreement. If we are unable to make sales
under the agreement, we will not collect any sales commissions and our business could fail.
On December 28, 2022, we entered a non-exclusive
Distributor Agreement with Denmark based ElastiSense ApS ("ElastiSense") for their proprietary sensor technology. ElastiSense's
sensor technology is ideal for structural health monitoring, off-road machinery, factory automation and many other sensing purposes. If
we are unable to make distributions under the agreement, we will not collect any revenues and our business could fail.
We have been issued an unsecured promissory
note by Aretas. In the event Aretas defaults on the note, it could have a material adverse effect on our business.
On April 4, 2022 we were
issued a 10% Unsecured Convertible Promissory Note in the principal amount of $200,000 by Aretas. The purchase price of the note was $192,500
with a discount of $7,500. The Note matures on April 4, 2024 at which time we have the option to either receive the principal amount or
shares of Aretas representing 3.23% of the fully-diluted share capital of Aretas. Interest payments are to be made under the Note. In
the event that Aretas defaults on the Note, it could have an adverse material effect on our business.
Most of our sales have historically come
from a small number of customers and a reduction in demand or loss of one or more of our significant customers would adversely affect
our business.
Historically, we have been dependent on a small
number of direct customers for most of our business, revenue and results of operations. In the past, we had contracts with customers in
the civil infrastructure sector, and the pharmaceutical sector. Our prior customers constituted a state government and a large pharmaceutical
company. Historically, those customers generated all our revenue. We expect to continue to experience significant customer concentration
in future periods.
This customer concentration increases the risk
of quarterly fluctuations in our operating results and sensitivity to any material, adverse developments experienced by our significant
customers. In the past, although our relationships with our major customers was good, we generally did not have long-term contracts with
any of them, which is typical of our industry. In the future, the loss of, or any substantial reduction in sales to, any of our major
direct or end customers could have a material adverse effect on our business, financial condition and results of operations.
Our operating subsidiaries have limited
operating history and have generated very limited revenues thus far.
The limited operating history of OXYS and HereLab
in the IIoT field, makes evaluating our business and future prospects difficult. OXYS was incorporated on August 4, 2016 and HereLab
was incorporated on February 27, 2017. We have not yet generated substantial income from OXYS or HereLab’s operations and we only
anticipate doing so if we are able to successfully implement our business plan. During the twelve months ended December 31, 2022,
we generated $88,904 in sales from business operations, none of which was generated from HereLab in 2019 through the present, as
we have focused solely on OXYS from 2019 through the present and plan on continuing to do so in 2023. We intend in the longer term to
derive further revenues from partnerships, consulting services, product sales, and software licensing. Development of our services, products,
and software will require significant investment prior to commercial introduction, and we may never be able to successfully develop or
commercialize the services, products, or software in a material way.
We will require additional funding to develop
and commercialize our services, products, and software. If we are unable to secure additional financing on acceptable terms, or at all,
we may be forced to modify our current business plan or to curtail or cease our planned operations.
We anticipate incurring significant operating
losses and using significant funds for product development and operating activities. Our existing cash resources are insufficient to finance
even our immediate operations. Accordingly, we will need to secure additional sources of capital to develop our business and product candidates,
as planned. We intend to seek substantial additional financing through public and/or private financing, which may include equity and/or
debt financings, and through other arrangements, including collaborative arrangements. As part of such efforts, we may seek loans from
certain of our executive officers, directors and/or current shareholders.
If we are unable to secure additional financing
in the near term, we may be forced to:
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curtail or abandon our existing business plans; |
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default on any debt obligations; |
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seek to sell some or all our assets; and/or |
If we are forced to take any of these steps our
Common Stock may be worthless.
Any future financing may result in ownership
dilution to our existing shareholders and may grant rights to investors more favorable than the rights currently held by our existing
shareholders.
If we raise additional capital by issuing equity,
equity-related or convertible securities, the economic, voting and other rights of our existing shareholders may be diluted, and those
newly-issued securities may be issued at prices that are at a significant discount to current and/or then prevailing market prices. In
addition, any such newly issued securities may have rights superior to those of our common stock. If we obtain additional capital through
collaborative arrangements, we may be required to relinquish greater rights to our technologies or product candidates than we might otherwise
have or become subject to restrictive covenants that may affect our business.
Uncertain global economic conditions could
materially adversely affect our business and results of operations.
Our operations and performance are sensitive to
fluctuations in general economic conditions, both in the U.S. and globally. The ongoing uncertainty created by the COVID-19 pandemic,
volatile currency markets, the anticipated weakness in all sectors, alone or in combination, may continue to have a material adverse effect
on our net sales and the financial results of our operations. In addition, we remain concerned about the geopolitical and fiscal instability
in the Middle East and some emerging markets as well as the continued volatility of the equity markets. The upcoming U.S. election may
also create additional domestic and global economic uncertainty. These factors could have a material adverse effect on the spending patterns
of businesses including our current and potential customers which could have a material adverse effect on our net sales and our results
of operations. Other factors that could adversely influence demand for our products include unemployment, labor and healthcare costs,
access to credit, consumer and business confidence, and other macroeconomic factors that could have a negative impact on capital investment
and spending behavior.
We are subject to various risks associated
with international operations and foreign economies.
Our international sales are subject to inherent
risks, including:
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global pandemics such as the COVID-19 pandemic; |
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the impact of conflict between the Russian Federation and Ukraine on our operations; |
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geo-political events, such as the crisis in Ukraine, government responses to such events and the related impact on the economy both nationally and internationally; |
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fluctuations in foreign currencies relative to the U.S. dollar; |
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unexpected changes to currency policy or currency restrictions in foreign jurisdictions; |
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delays in collecting trade receivable balances from customers in developing economies; |
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unexpected changes in regulatory requirements; |
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difficulties and the high tax costs associated with the repatriation of earnings; |
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fluctuations in local economies; |
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disparate and changing employment laws in foreign jurisdictions; |
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difficulties in staffing and managing foreign operations; |
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costs and risks of localizing products for foreign countries; |
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unexpected changes in regulatory requirements; |
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government actions throughout the world; |
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tariffs and other trade barriers; and |
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the burdens of complying with a wide variety of foreign laws. |
Moreover, there can be no assurance that our international
sales will continue at existing levels or grow in accordance with our efforts to increase foreign market penetration.
In many foreign countries, particularly in those
with developing economies, it is common to engage in business practices that are prohibited by U.S. regulations applicable to us such
as the Foreign Corrupt Practices Act. Although we have policies and procedures designed to ensure compliance with these laws, there can
be no assurance that all of our employees, contractors and agents, including those based in or from countries where practices which violate
such U.S. laws may be customary, will not take actions in violation of our policies. Any violation of foreign or U.S. laws by our employees,
contractors or agents, even if such violation is prohibited by our policies, could have a material adverse effect on our business. We
must also comply with various import and export regulations. The application of these various regulations depends on the classification
of our products which can change over time as such regulations are modified or interpreted. As a result, even if we are currently in compliance
with applicable regulations, there can be no assurance that we will not have to incur additional costs or take additional compliance actions
in the future. Failure to comply with these regulations could result in fines or termination of import and export privileges, which could
have a material adverse effect on our operating results. Additionally, the regulatory environment in some countries is very restrictive
as their governments try to protect their local economy and value of their local currency against the U.S. dollar.
Any future product revenues are dependent
on certain industries, and contractions in these industries could have a material adverse effect on our results of operations.
Sales of our products are dependent on customers
in certain industries. As we have experienced in the past, and as we may continue to experience in the future, downturns characterized
by diminished product demand in any one or more of these industries may result in decreased sales and a material adverse effect on our
operating results. We cannot predict when and to what degree contractions in these industries may occur; however, any sharp or prolonged
contraction in one or more of these industries could have a material adverse effect on our business and results of operations.
We intend to make significant investments
in new products that may not be successful or achieve expected returns.
We plan to continue to make significant investments
in research, development, and marketing for new and existing products and technologies. These investments involve a number of risks as
the commercial success of such efforts depend on many factors, including our ability to anticipate and respond to innovation, achieve
the desired technological fit, and be effective with our marketing and distribution efforts. If our existing or potential customers do
not perceive our latest product offerings as providing significant new functionality or value, or if we are late to market with a new
product or technology, we may not achieve our expected return on our investments or be able recover the costs expended to develop new
product offerings, which could have a material adverse effect on our operating results. Even if our new products are profitable, our operating
margins for new products may not be as high as the margins we have experienced historically.
Our success depends on new product introductions
and market acceptance of our products.
The market for our products is characterized by
technological change, evolving industry standards, changes in customer needs and frequent new product introductions, and is therefore
highly dependent upon timely product innovation. Our success is dependent on our ability to successfully develop and introduce new and
enhanced products on a timely basis to replace declining revenues from older products, and on increasing penetration in domestic and international
markets. Any significant delay in releasing new products could have a material adverse effect on the ultimate success of a product and
other related products and could impede continued sales of predecessor products, any of which could have a material adverse effect on
our operating results. There can be no assurance that we will be able to introduce new products, that our new products will achieve market
acceptance or that any such acceptance will be sustained for any significant period. Failure of our new products to achieve or sustain
market acceptance could have a material adverse effect on our operating results.
Our reported financial results may be adversely
affected by changes in accounting principles generally accepted in the U.S.
We prepare our financial statements in conformity
with accounting principles generally accepted in the U.S. These accounting principles are subject to interpretation by the Financial Accounting
Standards Board (“FASB”) and the Securities and Exchange Commission. A change in these policies or interpretations
could have a significant effect on our reported financial results, may retroactively affect previously reported results, could cause unexpected
financial reporting fluctuations, and may require us to make costly changes to our operational processes and accounting systems.
We operate in intensely competitive markets.
The markets in which we operate are characterized
by intense competition from numerous competitors, some of which are divisions of large corporations having far greater resources than
we have, and we may face further competition from new market entrants in the future. Some examples of large and small competitors include,
but are not limited to:
|
· |
General Electric with its GE Predix product for IoT; |
|
· |
IBM with its IBM BlueMix and IBM IoT Watson products; |
|
· |
Siemens with its MindSphere IoT product; |
|
· |
Microsoft with its Microsoft Azure IoT Suite; |
Our financial results are subject to fluctuations
due to various factors that may adversely affect our business and result of operations.
Our operating results have fluctuated in the past
and may fluctuate significantly in the future due to several factors, including:
|
· |
global pandemics such as the COVID-19 pandemic; |
|
· |
the impact of conflict between the Russian Federation and Ukraine on our operations; |
|
· |
geo-political events, such as the crisis in Ukraine, government responses to such events and the related impact on the economy both nationally and internationally; |
|
· |
fluctuations in foreign currency exchange rates; |
|
· |
changes in global economic conditions; |
|
· |
changes in the mix of products sold; |
|
· |
the availability and pricing of components from third parties (especially limited sources); |
|
· |
the difficulty in maintaining margins, including the higher margins traditionally achieved in international sales; |
|
· |
changes in pricing policies by us, our competitors or suppliers; |
|
· |
the timing, cost or outcome of any future intellectual property litigation or commercial disputes; |
|
· |
delays in product shipments caused by human error or other factors; or |
|
· |
disruptions in transportation channels. |
Any future acquisitions made by us will
be subject to several related costs and challenges that could have a material adverse effect on our business and results of operations.
We plan to make more acquisitions in the future.
Achieving the anticipated benefits of an acquisition depends upon whether the integration of the acquired business, products or technology
is accomplished efficiently and effectively. In addition, successful acquisitions generally require, among other things, integration of
product offerings, manufacturing operations and coordination of sales and marketing and R&D efforts. These difficulties can become
more challenging due to the need to coordinate geographically separated organizations, the complexities of the technologies being integrated,
and the necessities of integrating personnel with disparate business backgrounds and combining different corporate cultures. The integration
of operations following an acquisition also requires the dedication of management resources, which may distract attention from our day-to-day
business and may disrupt key R&D, marketing or sales efforts. Our inability to successfully integrate any of our acquisitions could
harm our business. The existing products previously sold by entities we have acquired may be of a lesser quality than our products or
could contain errors that produce incorrect results on which users rely or cause failure or interruption of systems or processes that
could subject us to liability claims that could have a material adverse effect on our operating results or financial position. Furthermore,
products acquired in connection with acquisitions may not gain acceptance in our markets, and we may not achieve the anticipated or desired
benefits of such transactions.
We may experience component shortages that
may adversely affect our business and result of operations.
We have experienced difficulty in securing certain
types of high-power connectors for one of our projects and anticipate that supply shortages of components used in our products, including
limited source components, can result in significant additional costs and inefficiencies in manufacturing. If we are unsuccessful in resolving
any such component shortages in a timely manner, we will experience a significant impact on the timing of revenue, a possible loss of
revenue, or an increase in manufacturing costs, any of which would have a material adverse impact on our operating results.
We rely on management information systems.
interruptions in our information technology systems or cyber-attacks on our systems could adversely affect our business.
We rely on the efficient and uninterrupted operation
of complex information technology systems and networks to operate our business. We rely on a primary global center for our management
information systems and on multiple systems in branches not covered by our global center. As with any information system, unforeseen issues
may arise that could affect our ability to receive adequate, accurate and timely financial information, which in turn could inhibit effective
and timely decisions. Furthermore, it is possible that our global center for information systems or our branch operations could experience
a complete or partial shutdown. A significant system or network disruption could be the result of new system implementations, computer
viruses, cyber-attacks, security breaches, facility issues or energy blackouts. Threats to our information technology security can take
a variety of forms and individuals or groups of hackers or sophisticated organizations including state-sponsored organizations, may take
steps that pose threats to our customers and our infrastructure. If we were to experience a shutdown, disruption or attack, it would adversely
impact our product shipments and net sales, as order processing and product distribution are heavily dependent on our management information
systems. Such an interruption could also result in a loss of our intellectual property or the release of sensitive competitive information
or partner, customer or employee personal data. Any loss of such information could harm our competitive position, result in a loss of
customer confidence, and cause us to incur significant costs to remedy the damages caused by the disruptions or security breaches. In
addition, changing laws and regulations governing our responsibility to safeguard private data could result in a significant increase
in operating or capital expenditures needed to comply with these new laws or regulations. Accordingly, our operating results in such periods
would be adversely impacted.
We are continually working to maintain reliable
systems to control costs and improve our ability to deliver our products in our markets worldwide. Our efforts include, but are not limited
to the following: firewalls, antivirus protection, patches, log monitors, routine backups with offsite retention of storage media, system
audits, data partitioning and routine password modifications. Our internal information technology systems environment continues to evolve,
and our business policies and internal security controls may not keep pace as new threats emerge. No assurance can be given that our efforts
to continue to enhance our systems will be successful.
We are subject to risks associated with
our website.
We devote resources to maintaining our website,
www.oxyscorp.com, as a key marketing, sales and support tool and expect to continue to do so in the future. Failure to properly maintain
our website may interrupt normal operations, including our ability to run and market our business which would have a material adverse
effect on our results of operations. We host our website internally. Any failure to successfully maintain our website or any significant
downtime or outages affecting our website could have a material adverse impact on our operating results.
Our products are complex and may contain
bugs or errors.
As has occurred in the past and as may be expected
to occur in the future, our new software products or new operating systems of third parties on which our products are based often contain
bugs or errors that can result in reduced sales or cause our support costs to increase, either of which could have a material adverse
impact on our operating results.
Compliance with sections 302 and 404 of
the Sarbanes-Oxley Act of 2002 is costly and challenging.
As required by Section 302 of the Sarbanes-Oxley
Act of 2002, our periodic reports contain our management’s certification of adequate disclosure controls and procedures, a report
by our management on our internal control over financial reporting including an assessment of the effectiveness of our internal control
over financial reporting, and an attestation and report by our external auditors with respect to the effectiveness of our internal control
over financial reporting under Section 404. While these assessments and reports have not revealed any material weaknesses in our internal
control over financial reporting, compliance with Sections 302 and 404 is required for each future fiscal year end. We expect that the
ongoing compliance with Sections 302 and 404 will continue to be both very costly and very challenging and there can be no assurance that
material weaknesses will not be identified in future periods. Any adverse results from such ongoing compliance efforts could result in
a loss of investor confidence in our financial reports and have an adverse effect on our stock price.
Our business depends on our proprietary
rights and we have been subject to intellectual property litigation.
Our success depends on our ability to obtain
and maintain patents and other proprietary rights relative to the technologies used in our principal products. Despite our efforts to
protect our proprietary rights, unauthorized parties may have in the past infringed or violated certain of our intellectual property
rights. We from time to time may engage in litigation to protect our intellectual property rights. In monitoring and policing our intellectual
property rights, we may be required to spend significant resources. We from time to time may be notified that we are infringing certain
patent or intellectual property rights of others. There can be no assurance that any future intellectual property dispute or litigation
will not result in significant expense, liability, injunction against the sale of some of our products, and a diversion of management’s
attention, any of which may have a material adverse effect on our operating results.
We are subject to the risk of product liability
claims.
Our products are designed to provide information
upon which users may rely. Our products are also used in “real time” applications requiring extremely rapid and continuous
processing and constant feedback. Such applications give rise to the risk that a failure or interruption of the system or application
could result in economic damage, bodily harm or property damage. We attempt to assure the quality and accuracy of the processes contained
in our products, and to limit our product liability exposure through contractual limitations on liability, limited warranties, express
disclaimers and warnings as well as disclaimers contained in our “shrink wrap” and electronically displayed license agreements
with end-users. If our products contain errors that produce incorrect results on which users rely or cause failure or interruption of
systems or processes, customer acceptance of our products could be adversely affected. Further, we could be subject to liability claims
that could have a material adverse effect on our operating results or financial position. Although we maintain liability insurance for
product liability matters, there can be no assurance that such insurance or the contractual limitations used by us to limit our liability
will be sufficient to cover or limit any claims which may occur.
Each of our current product candidates and
services is in an early stage of development and we may never succeed in developing and/or commercializing them. If we are unable to commercialize
our services, products, or software, or if we experience significant delays in doing so, our business may fail.
We intend to invest a significant portion of our
efforts and financial resources in our software and we will depend heavily on its success. This software is currently in the beta stage
of development. We need to devote significant additional research and development, financial resources and personnel to develop additional
commercially viable products, establish intellectual property rights, if necessary, and establish a sales and marketing infrastructure.
We are likely to encounter hurdles and unexpected issues as we proceed in the development of our software and our other product candidates.
There are many reasons that we may not succeed in our efforts to develop our product candidates, including the possibility that our product
candidates will be deemed undesirable; our product candidates will be too expensive to develop or market or will not achieve broad market
acceptance; others will hold proprietary rights that will prevent us from marketing our product candidates; or our competitors will market
products that are perceived as equivalent or superior.
We depend on third parties to assist us
in the development of our software and other product candidates, and any failure of those parties to fulfill their obligations could result
in costs and delays and prevent us from successfully commercializing our software and product candidates on a timely basis, if at all.
We may engage consultants and other third parties
to help our software and product candidates. We may face delays in our commercialization efforts if these parties do not perform their
obligations in a timely or competent fashion or if we are forced to change service providers. Any third parties that we hire may also
provide services to our competitors, which could compromise the performance of their obligations to us. If these third parties do not
successfully carry out their duties or meet expected deadlines, the commercialization of our software and product candidates may be extended,
delayed or terminated or may otherwise prove to be unsuccessful. Any delays or failures as a result of the failure to perform by third
parties would cause our development costs to increase, and we may not be able to commercialize our product candidates. In addition, we
may not be able to establish or maintain relationships with these third parties on favorable terms, if at all. If we need to enter into
replacement arrangements because a third party is not performing in accordance with our expectations, we may not be able to do so without
undue delays or considerable expenditures or at all.
The loss of or inability to retain key personnel
could materially adversely affect our operations.
Our management includes a select group of experienced
technology professionals, particularly Clifford Emmons and Karen McNemar, who will be instrumental in the development of our software
and product candidates. The success of our operations will, in part, depend on the successful continued involvement of these individuals.
If these individuals leave the employment of or engagement with us, OXYS, or HereLab, then our ability to operate will be negatively impacted.
Although we have consulting agreements with these individuals, we do not have any employment agreements with these parties and do not
maintain any “key-man” insurance for them.
Risks Related to Our Intellectual Property
Patents acquired by us may not be valid
or enforceable and may be challenged by third parties.
We do not intend to seek a legal opinion or other
independent verification that any patents issued or licensed to us would be held valid by a court or administrative body or that we would
be able to successfully enforce our patents against infringers, including our competitors. The issuance of a patent is not conclusive
as to its validity or enforceability, and the validity and enforceability of a patent is susceptible to challenge on numerous legal grounds.
Challenges raised in patent infringement litigation brought by or against us may result in determinations that patents that have been
issued or licensed to us or any patents that may be issued to us or our licensors in the future are invalid, unenforceable or otherwise
subject to limitations. In the event of any such determinations, third parties may be able to use the discoveries or technologies claimed
in these patents without paying licensing fees or royalties to us, which could significantly diminish the value of our intellectual property
and our competitive advantage. Even if our patents are held to be enforceable, others may be able to design around our patents or develop
products similar to our products that are not within the scope of any of our patents.
In addition, enforcing any patents that may be
issued to us in the future against third parties may require significant expenditures regardless of the outcome of such efforts. Our inability
to enforce our patents against infringers and competitors may impair our ability to be competitive and could have a material adverse effect
on our business.
If we are not able to protect and control
our unpatented trade secrets, know-how and other technological innovation, we may suffer competitive harm.
We rely on unpatented technology, trade secrets,
confidential information and proprietary know-how to protect our technology and maintain any future competitive position, especially when
we do not believe that patent protection is appropriate or can be obtained. Trade secrets are difficult to protect. In order to protect
proprietary technology and processes, we rely in part on confidentiality and intellectual property assignment agreements with our employees,
consultants and others. These agreements generally provide that the individual must keep confidential and not disclose to other parties
any confidential information developed or learned by the individual during the course of the individual’s relationship with us except
in limited circumstances. These agreements generally also provide that we shall own all inventions conceived by the individual in the
course of rendering services to us. These agreements may not effectively prevent disclosure of confidential information or result in the
effective assignment to us of intellectual property and may not provide an adequate remedy in the event of unauthorized disclosure of
confidential information or other breaches of the agreements. In addition, others may independently discover trade secrets and proprietary
information that have been licensed to us or that we own, and in such case, we could not assert any trade secret rights against such party.
Enforcing a claim that a party illegally obtained
and is using trade secrets that have been licensed to us or that we own is difficult, expensive and time-consuming, and the outcome is
unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets. Costly and time-consuming litigation
could be necessary to seek to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret
protection could have a material adverse effect on our business. Moreover, some of our academic institution licensors, collaborators and
scientific advisors have rights to publish data and information to which we have rights. If we cannot maintain the confidentiality of
our technologies and other confidential information in connection with our collaborations, our ability to protect our proprietary information
or obtain patent protection in the future may be impaired, which could have a material adverse effect on our business.
Risks Related to Our Common Stock
The public trading market for our common
stock is volatile and will likely result in higher spreads in stock prices.
Our common stock is trading in the over-the-counter
market and is quoted on the OTC Pink. The over-the-counter market for securities has historically experienced extreme price and volume
fluctuations during certain periods. These broad market fluctuations and other factors, such as our ability to implement our business
plan, as well as economic conditions and quarterly variations in our results of operations, may adversely affect the market price of our
common stock. In addition, the spreads on stock traded through the over-the-counter market are generally unregulated and higher than on
stock exchanges, which means that the difference between the price at which shares could be purchased by investors on the over-the-counter
market compared to the price at which they could be subsequently sold would be greater than on these exchanges. Significant spreads between
the bid and asked prices of the stock could continue during any period in which a sufficient volume of trading is unavailable or if the
stock is quoted by an insignificant number of market makers. We cannot ensure that our trading volume will be sufficient to significantly
reduce this spread, or that we will have sufficient market makers to affect this spread. These higher spreads could adversely affect investors
who purchase the shares at the higher price at which the shares are sold, but subsequently sell the shares at the lower bid prices quoted
by the brokers. Unless the bid price for the stock increases and exceeds the price paid for the shares by the investor, plus brokerage
commissions or charges, shareholders could lose money on the sale. For higher spreads such as those on over-the-counter stocks, this is
likely a much greater percentage of the price of the stock than for exchange listed stocks. There is no assurance that at the time the
shareholder wishes to sell the shares, the bid price will have sufficiently increased to create a profit on the sale.
Because our shares are designated as “penny
stock”, broker-dealers will be less likely to trade in our stock due to, among other items, the requirements for broker-dealers
to disclose to investors the risks inherent in penny stocks and to make a determination that the investment is suitable for the purchaser.
Our shares are designated as “penny stock”
as defined in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and
thus may be more illiquid than shares not designated as penny stock. The SEC has adopted rules which regulate broker-dealer practices
in connection with transactions in “penny stocks.” Penny stocks are defined generally as: non-Nasdaq equity securities with
a price of less than $5.00 per share; not traded on a “recognized” national exchange; or in issuers with net tangible assets
less than $2,000,000, if the issuer has been in continuous operation for at least three years, or $10,000,000, if in continuous operation
for less than three years, or with average revenues of less than $6,000,000 for the last three years. The penny stock rules require a
broker-dealer to deliver a standardized risk disclosure document prepared by the SEC, to provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, monthly account statements
showing the market value of each penny stock held in the customer’s account, to make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure
requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a stock that is subject
to the penny stock rules. Since our securities are subject to the penny stock rules, investors in the shares may find it more difficult
to sell their shares. Many brokers have decided not to trade in penny stocks because of the requirements of the penny stock rules and,
as a result, the number of broker-dealers willing to act as market makers in such securities is limited. The reduction in the number of
available market makers and other broker-dealers willing to trade in penny stocks may limit the ability of purchasers in this offering
to sell their stock in any secondary market. These penny stock regulations, and the restrictions imposed on the resale of penny stocks
by these regulations, could adversely affect our stock price.
Our Board of Directors can, without shareholder
approval, cause preferred stock to be issued on terms that adversely affect common shareholders.
Under our Articles of Incorporation, our board
of directors is authorized to issue up to 10,000,000 shares of preferred stock, of which 26,299 are issued and outstanding as of the date
of this Prospectus. Also, our board of directors, without shareholder approval, may determine the price, rights, preferences, privileges
and restrictions, including voting rights, of those shares. If our board of directors causes any additional shares of preferred stock
to be issued, the rights of the holders of our common stock could be adversely affected. Our board of directors’ ability to determine
the terms of preferred stock and to cause its issuance, while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of our outstanding
voting stock. Additional preferred shares issued by our board of directors could include voting rights, or even additional super voting
rights (above those pertaining to the Series A Super Voting Preferred Stock), which could shift the ability to control our company to
the holders of our preferred stock. Additional preferred shares could also have conversion rights into shares of our common stock at a
discount to the market price of the common stock which could negatively affect the market for our common stock. In addition, preferred
shares would have preference in the event of our liquidation, which means that the holders of preferred shares would be entitled to receive
the net assets of our company distributed in liquidation before the common stock holders receive any distribution of the liquidated assets.
We have not paid, and do not intend to pay
in the near future, dividends on our common shares and therefore, unless our common stock appreciates in value, our shareholders may not
benefit from holding our common stock.
We have not paid any cash dividends on our common
stock since inception. Therefore, any return on the investment made in our shares of common stock will likely be dependent initially upon
the shareholder’s ability to sell our common shares in the open market, at prices in excess of the amount paid for our common shares
and broker commissions on the sales.
Because we became public by means of a reverse
merger, we may not be able to attract the attention of brokerage firms.
Additional risks may exist because we became public
through a “reverse merger.” Securities analysts of brokerage firms may not provide coverage of our company since there is
little incentive for brokerage firms to recommend the purchase of our common stock. No assurance can be given that brokerage firms will
want to conduct secondary offerings on our behalf in the future.
Shares of our common stock that have not
been registered under federal securities laws are subject to resale restrictions imposed by Rule 144, including those set forth in Rule
144(i) which apply to a former “shell company.”
Prior to the closing of the SEA, we were deemed
a “shell company” under applicable SEC rules and regulations because we had no or nominal operations and either no or nominal
assets, assets consisting solely of cash and cash equivalents, or assets consisting of any amount of cash and cash equivalents and nominal
other assets. Pursuant to Rule 144 promulgated under the Securities Act sales of the securities of a former shell company, such as us,
under that rule are not permitted (i) until at least 12 months have elapsed from the date on which Form 10-type information reflecting
our status as a non-shell company, is filed with the SEC and (ii) unless at the time of a proposed sale, we are subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act and have filed all reports and other materials required to be filed by Section
13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months, other than Form 8-K reports. Without registration under
the Securities Act, our shareholders will be forced to hold their shares of our common stock for at least that 12-month period after the
filing of the report on Form 8-K following the closing of the reverse merger before they are eligible to sell those shares pursuant to
Rule 144, and even after that 12-month period, sales may not be made under Rule 144 unless we are in compliance with other requirements
of Rule 144. Further, it will be more difficult for us to raise funding to support our operations through the sale of debt or equity securities
unless we agree to register such securities under the Securities Act, which could cause us to expend significant time and cash resources.
The lack of liquidity of our securities as a result of the inability to sell under Rule 144 for a longer period of time than a non-former
shell company could negatively affect the market price of our securities.
Risks Related to the Offering
Our existing stockholders may experience
significant dilution from the sale of our common stock pursuant to the GHS Equity Financing Agreement.
The sale of our common stock to GHS in accordance
with the Equity Financing Agreement may have a dilutive impact on our shareholders. As a result, the market price of our common stock
could decline. In addition, the lower our stock price is at the time we exercise our put options, the more shares of our common stock
we will have to issue to GHS in order to exercise a put under the Equity Financing Agreement. If our stock price decreases, then our existing
shareholders would experience greater dilution for any given dollar amount raised through the offering.
The perceived risk of dilution may cause our stockholders
to sell their shares, which may cause a decline in the price of our common stock. Moreover, the perceived risk of dilution and the resulting
downward pressure on our stock price could encourage investors to engage in short sales of our common stock. By increasing the number
of shares offered for sale, material amounts of short selling could further contribute to progressive price declines in our common stock.
The issuance of shares pursuant to the GHS
Equity Financing Agreement may have a significant dilutive effect.
Depending on the number of shares we issue pursuant
to the GHS Financing Agreement, it could have a significant dilutive effect upon our existing shareholders. Although the number of shares
that we may issue pursuant to the Equity Financing Agreement will vary based on our stock price (the higher our stock price, the less
shares we have to issue), there may be a potential dilutive effect to our shareholders, based on different potential future stock prices,
if the full amount of the Equity Financing Agreement is realized. Dilution is based upon common stock put to GHS and the stock price discounted
to GHS’s Purchase Price.
GHS will pay less than the then-prevailing
market price of our common stock which could cause the price of our common stock to decline.
Our common stock to be issued under the Equity
Financing Agreement will be purchased at a 10% discount, or 90% of the volume-weighted average price for the Company’s common stock
during the ten consecutive trading days immediately preceding each Put.
GHS has a financial incentive to sell our shares
immediately upon receiving them to realize the profit between the discounted price and the market price. If GHS sells our shares, the
price of our common stock may decrease. If our stock price decreases, GHS may have further incentive to sell such shares. Accordingly,
the discounted sales price in the Equity Financing Agreement may cause the price of our common stock to decline.
We may not have access to the full amount
under the financing agreement.
The lowest volume-weighted average price for
the ten days ended April 21, 2023 was $0.0016. At that price we would be able to sell shares to GHS under the Equity Financing Agreement
at the discounted price of $0.00144. At that discounted price, the additional 150,000,000 shares would only represent $216,000, which
is far below the full amount of the Equity Financing Agreement. In addition, any single drawdown must be at least $10,000 and cannot
exceed $500,000 and any single drawdown may not exceed 200% of the average daily trading dollar volume of our Common Stock during the
ten trading days preceding the put, which is approximately $8,000 on the date of this Registration Statement.
There could be unidentified risks involved
with an investment in our securities.
The foregoing risk factors are not a complete
list or explanation of the risks involved with an investment in the securities. Additional risks will likely be experienced that are not
presently foreseen by us. Prospective investors must not construe this the information provided herein as constituting investment, legal,
tax or other professional advice. Before making any decision to invest in our securities, you should read this entire Prospectus and consult
with your own investment, legal, tax and other professional advisors. An investment in our securities is suitable only for investors who
can assume the financial risks of an investment in us for an indefinite period of time and who can afford to lose their entire investment.
We make no representations or warranties of any kind with respect to the likelihood of the success or the business of our Company, the
value of our securities, any financial returns that may be generated or any tax benefits or consequences that may result from an investment
in us.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
The statements contained in this report that are
not historical facts are forward-looking statements that represent management’s beliefs and assumptions based on currently available
information. Forward-looking statements include the information concerning possible or assumed future operations, business strategies,
need for financing, competitive position, potential growth opportunities, ability to retain and recruit personnel, the effects of competition
and the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts
and can be identified by the use of forward-looking terminology such as the words “believes,” “intends,” “may,”
“should,” “anticipates,” “expects,” “could,” “plans,” or comparable terminology
or by discussions of strategy or trends. Although we believe that the expectations reflected in such forward-looking statements are reasonable,
we cannot give any assurances that these expectations will prove to be correct. Such statements by their nature involve risks and uncertainties
that could significantly affect expected results, and actual future results could differ materially from those described in such forward-looking
statements.
Factors that may cause differences between actual
results and those contemplated by forward-looking statements include those discussed in “Risk Factors” and are not limited
to the following:
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the unprecedented impact of COVID-19 pandemic on our business, customers, employees, subcontractors, consultants, service providers, stockholders, investors and other stakeholders; |
|
· |
the impact of conflict between the Russian Federation and Ukraine on our operations; |
|
· |
geo-political events, such as the crisis in Ukraine, government responses to such events and the related impact on the economy both nationally and internationally; |
|
· |
general market and economic conditions; |
|
· |
our ability to acquire new customers; |
|
· |
our ability to maintain and grow our business with our current customers; |
|
· |
our ability to meet the volume and service requirements of our customers; |
|
· |
industry consolidation, including acquisitions by us or our competitors; |
|
· |
capacity utilization and the efficiency of manufacturing operations; |
|
· |
success in developing new products; |
|
· |
timing of our new product introductions; |
|
· |
new product introductions by competitors; |
|
· |
the ability of competitors to more fully leverage low cost geographies for manufacturing or distribution; |
|
· |
product pricing, including the impact of currency exchange rates; |
|
· |
effectiveness of sales and marketing resources and strategies; |
|
· |
adequate manufacturing capacity and supply of components and materials; |
|
· |
strategic relationships with our suppliers; |
|
· |
product quality and performance; |
|
· |
protection of our products and brand by effective use of intellectual property laws; |
|
· |
the financial strength of our competitors; |
|
· |
the outcome of any future litigation or commercial dispute; |
|
· |
barriers to entry imposed by competitors with significant market power in new markets; |
|
· |
government actions throughout the world; and |
|
· |
our ability to service debt, when due. |
Although the forward-looking statements in this
Prospectus are based on our beliefs, assumptions and expectations, taking into account all information currently available to us, we cannot
guarantee future transactions, results, performance, achievements or outcomes. No assurance can be made by anyone that the expectations
reflected in our forward-looking statements will be attained, or that deviations from them will not be material and adverse. We undertake
no obligation, other than as maybe be required by law, to update this Prospectus or otherwise make public statements updating our forward-looking
statements.
THE SELLING STOCKHOLDER
The selling stockholder identified in this
Prospectus may offer a number of shares of its common stock, which will consist of up to 150,000,000 shares of common
stock to be sold by GHS pursuant to an Equity Financing Agreement. As of the date hereof, 153,973,552 shares (including 1,800,000 commitment
shares) have been sold to GHS under the Equity Financing Agreement. If issued presently, the additional 150,000,000 shares of common
stock registered for resale by GHS, all of which have yet to be issued, would represent 27.18% of our issued and outstanding shares of
common stock as of April 21, 2023. Additionally, the additional 150,000,000 shares of our common stock registered for resale herein,
all of which have yet to be issued, would represent approximately 28.75% of the Company’s public float (all current free-trading
shares not held by affiliates).
We may require the selling stockholder to suspend
the sales of the shares of our common stock being offered pursuant to this Prospectus upon the occurrence of any event that makes any
statement in this Prospectus or the related registration statement untrue in any material respect or that requires the changing of statements
in those documents in order to make statements in those documents not misleading.
The selling stockholder identified in the table
below may from time to time offer and sell under this Prospectus any or all of the shares of common stock described under the column “Shares
of Common Stock Being Offered” in the table below.
GHS will be deemed to be an underwriter within
the meaning of the Securities Act. Any profits realized by the selling stockholder may be deemed to be underwriting commissions.
We cannot give an estimate as to the number of
shares of common stock that will actually be held by the selling stockholder upon termination of this offering, because the selling stockholder
may offer some or all of the common stock under the offering contemplated by this Prospectus or acquire additional shares of common stock.
The total number of shares that may be sold hereunder will not exceed the number of shares offered hereby. Please read the section entitled
“Plan of Distribution” in this Prospectus.
The manner in which the selling stockholder acquired
or will acquire shares of our common stock is discussed below under “The Offering.”
The following table sets forth the name of the
selling stockholder, the number of shares of our common stock beneficially owned by such stockholder before this offering, the number
of shares to be offered for such stockholder’s account and the number and (if one percent or more) the percentage of the class
to be beneficially owned by such stockholder after completion of the offering. The number of shares owned are those beneficially owned,
as determined under the rules of the SEC, and such information is not necessarily indicative of beneficial ownership for any other purpose.
Under such rules, beneficial ownership includes any shares of our common stock as to which a person has sole or shared voting power or
investment power and any shares of common stock which the person has the right to acquire within 60 days of April 21, 2023, through
the exercise of any option, warrant or right, through conversion of any security or pursuant to the automatic termination of a power
of attorney or revocation of a trust, discretionary account or similar arrangement, and such shares are deemed to be beneficially owned
and outstanding for computing the share ownership and percentage of the person holding such options, warrants or other rights, but are
not deemed outstanding for computing the percentage of any other person. Beneficial ownership percentages are calculated based on
401,865,786 shares of our common stock outstanding as of April 21, 2023.
Unless otherwise set forth below, (a) the persons
and entities named in the table below have sole voting and sole investment power with respect to the shares set forth opposite the selling
stockholder’s name, subject to community property laws, where applicable, and (b) no selling stockholder had any position, office
or other material relationship within the past three years, with us or with any of our predecessors or affiliates. The number of shares
of common stock shown as beneficially owned before the offering is based on information furnished to us or otherwise based on information
available to us at the timing of the filing of the registration statement of which this Prospectus forms a part.
|
|
Shares Owned by the Selling Stockholder before
the Offering |
|
Unissued Shares of Common Stock
Being Offered |
|
Number of Shares to be Owned by Selling Stockholder After the Offering and Percent of Total Issued and Outstanding Shares |
|
Name of Selling Stockholder |
|
|
|
# of Shares (1) |
|
|
% of Class (1) |
|
GHS Investments LLC (2) |
|
|
6,514,639 |
|
150,000,000 |
(3) |
0 |
|
|
– |
|
Notes:
(1) |
Because the selling stockholder may offer and sell all or only some
portion of the 150,000,000 additional shares of our common stock being offered pursuant to this prospectus and may acquire
additional shares of our common stock in the future, we can only estimate the number and percentage of shares of our common stock
that the selling stockholder will hold upon termination of the offering based on the shares currently held. |
(2) |
Mark Grober exercises voting and dispositive power with respect to the shares of our common stock that are beneficially owned by GHS. |
(3) |
Consists of up to 150,000,000 additional shares of common stock
to be sold by GHS pursuant to the Financing Agreement. |
PLAN OF DISTRIBUTION
The selling stockholder may, from time to time,
sell any or all of its shares of Company common stock through the OTC Link or any other stock exchange, quotation board, market or trading
facility on which the shares of our common stock are quoted or traded, or in private transactions. These sales may be at fixed prices,
prevailing market prices at the time of sale, at varying prices, or at negotiated prices. The selling stockholder may use any one or more
of the following methods when selling shares:
|
· |
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
|
· |
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
|
· |
purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
|
· |
privately negotiated transactions; |
|
· |
broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; or |
|
· |
a combination of any such methods of sale. |
Additionally, broker-dealers engaged by the selling
stockholder may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the
selling stockholder (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated,
but except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage
commissions in compliance with FINRA Rule 2440; and in the case of a principal transaction, a markup or markdown in compliance with FINRA
IM-2440.
GHS will be deemed to be an underwriter within
the meaning of the Securities Act, and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters”
within the meaning of the Securities Act in connection with such sales. Any commissions received by such broker-dealers or agents, and
any profit on the resale of the shares purchased by them, may be deemed to be underwriting commissions or discounts under the Securities
Act. GHS has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person
to distribute the Company’s common stock. Pursuant to a requirement by FINRA, the maximum commission or discount to be received
by any FINRA member or independent broker-dealer may not be greater than 8% of the gross proceeds received by us for the sale of any securities
being registered pursuant to Rule 415 promulgated under the Securities Act.
Discounts, concessions, commissions and similar
selling expenses, if any, attributable to the sale of shares will be borne by the selling stockholder. The selling stockholder may agree
to indemnify any agent, dealer, or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed
on that person under the Securities Act.
We have entered into an agreement with GHS to
keep this prospectus effective until GHS (i) has sold all of the common shares purchased by it under the Financing Agreement and (ii)
has no further right to acquire any additional shares of common stock under the Financing Agreement.
The resale shares will be sold only through registered
or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may
not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
Under applicable rules and regulations under the
Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with
respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution.
In addition, the selling stockholder will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder,
including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the selling stockholder or
any other person. We will make copies of this prospectus available to the selling stockholder.
USE OF PROCEEDS
We are required to pay certain fees and expenses
incurred by us incident to the registration of the shares covered by this prospectus. We have agreed to indemnify the selling stockholder
against certain losses, claims, damages and liabilities, including liabilities under the Securities Act. We will not receive any proceeds
from the resale of any of the shares of our common stock by the selling stockholder. We will receive proceeds from the sale of our common
stock to GHS under the Equity Financing Agreement. Neither the Equity Financing Agreement with GHS nor any rights of the parties under
the Equity Financing Agreement with GHS may be assigned or delegated to any other person.
PRICE RANGE OF COMMON STOCK AND RELATED MATTERS
Our common stock is quoted on the OTC Pink tier
of the OTC Markets Group quotation system (www.otcmarkets.com) under the trading ticker “ITOX.” The table below sets
forth for the periods indicated the quarterly high and low bid prices as reported by OTC Markets. Limited trading volume has occurred
during these periods. These quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily
represent actual transactions.
|
|
Quarter |
|
|
High |
|
|
Low |
|
FISCAL YEAR ENDING DECEMBER 31, 2023 |
|
|
First |
|
|
$ |
0.0087 |
|
|
$ |
0.0013 |
|
|
|
Quarter |
|
|
High |
|
|
Low |
|
FISCAL YEAR ENDED DECEMBER 31, 2022 |
|
|
First |
|
|
$ |
0.0195 |
|
|
$ |
0.0049 |
|
|
|
|
Second |
|
|
$ |
0.0219 |
|
|
$ |
0.005 |
|
|
|
|
Third |
|
|
$ |
0.0071 |
|
|
$ |
0.0031 |
|
|
|
|
Fourth |
|
|
$ |
0.0048 |
|
|
$ |
0.0018 |
|
|
|
Quarter |
|
|
High |
|
|
Low |
|
FISCAL YEAR ENDED DECEMBER 31, 2021 |
|
|
First |
|
|
$ |
0.045 |
|
|
$ |
0.0062 |
|
|
|
|
Second |
|
|
$ |
0.024 |
|
|
$ |
0.0119 |
|
|
|
|
Third |
|
|
$ |
0.0249 |
|
|
$ |
0.011 |
|
|
|
|
Fourth |
|
|
$ |
0.0168 |
|
|
$ |
0.0032 |
|
On April 21, 2023, the last sales price per
share of our common stock was $0.0017.
Holders of Common Stock
As of the close of business on April 21, 2023,
we had approximately 154 holders of our common stock. The number of record holders was determined from the records of our transfer
agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers,
and registered clearing agencies. We have appointed IssuerDirect, 1981 East 4800 South, Suite 100, Salt Lake City, UT 84117, to act as
transfer agent for the common stock.
Dividend Information
We have never declared a cash dividend on our
common stock and our Board of Directors does not anticipate that we will pay cash dividends in the foreseeable future. Any future determination
to pay cash dividends will be at the discretion of our board of directors and will depend upon our financial condition, operating results,
capital requirements, restrictions contained in our agreements and other factors which our Board of Directors deems relevant.
We are obligated to pay dividends to certain holders
of our preferred stock which we pay out of legally available funds from time to time or reach arrangements with our holders of preferred
stock to convert limited quantities of preferred stock at favorable conversion prices in lieu of dividend payments.
Rule 10B-18 Transactions
During the year ended December 31, 2022, there
were no repurchases of the Company’s common stock by the Company.
The Company will use the proceeds from the sale
of the shares of common stock sold to GHS, for general corporate and working capital purposes, and continued business operations, or for
other purposes that the Board of Directors, in good faith, deems to be in the best interest of the Company.
DETERMINATION OF OFFERING PRICE
We have not set an offering price for the shares
registered hereunder, as the only shares being registered are those sold pursuant to the Equity Financing Agreement with GHS. GHS may
sell all or a portion of the shares being offered pursuant to this prospectus at fixed prices, at prevailing market prices at the time
of sale, at varying prices, or at negotiated prices.
DILUTION
The sale of our common stock to GHS in accordance
with the Equity Financing Agreement may have a dilutive impact on our shareholders. As a result, our net income per share could decrease
in future periods and the market price of our common stock could decline. In addition, the lower our stock price is at the time we exercise
our put option, the more shares of our common stock we will have to issue to GHS. If our stock price decreases, then our existing shareholders
would experience greater dilution for any given dollar amount raised through the offering.
The perceived risk of dilution may cause our stockholders
to sell their shares, which would contribute to a decline in the price of our common stock. Moreover, the perceived risk of dilution and
the resulting downward pressure on our stock price could encourage investors to engage in short sales of our common stock. By increasing
the number of shares offered for sale, material amounts of short selling could further contribute to progressive price declines in our
common stock.
Dilution represents the difference between the
offering price (market price) and the net tangible book value per share immediately after completion of this Offering. Net tangible book
value is the amount that results from subtracting total liabilities and intangible assets (product development costs) from total assets.
Dilution arises mainly as a result of our arbitrary determination of the Offering price of the shares being offered. Dilution of the value
of the shares you purchase is also a result of the lower book value of shares of our common stock held by our existing shareholders.
As
of December 31, 2022, the net tangible book value (deficit) of our shares of common stock was ($1,516,844),
or approximately ($0.0043) per share based upon 352,174,583 shares
then outstanding. Upon completion of this Offering, if 100% of the unissued shares are sold (150,000,000 shares)
at a discounted market price of $0.0016 (90% of $0.0018),
the lowest volume-weighted average price of the Common Stock during the ten consecutive trading day period preceding April 21, 2023 per
share, the net tangible book value (deficit) of the 502,174,583 shares to be outstanding
will be approximately ($1,274,635) or approximately ($0.0025)
per share. Based on these figures, current shareholders will not experience a dilution in terms of net tangible book value per share
as a result of this offering.
THE OFFERING
On November 1, 2021, we entered into an Equity
Financing Agreement with GHS for an equity line. Although we are not required to sell shares under the Equity Financing Agreement, the
Equity Financing Agreement gives us the option to sell to GHS up to $2,500,000 worth of our common stock, in increments, beginning on
the first trading day after the effective date of this Registration Statement and ending on the earlier of (i) the date GHS has purchased
an aggregate of $2,500,000 of our common stock pursuant to the Equity Financing Agreement, (ii) November 1, 2023, twenty-four months
from the date of execution of the Equity Financing Agreement, or (iii) upon mutual termination of the Equity Financing Agreement (the
“Open Period”). $2,500,000 was stated to be the total amount of available funding in the Equity Financing Agreement,
because this was the maximum amount that GHS and we agreed to for the funding. There is no assurance the market price of our common stock
will increase in the future, or that we will ever sell (i) $2,500,000 of our common stock to GHS, or (ii) all 150,000,000 unissued
shares being registered hereunder. The number of common shares that remain issuable may not be sufficient, dependent upon the share
price, to allow us to access the full amount contemplated under the Equity Financing Agreement. If the trading prices of our common stock
remains the same and does not materially increase, we will not be able to place puts for the full commitment amount under the Equity
Financing Agreement. The lowest volume-weighted average price for the 10 days ended July 5, 2022 was $0.00682 per share. At that price
we would be able to sell shares to GHS under the Equity Financing Agreement at the discounted price of $0.006138 per share. At that
discounted price, the 150,000,000 unissued shares would only represent $613,800, which is far below the full amount of the Equity Financing
Agreement. In addition, any single drawdown may not exceed 200% of the average daily trading dollar volume of the Company’s
Common Stock during the ten trading days preceding the put, which is approximately $20,000 on the date of this Registration Statement.
In addition, Puts must be for a minimum of $10,000, and cannot exceed $500,000. In accordance with the Equity Financing Agreement, the
Company issued to GHS the Commitment Shares.
During the Open Period, the Company may, in its
sole discretion, deliver a put notice (“Put Notice”) to GHS which shall state the dollar amount requested by the Company
(the “Put Amount”) and number of shares intends to sell to GHS on a designated closing date. The purchase price (the
“Purchase Price”) of the common stock sold pursuant to a Put Notice will be set at ninety percent (90%) of the lowest
volume-weighted average price of the common stock during the ten consecutive trading day period immediately preceding the date on which
the Company delivers the Put Notice to GHS. We are obligated to deliver a number of shares to GHS equal to Put Amount divided by the Purchase
Price in consideration of the payment of the Put Amount. At the end of the Pricing Period (as defined in the Equity Financing Agreement),
the Purchase Price will be established and an amount of shares equaling 110% of the Put Shares will be delivered to GHS’s broker
for a particular Put. For example, if we delivered a put notice to GHS for $20,000, and the volume-weighted average price for the past
ten consecutive trading days is $0.02, we would be obligated to issue GHS 1,111,111 shares of our common stock at a purchase price of
$0.018 per share. The 10% price per share discount GHS will receive with each put sale means that GHS will effectively be paying us $20,000
as a Put Amount for $22,000 in our stock that is issued.
In addition, the Equity Financing Agreement (i)
imposes an ownership limitation on GHS of 4.99% (i.e., GHS has no obligation to purchase shares if it beneficially owns 4.99% or more
of our common stock), (ii) requires a minimum of ten trading days between Put Notices, (iii) prohibits any single Put Amount from under
$10,000 or exceeding $500,000 or exceeding two times the average daily trading dollar volume for the Company’s common stock during
the ten days preceding the Put Notice or (iv) delivering a Put Notice within ten days prior to the closing of a prior Put Amount.
In order for the Company to be eligible to deliver
put notices to GHS, the following conditions must be met: (i) a registration statement shall be declared effective and remain effective;
(ii) at all times during the period beginning on the related put notice date and ending on and including the related closing date of the
put, the Company’s common stock shall have been listed or quoted for trading on OTC Markets or its equivalent and shall not have
been suspended from trading thereon for a period of two consecutive trading days during the Open Period; (iii) the Company has not defaulted
or be in breach of the Equity Financing Agreement or Registration Rights Agreement; (iv) no injunction shall be issued or remain in force
in connection with the purchase of the Company’s shares; and (v) the issuance of the shares will not violate any shareholder approval
requirements of the OTC Markets. If any of the events described above occurs during a pricing period, then GHS shall have no obligation
to purchase the shares delivered in the Put Notice. Further, the terms of the Equity Financing Agreement require that the Company take
all commercially reasonable steps necessary to have the Registration Statement be declared effective no more than 90 days following the
date this Registration Statement was originally filed.
GHS is not permitted to engage in short sales
involving our common stock, or to engage in other activities that could manipulate the market for our common stock, during the period
commencing November 1, 2021, and continuing through the termination of the Equity Financing Agreement. In accordance with Regulation SHO,
however, sales of our common stock by GHS after delivery of a put notice of such number of shares reasonably expected to be purchased
by GHS under a put will not be deemed short sales.
In order for the Company’s exercise of a
put to be effective, we must deliver the documents, instruments and writings required under the Equity Financing Agreement. GHS is not
required to purchase the put shares unless:
|
· |
Our registration statement with respect to the resale of the shares of common stock delivered in connection with the applicable put shall have been declared effective; |
|
· |
we shall have obtained all material permits and qualifications required by any applicable state for the offer and sale of the registrable securities; and |
|
· |
we shall have filed all requisite reports, notices, and other documents with the SEC in a timely manner. |
As we draw down on the equity line of credit reflected
in the Equity Financing Agreement, shares of our common stock will be sold into the market by GHS. The sale of these shares could cause
our stock price to decline. In turn, if our stock price declines and we issue more Puts, more shares will come into the market, which
could cause a further drop in our stock price. The Company determines when and whether to issue a put to GHS, so the Company will know
precisely both the stock price used as the reference point, and the number of shares issuable to GHS upon such exercise. You should be
aware that there is an inverse relationship between the market price of our common stock and the number of shares to be issued under the
equity line of credit. We have no obligation to utilize the full amount available under the equity line of credit.
Neither the Equity Financing Agreement nor any
of our rights or GHS’s rights thereunder may be assigned to any other person.
There is no assurance the market price of our
common stock will increase in the future. The number of common shares that remain issuable may not be sufficient, dependent upon the share
price, to allow us to access the full amount contemplated under the Equity Financing Agreement. If the bid/ask spread remains the same
we will not be able to place a put for the full commitment under the Equity Financing Agreement. Based on the lowest volume-weighted average
price of our common stock during the ten consecutive trading day period preceding February 8, 2023 was $0.0028, the Registration Statement
covers the offer and possible sale of $274,680 worth of our shares.
DESCRIPTION OF SECURITIES
We have authorized capital stock consisting of
the following. The total number of shares of capital stock which the Company has the authority to issue is: 1,010,000,000. These shares
shall be divided into two classes with 1,000,000,000 shares designated as common stock at $0.001 par value (the “Common Stock”)
and 10,000,000 shares designated as preferred stock at $0.001 par value (the “Preferred Stock”).The Preferred Stock
of the Company is issuable by authority of the Board of Director(s) of the Company in one or more classes or one or more series within
any class and such classes or series shall have such voting powers, full or limited, or no voting powers, and such designations, preferences,
limitations or restrictions as the Board of Directors of the Corporation may determine, from time to time. We have 401,865,786
common shares and 26,299 preferred shares outstanding as of the date of this filing.
Common Stock
The holders of outstanding common shares are entitled
to receive dividends out of assets or funds legally available for the payment of dividends of such times and in such amounts as the board
from time to time may determine. Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote
of stockholders. There is no cumulative voting of the election of directors then standing for election. The common shares are not entitled
to pre-emptive rights and are not subject to conversion or redemption. Upon liquidation, dissolution or winding up of the Company, the
assets legally available for distribution to stockholders are distributable ratably among the holders of the common shares after payment
of liquidation preferences, if any, on any outstanding payment of other claims of creditors. Each outstanding common share is duly and
validly issued, fully paid and non-assessable.
Preferred Stock
Our Articles of Incorporation authorize us to
issue 10,000,000 shares of preferred stock, par value $0.001 per share. Our Board of Directors has the authority to issue additional shares
of preferred stock in one or more series, and fix for each series, the designation of and number of shares to be included in each such
series. Our Board of Directors is also authorized to set the powers, privileges, preferences, and relative participating, optional or
other rights, if any, of the shares of each such series and the qualifications, limitations or restrictions of the shares of each such
series.
Unless our Board of Directors provides otherwise,
the shares of all series of preferred stock will rank on parity with respect to the payment of dividends and to the distribution of assets
upon liquidation. Any issuance by us of shares of our preferred stock may have the effect of delaying, deferring or preventing a change
of our control or an unsolicited acquisition proposal. The issuance of preferred stock also could decrease the amount of earnings and
assets available for distribution to the holders of common stock or could adversely affect the rights and powers, including voting rights,
of the holders of common stock.
Convertible Debt and Warrants
The following table summarizes the outstanding
balance of convertible notes payable, interest and conversion rates as of December 31, 2022 and December 31, 2021, respectively.
|
|
|
|
December 31,
2022 |
|
|
December 31,
2021 |
|
|
|
|
|
|
|
|
|
|
A. |
|
Convertible note payable to an investor with interest
at 12% per annum, convertible at any time into shares of common stock at $0.008 per share. Interest is payable quarterly with
the balance of principal and interest due on maturity on March 1, 2023. The note is secured by substantially all the assets of
the Company. |
|
$ |
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, principal and interest convertible into shares of common stock at $0.008 per share. Interest is payable quarterly with
the balance of principal and interest due on maturity on March 1, 2023. The note is secured by substantially all the assets of
the Company. |
|
|
50,000 |
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
E. |
|
Convertible note payable to a related party with interest at 12%
per annum, convertible at any time into shares of common stock at $0.0008 per share. Interest is payable quarterly with the balance
of principal and interest due on maturity on August 2, 2024. The note is secured by substantially all the assets of the Company. |
|
|
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 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). 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).
The conversion shares totaled 45,608,457 and
42,603,642 shares of common stock, upon conversion of the total principal and accrued interest of $364,868 and $426,036 as of December
31, 2022 and 2021, respectively.
The Company amortized the beneficial conversion
feature discount to interest expense of $0 and $254,660 for the years ended December 31, 2022 and 2021, respectively. The unamortized
discount totaled $0 and $45,340 at December 31, 2022 and 2021, respectively. The Company adopted ASU 2020-06 in 2022 eliminating the
use of beneficial conversion feature, hence no beneficial conversion feature expense was recorded for 2022 extensions. In addition, the
Company recorded interest expense of $28,832 and $45,212 for the years ended December 31, 2022 and 2021, respectively. Accrued interest
payable on Note A was $159,868 and $131,036 as of December 31, 2022 and 2021, respectively.
The principal balance payable on Note A amounted
to $205,000 and $295,000 at December 31, 2022 and 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 the Senior Secured Convertible Promissory Note to March 1, 2022, and all prior
Events of Default (as defined in the Note B) including penalties were waived, and all other terms of the Note B remain the same (Note
9). On April 6, 2022, the Noteholder of Note B agreed to extend the maturity date of the Note B to March 1, 2024.
The unpaid principal balance of the Note B
and accrued interest is $55,000 and $10,842 at December 31, 2022 and $55,000 and $8,092 as of December 31, 2021, respectively. The Company
recorded interest expense of $2,750 and $2,750 for the years ended December 31, 2022 and 2021, respectively. This note and accrued interest
is due to a related party. The conversion shares totaled 82,301,918 and 78,864,418 shares of common stock upon the conversion of the
total principal and accrued interest of $65,842 and $63,092 as of December 31, 2022 and 2021, respectively.
D. March 2019 Convertible Note and Warrants
(“Note D”)
On January 28, 2021, the noteholder of Note D
agreed to extend the maturity date of the Senior Secured Convertible Promissory Note to March 1, 2022 in exchange for the reduction of
the conversion price to $0.01 per share, and all prior Events of Default (as defined in the Note D) including penalties of $10,000 were
waived, and all future Events of Default (as defined in the Note D) pertaining to the future payment of interest were waived through maturity.
On December 14, 2021, the Company entered into amendment to the Note D which limits the respective
holder to conversions resulting in beneficial ownership by the holder and its affiliates of no more than 4.99% of the outstanding shares
of common stock of the Company. The Company recorded $10,000 as extinguishment of debt in its statements of operations for the
year ended December 31, 2021. The Company recorded $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 $0 and $25,466 for the years
ended December 31, 2022 and 2021, respectively. The unamortized discount was $0 and $4,534 at December 31, 2022 and 2021, respectively.
In addition, the Company recorded interest expense of $6,000 and $6,115 for the years ended December 31, 2022 and 2021, respectively.
Accrued interest payable on Note D was $20,698 and $14,698 as of December 31, 2022 and 2021, respectively. The principal balance payable
on Note D amounted to $50,000 and $50,000 on December 31, 2022 and 2021, 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 Company adopted
ASU 2020-06 in 2022 eliminating the use of beneficial conversion feature, hence no beneficial conversion feature expense was recorded
for 2022 extensions.
The conversion shares of Note D totaled 8,837,192
shares and 6,469,754 shares of common stock upon the conversion of the total principal and accrued interest of $70,698 and $64,698 as
of December 31, 2022 and 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. August 29, 2019 Convertible Note
and Warrants (“Note F”)
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 $3,637 and $1,925 for the years
ended December 31, 2022 and 2021, and unamortized debt balance of $0 and $3,637 at December 31, 2022 and 2021, respectively. The Company
recorded interest expense of $3,317 and $3,903 for the years ended December 31, 2022 and 2021, respectively. Accrued interest payable
on Note F was $5,029 and $1,712 as of December 31, 2022 and 2021, respectively. The principal balance payable on Note F amounted to $33,167
on December 31, 2022 and 2021, respectively.
G . July 2020 Equity Financing Arrangement (“Note G”)
As of December 31, 2022 and 2021, the unpaid
principal balance of Note G was $75,000, and the accrued interest was $17,240 and $9,740, respectively. The Company recorded interest
expense of $7,500 and $7,500 for the years ended December 31, 2022 and 2021, respectively. The Company recorded amortization of debt to
interest expense of $3,637 and $1,925 for the years ended December 31, 2022 and 2021, leaving an unamortized debt balance of $0 and $3,637
at December 31, 2022 and 2021, respectively. The conversion shares totaled 9,317,144 and 8,473,973 shares of common stock upon conversion
of the total principal and accrued interest of $92,240 and $84,740 as of December 31, 2022 and 2021, respectively.
The following outstanding common stock equivalents
have been excluded from diluted net loss per common share for the years ended December 31, 2022 and 2021, respectively, because their
inclusion would be anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2022 |
|
|
2021 |
|
Warrants to purchase common stock |
|
|
2,868,397 |
|
|
|
2,868,397 |
|
Potentially issuable shares related to convertible notes payable |
|
|
366,996,915 |
|
|
|
328,816,461 |
|
Total anti-dilutive common stock equivalents |
|
|
369,865,312 |
|
|
|
331,684,858 |
|
Securities Authorized for Issuance under Equity Compensation
Plans
Equity
Compensation Plan Information
Plan category |
|
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights |
|
|
Weighted-average
exercise price of
outstanding
options, warrants
and rights |
|
|
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a)) |
|
|
|
(a) |
|
|
(b) |
|
|
(c) |
|
Equity compensation plans approved by security holders |
|
|
– |
|
|
|
– |
|
|
|
– |
|
Equity compensation plans not approved by security holders |
|
|
4,380,727 |
|
|
$ |
0.003340 |
|
|
|
24,522,212 |
(1) |
Total |
|
|
4,380,727 |
|
|
|
0.003340 |
|
|
|
24,522,212 |
|
(1) |
Of the 24,522,212 shares remaining for future issuance under equity
compensation plans, 15,100,000 shares of Common Stock have been awarded but are unvested. |
2017 Stock Incentive Plan
On March 16, 2017, our board of directors assumed
the 2017 Stock Awards Plan adopted by the Company while domiciled in New Jersey. No awards were made under this plan. On December 14,
2017, the Board of Directors terminated this plan and adopted a new 2017 Stock Incentive Plan (the “2017 Plan”). The
purposes of the 2017 Plan are (a) to enhance our ability to attract and retain the services of qualified employees, officers, directors,
consultants, and other service providers upon whose judgment, initiative and efforts the successful conduct and development of our business
largely depends, and (b) to provide additional incentives to such persons or entities to devote their utmost effort and skill to the advancement
and betterment of our company, by providing them an opportunity to participate in the ownership of our Company and thereby have an interest
in the success and increased value of our Company.
There are 4,500,000 shares of common stock authorized
for non-qualified and incentive stock options, restricted stock units, restricted stock grants, and stock appreciation rights under the
2017 Plan, which are subject to adjustment in the event of stock splits, stock dividends, and other situations.
The 2017 Plan is administered by our board of
directors; however, the board of directors may designate administration of the 2017 Plan to a committee consisting of at least two independent
directors. Only employees of our Company or of an “Affiliated Company”, as defined in the 2017 Plan, (including members of
the board of directors if they are employees of our Company or of an Affiliated Company) are eligible to receive incentive stock options
under the Plan. Employees of our Company or of an Affiliated Company, members of the board of directors (whether or not employed by our
company or an Affiliated Company), and “Service Providers”, as defined in the 2017 Plan, are eligible to receive non-qualified
options, restricted stock units, and stock appreciation rights under the 2017 Plan. All awards are subject to Section 162(m) of the Internal
Revenue Code.
No option awards may be exercisable more than
ten years after the date it is granted. In the event of termination of employment for cause, the options terminate on the date of employment
is terminated. In the event of termination of employment for disability or death, the optionee or administrator of optionee’s estate
or transferee has six months following the date of termination to exercise options received at the time of disability or death. In the
event of termination for any other reason other than for cause, disability or death, the optionee has 30 days to exercise his or her options.
The 2017 Plan will continue in effect until all
the stock available for grant or issuance has been acquired through exercise of options or grants of shares, or until ten years after
its adoption, whichever is earlier. Awards under the 2017 Plan may also be accelerated in the event of certain corporate transactions
such as a merger or consolidation or the sale, transfer or other disposition of all or substantially all our assets.
As of December 31, 2022, there were 3,547,788
shares of Common Stock issued with 952,212 remaining for awards under the 2017 Plan.
2019 Stock Incentive Plan
On March 11, 2019, the Board of Directors adopted
the 2019 Stock Incentive Plan (the “2019 Plan”). The purposes of the 2019 Plan are (a) to enhance our ability to attract
and retain the services of qualified employees, officers, directors, consultants, and other service providers upon whose judgment, initiative
and efforts the successful conduct and development of our business largely depends, and (b) to provide additional incentives to such persons
or entities to devote their utmost effort and skill to the advancement and betterment of our company, by providing them an opportunity
to participate in the ownership of our Company and thereby have an interest in the success and increased value of our Company.
The 2019 Plan is administered by our board of
directors; however, the board of directors may designate administration of the 2019 Plan to a committee consisting of at least two independent
directors. Awards may be made under the Plan for up to 5,000,000 shares of common stock of the Company. Only employees of our Company
or of an “Affiliated Company”, as defined in the 2019 Plan, (including members of the board of directors if they are employees
of our Company or of an Affiliated Company) are eligible to receive incentive stock options under the 2019 Plan. Employees of our Company
or of an Affiliated Company, members of the board of directors (whether or not employed by our company or an Affiliated Company), and
“Service Providers”, as defined in the 2019 Plan, are eligible to receive non-qualified options, restricted stock units, and
stock appreciation rights under the 2019 Plan. All awards are subject to Section 162(m) of the Internal Revenue Code.
No option awards may be exercisable more than
ten years after the date it is granted. In the event of termination of employment for cause, the options terminate on the date of employment
is terminated. In the event of termination of employment for disability or death, the optionee or administrator of optionee’s estate
or transferee has six months following the date of termination to exercise options received at the time of disability or death. In the
event of termination for any other reason other than for cause, disability or death, the optionee has 30 days to exercise his or her options.
The 2019 Plan will continue in effect until all
the stock available for grant or issuance has been acquired through exercise of options or grants of shares, or until ten years after
its adoption, whichever is earlier. Awards under the 2019 Plan may also be accelerated in the event of certain corporate transactions
such as a merger or consolidation or the sale, transfer or other disposition of all or substantially all our assets.
As of December 31, 2022, there were 3,630,000
shares of shares Common Stock awarded (including 3,080,000 shares issued and 550,000 shares awarded but unvested) with 1,370,000 shares
remaining for awards under the 2019 Plan.
2022 Stock Incentive Plan
On March 18, 2022, the Board of Directors adopted
the 2022 Stock Incentive Plan (the “2022 Plan”). The purposes of the 2022 Plan are (a) to enhance our ability to attract
and retain the services of qualified employees, officers, directors, consultants, and other service providers upon whose judgment, initiative
and efforts the successful conduct and development of our business largely depends, and (b) to provide additional incentives to such persons
or entities to devote their utmost effort and skill to the advancement and betterment of our company, by providing them an opportunity
to participate in the ownership of our Company and thereby have an interest in the success and increased value of our Company.
The 2022 Plan is administered by our board of
directors; however, the board of directors may designate administration of the 2022 Plan to a committee consisting of at least two independent
directors. Awards may be made under the Plan for up to 20,000,000 shares of common stock of the Company. Only employees of our Company
or of an “Affiliated Company”, as defined in the 2022 Plan, (including members of the board of directors if they are employees
of our Company or of an Affiliated Company) are eligible to receive incentive stock options under the 2022 Plan. Employees of our Company
or of an Affiliated Company, members of the board of directors (whether or not employed by our company or an Affiliated Company), and
“Service Providers”, as defined in the 2022 Plan, are eligible to receive non-qualified options, restricted stock units, and
stock appreciation rights under the 2022 Plan. All awards are subject to Section 162(m) of the Internal Revenue Code.
No option awards may be exercisable more than
ten years after the date it is granted. In the event of termination of employment for cause, the options terminate on the date of employment
is terminated. In the event of termination of employment for disability or death, the optionee or administrator of optionee’s estate
or transferee has six months following the date of termination to exercise options received at the time of disability or death. In the
event of termination for any other reason other than for cause, disability or death, the optionee has 30 days to exercise his or her options.
The 2022 Plan will continue in effect until all
the stock available for grant or issuance has been acquired through exercise of options or grants of shares, or until ten years after
its adoption, whichever is earlier. Awards under the 2022 Plan may also be accelerated in the event of certain corporate transactions
such as a merger or consolidation or the sale, transfer or other disposition of all or substantially all our assets.
As of December 31, 2022, there were 14,300,000
shares of Common Stock awarded (including 14,300,000 shares awarded but unvested) with 5,700,000 shares remaining for awards under the
2022 Plan.
Stock Options
We currently have no outstanding stock options.
Dividend Policy
We have never declared a cash dividend on our
common stock and our Board of Directors does not anticipate that we will pay cash dividends in the foreseeable future. Any future determination
to pay cash dividends will be at the discretion of our board of directors and will depend upon our financial condition, operating results,
capital requirements, restrictions contained in our agreements and other factors which our Board of Directors deems relevant.
We are obligated to pay dividends to certain holders
of our preferred stock which we pay out of legally available funds from time to time or reach arrangements with our holders of preferred
stock to convert limited quantities of preferred stock at favorable conversion prices in lieu of dividend payments.
Transfer Agent
We have appointed IssuerDirect, 1981 East 4800
South, Suite 100, Salt Lake City, UT 84117, to act as transfer agent for the common stock.
Anti-Takeover Effects of Various Provisions
of Nevada Law
The Nevada Business Corporation Law contains a
provision governing “Acquisition of Controlling Interest.” This law provides generally that any person or entity that acquires
20% or more of the outstanding voting shares of a publicly-held Nevada corporation in the secondary public or private market may be denied
voting rights with respect to the acquired shares, unless a majority of the disinterested shareholders of the corporation elects to restore
such voting rights in whole or in part. The control share acquisition act provides that a person or entity acquires “control shares”
whenever it acquires shares that, but for the operation of the control share acquisition act, would bring its voting power within any
of the following three ranges: (1) 20 to 33 1/3%, (2) 33 1/3 to 50%, or (3) more than 50%. A “control share acquisition” is
generally defined as the direct or indirect acquisition of either ownership or voting power associated with issued and outstanding control
shares. The shareholders or board of directors of a corporation may elect to exempt the stock of the corporation from the provisions of
the control share acquisition act through adoption of a provision to that effect in the Articles of Incorporation or Bylaws of the corporation.
Our Articles of Incorporation and Bylaws do not exempt our common stock from the control share acquisition act. The control share acquisition
act is applicable only to shares of “Issuing Corporations” as defined by the act. An Issuing Corporation is a Nevada corporation,
which; (1) has 200 or more shareholders, with at least 100 of such shareholders being both shareholders of record and residents of Nevada;
and (2) does business in Nevada directly or through an affiliated corporation.
At this time, we do not have 100 shareholders
of record resident of Nevada. Therefore, the provisions of the control share acquisition act do not apply to acquisitions of our shares
and will not until such time as these requirements have been met. At such time as they may apply to us, the provisions of the control
share acquisition act may discourage companies or persons interested in acquiring a significant interest in or control of the company,
regardless of whether such acquisition may be in the interest of our shareholders.
The Nevada “Combination with Interested
Stockholders Statute” may also have an effect of delaying or making it more difficult to effect a change in control of the company.
This statute prevents an “interested stockholder” and a resident domestic Nevada corporation from entering into a “combination,”
unless certain conditions are met. The statute defines “combination” to include any merger or consolidation with an “interested
stockholder,” or any sale, lease, exchange, mortgage, pledge, transfer or other disposition, in one transaction or a series of transactions
with an “interested stockholder” having; (1) an aggregate market value equal to 5% or more of the aggregate market value of
the assets of the corporation; (2) an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares
of the corporation; or (3) representing 10% or more of the earning power or net income of the corporation. An “interested stockholder”
means the beneficial owner of 10% or more of the voting shares of a resident domestic corporation, or an affiliate or associate thereof.
A corporation affected by the statute may not engage in a “combination” within three years after the interested stockholder
acquires its shares unless the combination or purchase is approved by the board of directors before the interested stockholder acquired
such shares. If approval is not obtained, then after the expiration of the three-year period, the business combination may be consummated
with the approval of the board of directors or a majority of the voting power held by disinterested stockholders, or if the consideration
to be paid by the interested stockholder is at least equal to the highest of: (1) the highest price per share paid by the interested stockholder
within the three years immediately preceding the date of the announcement of the combination or in the transaction in which he became
an interested stockholder, whichever is higher; (2) the market value per common share on the date of announcement of the combination or
the date the interested stockholder acquired the shares, whichever is higher; or (3) if higher for the holders of preferred stock, the
highest liquidation value of the preferred stock. The effect of Nevada’s business combination law is to potentially discourage parties
interested in taking control of the company from doing so if it cannot obtain the approval of our board of directors.
Currently, we have no Nevada shareholders. Further,
we do not do business in Nevada directly or through an affiliate corporation and we do not intend to do so. Accordingly, there are no
anti-takeover provisions that have the effect of delaying or preventing a change in our control.
Limitations on Liability and Indemnification
of Officers and Directors
The Nevada Revised Statutes limits or eliminates
the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary
duties as directors.
The limitation of liability and indemnification
provisions under the Nevada Revised Statues and in our articles of incorporation and bylaws may discourage stockholders from bringing
a lawsuit against directors for breach of their fiduciary duties. These provisions may also have the effect of reducing the likelihood
of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our
stockholders. However, these provisions do not limit or eliminate our rights, or those of any stockholder, to seek non-monetary relief
such as injunction or rescission in the event of a breach of a director’s fiduciary duties. Moreover, the provisions do not alter
the liability of directors under the federal securities laws. In addition, your investment may be adversely affected to the extent that,
in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification
provisions.
Authorized but Unissued Shares
Our authorized but unissued shares of Common Stock
and preferred stock will be available for future issuance without stockholder approval, except as may be required under the listing rules
of any stock exchange on which our Common Stock is then listed. We may use additional shares for a variety of corporate purposes, including
future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but
unissued shares of Common Stock and preferred stock could render more difficult or discourage an attempt to obtain control of us by means
of a proxy contest, tender offer, merger or otherwise.
Penny Stock Regulation
The SEC has adopted regulations which generally
define “penny stock” to be any equity security that has a market price (as defined) of less than $5.00 per share or an exercise
price of less than $5.00 per share. Such securities are subject to rules that impose additional sales practice requirements on broker-dealers
who sell them. For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchaser
of such securities and have received the purchaser’s written consent to the transaction prior to the purchase. Additionally, for
any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a disclosure schedule
prepared by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer
and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer’s presumed control over the market. Finally, among other requirements, monthly statements
must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny
stocks. As the Shares immediately following this Offering will likely be subject to such penny stock rules, purchasers in this Offering
will in all likelihood find it more difficult to sell their Shares in the secondary market.
LEGAL MATTERS
The legality of the issuance of the shares of
Common Stock offered by this Prospectus will be passed upon for us by Business Legal Advisors, LLC of Draper, Utah.
EXPERTS
The financial statements of IIOT-OXYS, Inc. as
of December 31, 2022, and 2021, which includes an explanatory paragraph relating to its ability to continue as a going concern, included
in this Prospectus have been audited by Hayne & Company, an independent auditor, as stated in their reports appearing herein. Such
financial statements have been so included in reliance upon the reports of such firm given its authority as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form
S-1 under the Securities Act (SEC File No. 333-269731) relating to the shares of common stock being offered by this prospectus,
and reference is made to such registration statement. This prospectus constitutes the prospectus of IIOT-OXYS, Inc., filed as part of
the registration statement, and it does not contain all information in the registration statement, as certain portions have been omitted
in accordance with the rules and regulations of the SEC.
Upon the effective date of the registration statement
of which this prospectus is a part, we will be required to file reports and other documents with the SEC. We do not presently intend to
voluntarily furnish you with a copy of our Prospectus. You may read and copy any materials we file with the SEC at the public reference
room of the SEC at 100 F Street, NE., Washington, DC 20549, between the hours of 10:00 a.m. and 3:00 p.m., except federal holidays and
official closings, at the Public Reference Room. You may obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. Our SEC filings are also available to you on the Internet website for the SEC at http://www.sec.gov.
INFORMATION WITH RESPECT TO THE REGISTRANT
BUSINESS
Historical Background
We were incorporated in the State of New Jersey
on October 1, 2003 under the name of Creative Beauty Supply of New Jersey Corporation, and subsequently changed our name to Gotham Capital
Holdings, Inc. on May 18, 2015. We commenced operations in the beauty supply industry as of January 1, 2004. On November 30, 2007, our
Board of Directors approved a plan to dispose of our wholesale and retail beauty supply business. From January 1, 2009 until July 28,
2017, we had no operations and were a shell company.
On March 16, 2017, our Board of Directors adopted
resolutions, which were approved by shareholders holding a majority of our outstanding shares, to change our name to “IIOT-OXYS,
Inc.”, to authorize a change of domicile from New Jersey to Nevada, to authorize a 2017 Stock Awards Plan, and to approve the Securities
Exchange Agreement (the “OXYS SEA”) between the Company and OXYS Corporation (“OXYS”), a Nevada
corporation incorporated on August 4, 2016.
Under the terms of the OXYS SEA we acquired 100%
of the issued voting shares of OXYS in exchange for 34,687,244 shares of our Common Stock. We also cancelled 1,500,000 outstanding shares
of our Common Stock and changed our management to Mr. DiBiase who also served in management of OXYS. Also, one of our principal shareholders
entered into a consulting agreement with OXYS to provide consulting services during the transition. The OXYS SEA was effective on July
28, 2017, and our name was changed to “IIOT-OXYS, Inc.” at that time. Effective October 26, 2017, our domicile was changed
from New Jersey to Nevada.
At the present time, we have two, wholly-owned
subsidiaries which are OXYS Corporation and HereLab, Inc. (an entity immaterial to our operations), through which our operations are conducted.
General Overview
IIOT-OXYS, Inc., a Nevada corporation (the “Company”),
and OXYS, were originally established for the purposes of designing, building, testing, and selling Edge Computing systems for the Industrial
Internet. Both companies were, and presently are, early stage technology startups that are largely pre-revenue in their development
phase. The Company received its first revenues in the last quarter of 2017, has continued to realize revenues in 2022, and expects
to realize revenue growth in 2023 due to its business development pipeline.
We develop hardware, software and algorithms that
monitor, measure and predict conditions for energy, structural, agricultural and medical applications. We use domain-specific Artificial
Intelligence to solve industrial and environmental challenges. Our engineered solutions focus on common sense approaches to machine learning,
algorithm development and hardware and software products. We design a system of hardware and software, assemble, install, monitor data
and apply our algorithms to help provide the customer insights.
We use off the shelf components, with reconfigurable
hardware architecture that adapts to a wide range of customer needs and applications. We use open-source software tools, while still creating
proprietary content for customers, thereby reducing software development time and cost. The software works with the hardware to collect
data from the equipment or structure that is being monitored.
We focus on developing insights. We develop algorithms
that help our customers create insights from vast data streams. The data collected is analyzed and reports are created for the customer.
From these insights, the customer can act to improve their process, product or structure.
OUR SOLUTIONS ACHIEVE TWO OBJECTIVES
ADD VALUE
|
· |
We show clear path to improved asset reliability, machine uptime, machine utilization, energy consumption, and quality. |
|
· |
We provide advanced algorithms and insights as a service. |
RISK MINIMIZATION
|
· |
We use simple measurements which are minimally invasive. |
|
· |
We do not interfere with command and control of critical equipment. |
|
· |
We do not interfere with machine control networks. |
HOW WE DO IT
Our location in Cambridge, Massachusetts is ideal
since market-leading Biotech, Medtech, and Pharma multinational firms have offices, manufacturing plants and/ or R&D centers in Cambridge
or the Greater Boston area, which gives us easier access to potential sales which, in turn, lowers our cost of sales. Additionally, we
continue to gain traction in the structural health monitoring, indoor air quality, and smart manufacturing industries. We, therefore,
have a range of opportunities as we continue to expand our customer base.
Our goals are to augment visual bridge inspection
with instrumentation and predictive algorithms for structural health monitoring; improve indoor air quality with our partner’s proprietary
sensors and our predictive analytics; and help Biotech, Pharma, and Medical Device companies realize the next wave of performance, productivity,
and quality gains for their organizations, through our Smart Manufacturing/Industry 4.0technology and Artificial Intelligence (AI) and
Machine Learning algorithms.
We have a unique value proposition in a fast-growing
worldwide multi-billion USD market, and have positioned our business with strategic partners for accelerated growth. We are therefore
well-poised for growth in 2023 and beyond, as we execute our plans and acquire additional customers.
WHAT MARKETS WE SERVE
SMART MANUFACTURING – MEDICAL DEVICES,
BIOTECH, AND PHARMACEUTICAL SUPPLY CHAIN
We help our customers maintain machine uptime
and maximize operational efficiency. We also enable then to do energy monitoring, predictive maintenance that anticipates problems before
they happen, and improve part and process quality. We are on the operations side, not the patient-facing side. In this market vertical,
our customers must provide high-quality products that must also pass rigorous review by governing bodies such as the FDA. Here again,
we focus on machine uptime, operational efficiency, and predictive maintenance to avoid unplanned downtime.
SMART INFRASTRUCTURE
For bridges and other civil infrastructure, local,
state and federal agencies have limited resources. We help our clients prioritize how to spend limited funds by addressing those fixes
which need to be made first.
SMART BUILDINGS
Our Indoor Air Quality partner provides sensor
technology that is augmented by our AI and Machine Learning algorithms. These systems allow commercial landlords to ensure safe healthy
air quality for their properties and tenants.
OUR UNIQUE VALUE PROPOSITION
EDGE COMPUTING AS A COMPLIMENT TO CLOUD COMPUTING
Within the Internet of Things (“IoT”)
and Industrial Internet of Things (“IIoT”), most companies right now are adopting an approach which sends all sensor
data to the cloud for processing. We specialize in edge computing, where the data processing is done locally right where the data is collected.
We also have advanced cloud-based algorithms that implement various machine learning and artificial intelligence algorithms.
ADVANCED ALGORITHMS
We have sought to differentiate from our competitors
by developing advanced algorithms on our own and in collaboration with strategic partners These algorithms are an essential part of the
edge computing strategy that convert raw data into actionable knowledge right where the data is collected without having to send the data
to the cloud first.
RECONFIGURABLE HARDWARE AND SOFTWARE
Instead of focusing on creating tools, we use
open-source tools to create proprietary content.
Marketing
Our marketing and sales efforts are divided into
several distinct categories:
|
1) |
We work with partners to leverage their sales and marketing channels. |
|
2) |
Direct business development and discussions with end use customers by company management; and |
|
3) |
Trade shows and international technical, sales and marketing meetings. |
Competition
We have two principal sources of competition.
The first comes from large companies such as Siemens, PTC, IBM, GE, Amazon, Google, etc., who all have their efforts in IIoT. However,
these large companies are cloud – computing centric and they are trying to move towards edge devices from their present position
of being solely cloud computing based. We will be starting in edge computing from day one as opposed to force-fitting a cloud-based solution
into the limited computational capability and storage space of an edge device. We believe our systems will be more computationally efficient
as compared to a cloud-based solution which requires more computational resources.
The second source of competition is from startups
who are in the edge computing space. Examples are FogHorn Systems Inc., Tulip Interfaces, and MachineSense. There will be additional startups
that will specifically target the edge computing space as the investor awareness and the technical focus shifts from cloud computing to
edge computing. Whereas other startups focus on development of proprietary tools for edge computing, our solutions will use open source
tools but will still create proprietary algorithms and software content for clients and customers. We feel this methodology of creating
proprietary solutions using open source tools will allow us to rapidly address current and future customer needs.
Government Regulation
At present, we do not require any governmental
approvals of any of our products or services.
Environmental Laws
At present, we are not regulated by any environmental
laws.
Research and Development
We work with our partners and universities to
develop IP; we will further develop this IP in house into products and services.
Other than expenses for legal, accounting, audit,
tax preparation, intellectual property (IP), and other overhead expenses such rent, most of our funds are spent on technology development,
product development, and research and development.
The efforts in research and development have already
resulted in significant customer interest in various market verticals including industrial, automotive, aerospace, agricultural, infrastructure,
and power generation.
Intellectual Property
On February 5, 2018, we entered into a Non-Exclusive
Patent License Agreement with MIT. The agreement, which was effective February 1, 2018, granted to us a royalty-bearing non-exclusive
license under U.S. Patent Nos. 8344724 (“Non-Intrusive Monitoring of Power and Other Parameters” issued January 1, 2013),
14/263407 (“Non-Intrusive Monitoring” filed April 28, 2014), and Patent Cooperation Treaty Serial No. PCT/US2016/057165 (“Noncontact
Power Sensing” filed October 14, 2016) during the term of the agreement. The term of the agreement was from the effective date until
the expiration or abandonment of all issued patents and filed patent applications licensed pursuant to the agreement, unless terminated
earlier in accordance with the agreement.
Under the agreement, we were required to make
a first commercial sale of a “LICENSED PRODUCT” and/or a first commercial performance of a “LICENSED PROCESS,”
as defined in the agreement, on or before September 30, 2018. We had negotiated revenue targets with MIT which would determine annual
royalty payments. The 2018 minimum revenue target for the sale of products and services incorporating the MIT technology was $100,000.
This minimum revenue amount would increase in subsequent years.
Within 30 days of invoicing, a non-refundable
license issue fee of $10,000 was paid by us to MIT. Pursuant to the agreement, we were required to pay to MIT additional patent maintenance
fees in years beyond 2018.
Pursuant to the agreement, we were required to
pay to MIT a running royalty of 2% of “NET SALES,” as defined in the agreement made in the calendar years 2018, 2019, and
2020. For “NET SALES” made in the calendar year 2021 and every calendar year thereafter through the term of the agreement,
we were required to pay to MIT a running royalty of 4%.
On October 31, 2018, we sent written notice of
our intent to terminate the agreement with an effective date of termination of April 30, 2019. Since none of the technology licensed to
us by MIT had been used by us in any of our products and we had been investing in the development of our own intellectual property,
we determined the technology that was licensed from MIT wasn’t necessary in the near term. Due to this, the written notice
sent by us expressed a desire by our management to renegotiate the terms of the agreement with MIT.
MIT declined to renegotiate the terms of the agreement
and, on December 6, 2018, we received a notice of termination from MIT due to non-payment of fees. As of December 6, 2018, the agreement
was terminated, fees are no longer accruing, interest is accruing and $76,284 in fees owed to MIT are still owing as of the date of this
Prospectus. Despite the termination of the Agreement, we remain active with MIT as a member of the MIT Startup Exchange (STEX). The purpose
of STEX is to promote collaboration and partnerships between MIT-connected startups and members of MIT’s Industrial Liaison Program.
We remain open to future mutually acceptable agreements with MIT.
Market Information
Our common stock is quoted on the OTC Pink under
the symbol “ITOX.” The table below sets forth for the periods indicated the quarterly high and low bid prices as reported
by OTC Markets. Limited trading volume has occurred during these periods. These quotations reflect inter-dealer prices, without retail
mark-up, mark-down, or commission and may not necessarily represent actual transactions.
|
|
Quarter |
|
|
High |
|
|
Low |
|
FISCAL YEAR ENDING DECEMBER 31, 2023 |
|
|
First |
|
|
$ |
0.0087 |
|
|
$ |
0.0013 |
|
|
|
Quarter |
|
|
High |
|
|
Low |
|
FISCAL YEAR ENDED DECEMBER 31, 2022 |
|
|
First |
|
|
$ |
0.0195 |
|
|
$ |
0.0049 |
|
|
|
|
Second |
|
|
$ |
0.0219 |
|
|
$ |
0.005 |
|
|
|
|
Third |
|
|
$ |
0.0071 |
|
|
$ |
0.0031 |
|
|
|
|
Fourth |
|
|
$ |
0.0048 |
|
|
$ |
0.0018 |
|
|
|
Quarter |
|
|
High |
|
|
Low |
|
FISCAL YEAR ENDED DECEMBER 31, 2021 |
|
|
First |
|
|
$ |
0.045 |
|
|
$ |
0.0062 |
|
|
|
|
Second |
|
|
$ |
0.024 |
|
|
$ |
0.0119 |
|
|
|
|
Third |
|
|
$ |
0.0249 |
|
|
$ |
0.011 |
|
|
|
|
Fourth |
|
|
$ |
0.0168 |
|
|
$ |
0.0032 |
|
Our common stock is considered to be penny stock
under rules promulgated by the SEC. Under these rules, broker-dealers participating in transactions in these securities must first deliver
a risk disclosure document which describes risks associated with these stocks, broker-dealers’ duties, customers’ rights and
remedies, market and other information, and make suitability determinations approving the customers for these stock transactions based
on financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing, provide
monthly account statements to customers, and obtain specific written consent of each customer. With these restrictions, the likely effect
of designation as a penny stock is to decrease the willingness of broker-dealers to make a market for the stock, to decrease the liquidity
of the stock and increase the transaction cost of sales and purchases of these stocks compared to other securities.
Holders
As of the close of business on April 21, 2023,
we had approximately 153 holders of our common stock. The number of record holders was determined from the records of our transfer agent
and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered
clearing agencies. We have appointed IssuerDirect, 1981 East 4800 South, Suite 100, Salt Lake City, UT 84117, to act as transfer agent
for the common stock.
Dividends
We have never declared a cash dividend on our
common stock and our Board of Directors does not anticipate that we will pay cash dividends in the foreseeable future. Any future determination
to pay cash dividends will be at the discretion of our board of directors and will depend upon our financial condition, operating results,
capital requirements, restrictions contained in our agreements and other factors which our Board of Directors deems relevant.
We are obligated to pay dividends to certain holders
of our preferred stock which we pay out of legally available funds from time to time or reach arrangements with our holders of preferred
stock to convert limited quantities of preferred stock at favorable conversion prices in lieu of dividend payments.
Rule 10B-18 Transactions
During the year ended December 31, 2022, there
were no repurchases of the Company’s common stock by the Company.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis
of Financial Condition and Results of Operations contain certain forward-looking statements. Historical results may not indicate future
performance. Our forward-looking statements reflect our current views about future events; are based on assumptions and are subject to
known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements.
Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited
to, those discussed above and in “Risk Factors.” We undertake no obligation to publicly update or revise any forward-looking
statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon
forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements
Basis of Presentation
The financial information presented below and
the following Management Discussion and Analysis of the Consolidated Financial Condition, Results of Operations, Stockholders’ Equity
and Cash Flow for the periods ended December 31, 2022 and 2021 gives effect to our acquisition of OXYS Corporation (“OXYS”)
on July 28, 2017. In accordance with the accounting reporting requirements for the recapitalization related to the “reverse merger”
of OXYS, the financial statements for OXYS have been adjusted to reflect the change in the shares outstanding and the par value of the
common stock of OXYS. Additionally, all intercompany transactions between the Company and OXYS have been eliminated.
Forward-Looking Statements
Statements in this management’s discussion
and analysis of financial condition and results of operations contain certain forward-looking statements. To the extent that such statements
are not recitations of historical fact, such statements constitute forward looking statements which, by definition involve risks and uncertainties.
Where in any forward-looking statements, if we express an expectation or belief as to future results or events, such expectation or belief
is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or
belief will result or be achieved or accomplished.
Factors that may cause differences between actual
results and those contemplated by forward-looking statements include those discussed in “Risk Factors” and are not limited
to the following:
|
· |
the unprecedented impact of COVID-19 pandemic on our business, customers, employees, subcontractors and supply chain, consultants, service providers, stockholders, investors and other stakeholders; |
|
· |
the impact of conflict between the Russian Federation and Ukraine on our operations; |
|
· |
geo-political events, such as the crisis in Ukraine, government responses to such events and the related impact on the economy both nationally and internationally; |
|
· |
general market and economic conditions; |
|
· |
our ability to maintain and grow our business with our current customers; |
|
· |
our ability to meet the volume and service requirements of our customers; |
|
· |
industry consolidation, including acquisitions by us or our competitors; |
|
· |
capacity utilization and the efficiency of manufacturing operations; |
|
· |
success in developing new products; |
|
· |
timing of our new product introductions; |
|
· |
new product introductions by competitors; |
|
· |
the ability of competitors to more fully leverage low-cost geographies for manufacturing or distribution; |
|
· |
product pricing, including the impact of currency exchange rates; |
|
· |
effectiveness of sales and marketing resources and strategies; |
|
· |
adequate manufacturing capacity and supply of components and materials; |
|
· |
strategic relationships with our suppliers; |
|
· |
product quality and performance; |
|
· |
protection of our products and brand by effective use of intellectual property laws; |
|
· |
the financial strength of our competitors; |
|
· |
the outcome of any future litigation or commercial dispute; |
|
· |
barriers to entry imposed by competitors with significant market power in new markets; |
|
· |
government actions throughout the world; and |
|
· |
our ability to service secured debt, when due. |
You should not rely on forward-looking statements
in this document. This management’s discussion contains forward looking statements that involve risks and uncertainties. We use
words such as “anticipates,” “believes,” “plans,” “expects,” “future,” “intends,”
and similar expressions to identify these forward-looking statements. Prospective investors should not place undue reliance on these statements,
which apply only as of the date of this document. Our actual results could differ materially from those anticipated in these forward-looking
statements.
Critical Accounting Policies
The following discussions are based upon our financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States. These financial
statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements
requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosures of contingencies. We continually evaluate the accounting policies and estimates used to prepare the
financial statements. We base our estimates on historical experiences and assumptions believed to be reasonable under current facts and
circumstances. Actual amounts and results could differ from these estimates made by management.
Trends and Uncertainties
On July 28, 2017, we closed the reverse acquisition
transaction under the Securities Exchange Agreement dated March 16, 2017, as reported in our Current Report on Form 8-K filed with the
Commission on August 3, 2017. Following the closing, our business has been that of OXYS, Inc. and HereLab, Inc., our wholly owned subsidiaries.
Our operations have varied significantly following the closing since, prior to that time, we were an inactive shell company.
Impact of COVID-19
During the year 2020, the effects of a new coronavirus
(“COVID-19”) and related actions to attempt to control its spread began to impact our business. The impact of COVID-19
on our operating results for the year ended December 31, 2020 was limited, in all material respects, due to the government mandated numerous
measures, including closures of businesses, limitations on movements of individuals and goods, and the imposition of other restrictive
measures, in its efforts to mitigate the spread of COVID-19 within the country.
On March 11, 2020, the World Health Organization
designated COVID-19 as a global pandemic. Governments around the world have mandated, and continue to introduce, orders to slow the transmission
of the virus, including but not limited to shelter-in-place orders, quarantines, significant restrictions on travel, as well as work restrictions
that prohibit many employees from going to work. Uncertainty with respect to the economic effects of the pandemic has introduced significant
volatility in the financial markets.
Historical Background
We were incorporated in the State of New Jersey
on October 1, 2003 under the name of Creative Beauty Supply of New Jersey Corporation and subsequently changed our name to Gotham Capital
Holdings, Inc. on May 18, 2015. We commenced operations in the beauty supply industry as of January 1, 2004. On November 30, 2007, our
Board of Directors approved a plan to dispose of our wholesale and retail beauty supply business. From January 1, 2009 until July 28,
2017, we had no operations and were a shell company.
On March 16, 2017, our Board of Directors adopted
resolutions, which were approved by shareholders holding a majority of our outstanding shares, to change our name to “IIOT-OXYS,
Inc.”, to authorize a change of domicile from New Jersey to Nevada, to authorize a 2017 Stock Awards Plan, and to approve the Securities
Exchange Agreement (the “OXYS SEA”) between the Company and OXYS Corporation (“OXYS”), a Nevada
corporation incorporated on August 4, 2016.
Under the terms of the OXYS SEA we acquired 100%
of the issued voting shares of OXYS in exchange for 34,687,244 shares of our Common Stock. We also cancelled 1,500,000 outstanding shares
of our Common Stock and changed our management to Mr. DiBiase who also served in management of OXYS. Also, one of our principal shareholders
entered into a consulting agreement with OXYS to provide consulting services during the transition. The OXYS SEA was effective on July
28, 2017, and our name was changed to “IIOT-OXYS, Inc.” at that time. Effective October 26, 2017, our domicile was changed
from New Jersey to Nevada.
At the present time, we have two, wholly-owned
subsidiaries which are OXYS Corporation and HereLab, Inc. (an entity immaterial to our operations), through which our operations
are conducted.
General Overview
IIOT-OXYS, Inc., a Nevada corporation (the “Company”),
and OXYS, were originally established for the purposes of designing, building, testing, and selling Edge Computing systems for the Industrial
Internet. Both companies were, and presently are, early-stage technology startups that are largely pre-revenue in their development
phase. HereLab is also an early-stage technology development company. We received our first revenues in the last quarter
of 2017, continued to realize revenues until 2020 when the pandemic hit, and we realized nominal revenues through 2021.
We develop hardware, software and algorithms that
monitor, measure and predict conditions for energy, structural, agricultural and medical applications. We use domain-specific Artificial
Intelligence to solve industrial and environmental challenges. Our engineered solutions focus on common sense approaches to machine learning,
algorithm development and hardware and software products.
We use off the shelf components, with reconfigurable
hardware architecture that adapts to a wide range of customer needs and applications. We use open-source software tools, while still creating
proprietary content for customers, thereby reducing software development time and cost. The software works with the hardware to collect
data from the equipment or structure that is being monitored.
We focus on developing insights. We develop algorithms
that help our customers create insights from vast data streams. The data collected is analyzed and reports are created for the customer.
From these insights, the customer can act to improve their process, product or structure.
Results of Operations for the Year Ended
December 31, 2022 compared to the year ended December 31, 2021
For the year ended December 31, 2022, we earned
revenues of $88,904 and incurred related cost of sales of $10,499. Our operating expenses were $733,071 which included professional fees
of $268,837, payroll costs of $373,774, amortization of intangible assets of $49,500, and general and administrative expenses of $40,960.
We recorded net other expenses of $369,560 consisting of recording loss on derivatives of $200,519, interest expense of $377,138 offset
by gain on change in fair market value of derivative liability of $190,462 and interest income on note receivable of $17,634. We also
recorded $52,654 as preferred stock dividend on convertible preferred stock for the year ended December 31, 2022. As a result, we incurred
a net loss of $1,076,881 for the year ended December 31, 2022.
Comparatively, for the year ended December
31, 2021, we earned revenues of $11,280 and incurred related cost of sales of $2,040. Our Operating expenses were $889,141 which included
professional fees of $508,153, payroll costs of $301,707, amortization of intangible assets of $49,771, and general and administrative
expenses of $29,510. We recorded net other expenses of $161,333, consisting of interest expense of $430,999 on notes payable due to amortization
of debt discount and interest payable on notes payable, offset by gain on change in the fair market value of derivative liability of
$102,966, gain on extinguishment of debt of $120,000, other income of $46,700 consisting of forgiveness of PPP Loan of $36,700 and
EIDL advance of $10,000, We also recorded $22,320 as preferred stock dividend on convertible preferred stock for the year ended December
31, 2021. As a result, we incurred a net loss of $1,063,554 for the year ended December 31, 2021.
During the current and prior period, we did not
record an income tax benefit due to the uncertainty associated with the Company’s ability to utilize the deferred tax assets.
Year over Year (YoY) revenue increased significantly
in 2022 over 2021, by 7.9X (688% increase). This YoY growth was anticipated by our leadership team in our 2021 Annual Report on Form 10-K,
and we’re pleased to deliver this growth for our shareholders. We had a strong finish to 2022, with fourth quarter revenue exceeding
that in the third quarter, also as promised. It marked three consecutive quarters of quarter-over-quarter revenue growth. While our Quarterly
Report on Form 10-Q for the period ended September 30, 2022 disclosed risks of ongoing concerns (and those concerns still exist), there
are several factors that led to this strong growth in 2022 which are as follows:
- |
Our DOT Bridge Monitoring contract: We were awarded a six-figure sub-contract from a major northeast state's DOT for bridge monitoring, in addition to the extension that was given on the previous contract. This enabled us to deliver consistent revenue beginning in the second quarter, continuing through the remainder of the year, and will continue through June of 2023. We believe this substantiates the strength of our Structural Health Monitoring (SHM) solutions and bolsters our ability to gain new business in this vertical with both current and new customers. |
|
|
- |
Our continued focus on our Smart Manufacturing vertical enabled us to secure a CNC Proof of Concept (POC) contract in December 2022. The POC successfully kicked off in January 2023. |
|
|
- |
Our partnership with the Canadian Indoor Air Quality Sensor and IIoT Platform company, Aretas Sensor Networks, with whom we entered into an NDA in the first quarter, progressed well through the year. In addition to the initial collaborative agreement signed in the first quarter, we signed an algorithm development contract in the second quarter and recorded revenue from that contract in the third quarter. We also signed a co-marketing and co-selling agreement with Aretas in the third quarter and began selling in the fourth quarter of 2022. |
|
|
- |
We secured and retained key talent. The full time Machine Learning Engineer, hired in the first quarter, expanded our focus on the Artificial Intelligence (AI) and Machine Learning (ML) aspects of our business. Our CEO, Cliff Emmons, and COO, Karen McNemar, both renewed their employment contracts in June, ensuring stable experienced leadership focused on long-term growth. |
These accomplishments are proof that our successful
pilots in our key industry verticals have resulted in new business and will continue to do so in 2023 and beyond. Also, the strength
of the Aingura IIoT, S.G. collaboration agreement has bolstered financial stability, added talent breadth and depth, and provides complimentary
industry segment experience. Furthermore, liquidity of our stock has attracted funding that gives us access to additional capital. This
capital will enable the funding of business development, staff augmentation, and inorganic growth opportunities.
It is anticipated that 2023 YoY revenue growth
will meet or exceed that of 2022. This is due to these aforementioned reasons: the strength of the Aingura IIoT, S.G. collaboration,
successful pilots in all three of our key target industries, use cases and marketing collateral from the pilots’ data and algorithms,
experienced leadership, savvy technological talent, and operational execution excellence. Our continued focus on high potential growth
markets, has yielded numerous prospects for future growth. Furthermore, the strength of our target markets continues, the global smart
manufacturing (also known as Industry 4.0) was $97.6 B USD in 2022 and will reach $228.3 B USD by 2027 (CAGR 18.5%);1 the
worldwide Structural Health Monitoring (SHM) industry was $2.0 billion USD in 2021 and will reach $4.0 billion USD by 2027 (CAGR of 14.6%).2
Through our collaborations with Aretas Sensor Networks, we have access to a third market, Indoor Air Quality Monitors, which was
estimated at $3.7 billion USD in 2020 and projected to reach $6.4 billion USD in 2027, growing at 8.2% CAGR.3 We believe
our strengths in these markets will yield breakthroughs in additional new contracts with current customers, as well as new customers
in all targeted industry segments. By combining the resulting organic growth with strong strategic partnerships, we believe these revenue
goals are achievable.
Liquidity and Capital Resources for
the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021
At December 31, 2022, we had a cash balance
of $33,336, which represents a $13,485 decrease from the $46,821 cash balance at December 31, 2021. This decrease was primarily as a
result of net cash used in operating activities of $657,009, cash paid for note receivable of $200,000, and cash received from convertible
notes payable of $545,924 and cash received from the sale of Series B Preferred Stock of $297,600. Our working capital deficit at December
31, 2022 was $1,606,828, as compared to a working capital deficit of $1,108,786 at December 31, 2021, respectively.
For the year ended December 31, 2022, we incurred
a net loss of $1,076,881. Net cash flows used in operating activities was $657,009 for the year ended December 31, 2022.
For the year ended December 31, 2021, we incurred
a net loss of $1,063,554. Net cash flows used in operating activities was $628,103 for the year ended December 31, 2021.
For the year ended December 31, 2022, cash
used in investing activities was $200,000 payment towards a note receivable.
1 https://www.marketsandmarkets.com/Enquiry_Before_BuyingNew.asp?id=105448439&utm_source=SE-NA&utm_medium=Email
2 https://www.marketsandmarkets.com/Market-Reports/structural-health-monitoring-market-101431220.html
3 https://www.reportlinker.com/p05957040/Global-Indoor-Air-Quality-Monitors-Industry.html
For the year ended December 31, 2022, net cash
flows provided by financing activities were $843,534, consisting of cash received from the issuance of Convertible Notes payable of $545,924
and cash proceeds from sale of Series B Preferred Stock of $297,600, respectively.
For the year ended December 31, 2021, net cash
flows provided by financing activities were $571,850, consisting of cash received from the issuance of Convertible Notes payable of $470,850
and cash proceeds from sale of Series B Preferred Stock of $101,000, respectively.
The accompanying consolidated financial statements
have been prepared assuming we will continue as a going concern. As shown in the accompanying financial statements, we have incurred
net loss from operations of $1,076,881 for the year ended December 31, 2022, and net loss of $1,063,554 for the year ended December 31,
2021, and have an accumulated deficit of $9,307,137 as of December 31, 2022, which raises substantial doubt about our ability to continue
as a going concern.
Recently Issued Accounting Standards
In December 2019, the Financial Accounting Standards
Board issued Accounting Standards Update (“ASU”) ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the
Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes
certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.
This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, and interim
periods within fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the
impact of this guidance on its consolidated financial statements.
Effective January 1, 2022, we early adopted
ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts
in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own
Equity” using the modified retrospective method of adoption. ASU 2020-06 simplifies the accounting for convertible instruments
by removing certain separation models in Subtopic 470- 20, Debt—Debt with Conversion and Other Options, for convertible
instruments. Under ASU 2020-06, the embedded conversion features no longer are separated from the host contract for convertible instruments
with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do
not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for
as a single liability measured at its amortized cost as long as no other features require bifurcation and recognition as derivatives.
By removing those separation models, the interest rate of convertible debt instruments typically will be closer to the coupon interest
rate when applying the guidance in Topic 835, Interest. We now account for our Convertible Notes as single liabilities measured at amortized
cost.
Other accounting standards that have been issued
or proposed by FASB and do not require adoption until a future date are not expected to have a material impact on the consolidated financial
statements upon adoption. Management does not believe that any other recently issued, but not yet effective, accounting standard if currently
adopted would have a material effect on the accompanying financial statements.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future material effect on our consolidated financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity capital expenditures or capital resources.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
Current Management
The following table sets forth information concerning
our directors and executive officers:
Name |
|
Position |
|
Age |
Executive Officers: |
|
|
|
|
Clifford L. Emmons |
|
Chief Executive Officer, President, and Interim Chief Technical Officer |
|
61 |
Karen McNemar |
|
Chief Operating Officer and Interim Chief Financial Officer |
|
54 |
|
|
|
|
|
Directors: |
|
|
|
|
Clifford L. Emmons |
|
Director |
|
61 |
Vidhyadhar Mitta |
|
Director |
|
51 |
Directors are elected to serve until the next
annual meeting of stockholders and until their successors are elected and qualified. Directors are elected by a plurality of the votes
cast at the annual meeting of stockholders and hold office until the expiration of the term for which he or she was elected and until
a successor has been elected and qualified.
A majority of the authorized number of directors
constitutes a quorum of the Board of Directors for the transaction of business. The directors must be present at the meeting to constitute
a quorum. However, any action required or permitted to be taken by the Board of Directors may be taken without a meeting if all members
of the Board of Directors individually or collectively consent in writing to the action.
Business Experience of Executive Officers
and Directors
The principal occupation and business experience
during the past five years for our executive officers and directors is as follows:
Clifford L. Emmons: Mr. Emmons has
served as our Chief Executive Officer, President, and director since June 4, 2018 and as our Interim Chief Technology Officer since June
2, 2022. From 1995 to 2017, Mr. Emmons worked for Medtronic, a global leader in medical technology, services, and solutions, where
he served in various capacities including several Vice President and Director positions. Mr. Emmons is also the founder of AHI, LLC, a
consultancy firm. Mr. Emmons received an Executive Certificate in Strategy & Innovation from MIT, a Master’s of Science in Management
Engineering from the University of Bridgeport, a Bachelor of Science in Electrical Engineering from the University of New Haven, and a
Bachelor of Science in Mechanical Engineering from the University of Connecticut.
Karen McNemar: Ms. McNemar has served
as our Chief Operating Officer since September 20, 2018 and as our Interim Chief Financial Officer since June 2, 2022. From 1998 until
August 2017, Ms. McNemar served in many capacities for Medtronic which included as a Senior Director of R&D Operations. Ms. McNemar
is a collaborative strategic global business leader with extensive experience in New Product Development and Operations, building strong
and effective diverse teams across organizations at all levels. Ms. McNemar is also a trusted advisor, recognized for successful process
and program management, with a focus on leading complex initiatives and analyzing data and processes to identify solutions to increase
organizational productivity and performance. Ms. McNemar received her Bachelor of Science in Industrial Engineering and Operations
Research.
Vidhyadhar Mitta: Mr. Mitta has served
as a director of the Company since the closing of the reverse acquisition on July 28, 2017. Mr. Mitta has also served as a director of
OXYS since its inception on August 4, 2016. Since 2000, he has been the founder and President of Synergic Solutions Inc., a software development
company that designs custom software for a variety of industries including radio-medicine and associate allied health fields. In his position
as President, Mr. Mitta has responsibility for all aspects of Synergic Solutions including technical program guidance, employee supervision,
business development, and profit and loss responsibility. Mr. Mitta received a BS in Information Science & Technology from BMS College
of Engineering in 1995.
Legal Proceedings
During the past ten years there have been no events
under any bankruptcy act, no criminal proceedings and no judgments, injunctions, orders or decrees material to the evaluation of the ability
and integrity of any of our directors or executive officers, and none of these persons has been involved in any judicial or administrative
proceedings resulting from involvement in mail or wire fraud or fraud in connection with any business entity, any judicial or administrative
proceedings based on violations of federal or state securities, commodities, banking or insurance laws or regulations, or any disciplinary
sanctions or orders imposed by a stock, commodities or derivatives exchange or other self-regulatory organization.
Family Relationships
There are no family relationships between any
of our directors and executive officers.
Director Independence
We are not currently subject to listing requirements
of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the board of directors
be “independent” and, as a result, we are not at this time required to have our Board of Directors comprised of a majority
of “independent directors.”
We currently have not established any committees
of the Board of Directors. Our Board of Directors may designate from among its members an executive committee and one or more other committees
in the future. We do not have a nominating committee or a nominating committee charter. Further, we do not have a policy with regard to
the consideration of any director candidates recommended by security holders. To date, other than as described above, no security holders
have made any such recommendations. The entire Board of Directors performs all functions that would otherwise be performed by committees.
Given the present size of our board it is not practical for us to have committees. If we are able to grow our business and increase our
operations, we intend to expand the size of our board and allocate responsibilities accordingly.
MANAGEMENT COMPENSATION
The following table sets forth information concerning
the annual compensation awarded to, earned by, or paid to the following named executive officers for all services rendered in all capacities
to our company and its subsidiaries for the years ended December 31, 2022 and 2021.
Summary Compensation Table
Name and principal position |
|
Year |
|
Salary
($) |
|
Stock Awards
($) |
|
Total
($) |
Clifford Emmons(1) |
|
2022 |
|
100,000(2) |
|
0 |
|
100,000 |
|
|
2021 |
|
38,366(3) |
|
450,000(4) |
|
488,366 |
Karen McNemar(5) |
|
2022 |
|
100,000(6) |
|
0 |
|
100,000 |
|
|
2021 |
|
124,813(7) |
|
360,000(8) |
|
484,813 |
________________________
(1) |
Mr. Emmons was appointed as our CEO, President, and interim CFO on June 4, 2018. |
(2) |
As of December 31, 2022,
Mr. Emmons was owed $139,575 in accrued and unpaid consulting fees and $2,849 in reimbursable expenses. |
(3) |
As of December 31, 2021, Mr. Emmons was owed $145,844 in accrued and unpaid consulting fees and $0 in reimbursable expenses. |
(4) |
On June 4, 2021, 1,500,000 shares of Common Stock previously granted to Mr. Emmons vested. |
(5) |
Ms. McNemar was appointed as our COO effective as of September 20, 2018. |
(6) |
As of December 31, 2022,
Ms. McNemar was owed $134,849 in accrued and unpaid consulting fees. |
(7) |
As of December 31, 2021,
Ms. McNemar was owed $121,092 in accrued and unpaid consulting fees. |
(8) |
On October 1, 2021, 1,200,000 shares of Common Stock previously granted to Ms. McNemar vested. |
Emmons Consulting Agreement
On March 11, 2019, the Company’s Board of
Directors (with Mr. Emmons abstaining) approved the Consulting Agreement dated effective June 4, 2018 with Clifford Emmons, the Company’s
Chief Executive Officer, Interim Chief Financial Officer, and director (the “Emmons Agreement”). The term of the Emmons
Agreement is for three years beginning as of the effective date, unless terminated earlier pursuant to the agreement and is automatically
renewable for one-year terms upon the consent of the parties. The services to be provided by Mr. Emmons pursuant to the Emmons Agreement
are those customary for the positions in which he is serving.
Mr. Emmons shall receive a monthly fee of $15,000
which accrues unless converted into shares of Common Stock of the Company at a conversion rate specified in the Emmons Agreement. Until
the Company closes a minimum $500,000 capital raise, the monthly fee accrues and, upon the closing of such a capital raise, $5,000 of
the monthly fee will be paid to Mr. Emmons in cash and the remainder will continue to accrue. Upon the closing of a capital raise of at
least $2,000,000, the entire monthly fee will be paid to Mr. Emmons in cash and all accrued and unpaid monthly fees will be paid by the
Company within one year of the closing of such a capital raise.
As of the effective date, the Company shall issue
to Mr. Emmons an aggregate of 3,060,000 shares of the Company’s Common Stock which vest as follows:
|
1. |
560,000 shares on the first-year anniversary of the effective date; |
|
2. |
1,000,000 shares on the second-year anniversary of the effective date; and |
|
3. |
1,500,000 shares on the third-year anniversary of the effective date. |
The shares are granted under the 2019 Plan. Vesting
of the shares is subject to acceleration of vesting upon the occurrence of certain events such as a Change of Control (as defined in the
Emmons Agreement) or the listing of the Company’s Common Stock on a senior exchange.
On June 12, 2020, the Company entered into an
amendment effective January 1, 2020 (the “Emmons Amendment”) to the Emmons Agreement, pursuant to which, Sections 7(a)
and 7(b) of the Emmons Agreement were amended to read as follows:
Fees. From
January 1, 2020 until April 23, 2020, the Consultant shall be paid an hourly wage of $12.75 per hour for Services performed. From April
24, 2020 onward, the Consultant shall be paid an hourly wage of $48.08 an hour for Services performed (the “Fees”).
Fees may accrue at the discretion of management.
Conversion of
Accrued and Unpaid Fees. At any time, the Consultant shall have the right to convert any accrued and unpaid Fees into shares of Common
Stock of the Company (the “Conversion Shares”). The conversion price shall equal 90% multiplied by the Market Price
(as defined herein) (representing a discount rate of 10%) (the “Conversion Price”). “Market Price” means
the average of the Trading Prices (as defined below) for the shares of Common Stock of the Company during the thirty (30) day period ending
on the latest complete trading day prior to the Conversion Date. “Trading Price” and “Trading Prices” means, for
any security as of any date, the closing trade price of the Company’s Common Stock on the OTC Pink, OTCQB or applicable trading
market as reported by a reliable reporting service (“Reporting Service”) designated by the Consultant or, if the OTC
Pink is not the principal trading market for such security, the trading price of such security on the principal securities exchange or
trading market where such security is listed or traded or, if no trading price of such security is available in any of the foregoing manners,
the average of the trading prices of any market makers for such security that are listed in the “pink sheets” by the National
Quotation Bureau, Inc. “Conversion Date” shall mean the date of receipt by the Company of the completed and executed Notice
of Conversion, the form of which is attached hereto as Exhibit A.
Pursuant to the Emmons Amendment, Section 11 was
also eliminated from the Emmons Agreement.
On June 4, 2021, the Emmons Agreement terminated
pursuant to its terms.
Emmons Employment Contract
On June 2, 2022, the
Board of Directors (with Mr. Emmons abstaining) approved the Employment Contract dated effective April 1, 2022 with Mr. Emmons (the “Emmons
Contract”). The term of the Emmons Contract is from the effective date until the Emmons Contract is terminated pursuant to its
terms. The services to be provided by Mr. Emmons pursuant to the Emmons Contract are those customary for the positions in which he is
serving.
Pursuant to the Emmons
Contract, Mr. Emmons shall receive an annual salary of $100,000 which accrues unless converted into shares of Common Stock of the Company
at a conversion rate specified in the Emmons Contract. If the Company reaches $1,000,000 in cumulative sales over a 12-month period, the
annual salary will increase to $150,000, commencing the following month. If the Company reaches $5,000,000 in cumulative sales over a
12-month period, the annual salary will increase to $200,000, commencing the following month.
As of the effective date,
the Company will award to Mr. Emmons an aggregate of 7,000,000 shares of the Company’s Common Stock which will vest as follows (the
“Emmons Contract Shares”):
|
1. |
1,500,000 shares on the first-year anniversary of the effective date; |
|
2. |
2,500,000 shares on the second-year anniversary of the effective date; and |
|
3. |
3,000,000 shares on the third-year anniversary of the effective date. |
The Emmons Contract Shares
are awarded under the 2022 Plan. Vesting of the Emmons Contract Shares is subject to acceleration of vesting upon the occurrence of certain
events such as a Change of Control (as defined in the Emmons Contract) or the listing of the Company’s Common Stock on a senior
exchange.
McNemar Consulting Agreement
On March 11, 2019, the Company’s Board of
Directors approved the Consulting Agreement dated effective October 1, 2018 with Karen McNemar, the Company’s Chief Operating Officer
(the “McNemar Agreement”). The term of the McNemar Agreement is for three years beginning as of the effective date,
unless terminated earlier pursuant to the agreement and is automatically renewable for one-year terms upon the consent of the parties.
The services to be provided by Ms. McNemar pursuant to the McNemar Agreement are those customary for the position in which she is serving.
Ms. McNemar shall receive a monthly fee of $12,750
which accrues unless converted into shares of Common Stock of the Company at a conversion rate specified in the McNemar Agreement. Until
the Company closes a minimum $500,000 capital raise, the monthly fee accrues and, upon the closing of such a capital raise, $4,250 of
the monthly fee will be paid to Ms. McNemar in cash and the remainder will continue to accrue. Upon the closing of a capital raise of
at least $2,000,000, the entire monthly fee will be paid to Ms. McNemar in cash and all accrued and unpaid monthly fees will be paid by
the Company within one year of the closing of such a capital raise.
As of the effective date, the Company shall issue
to Ms. McNemar an aggregate of 2,409,000 shares of the Company’s Common Stock which vest as follows:
|
1. |
409,000 shares on the first-year anniversary of the effective date; |
|
2. |
800,000 shares on the second-year anniversary of the effective date; and |
|
3. |
1,200,000 shares on the third-year anniversary of the effective date. |
The shares are granted under the 2017 Stock Incentive
Plan. Vesting of the shares is subject to acceleration of vesting upon the occurrence of certain events such as a Change of Control (as
defined in the McNemar Agreement) or the listing of the Company’s Common Stock on a senior exchange.
On June 12, 2020, the Company entered into an
amendment effective January 1, 2020 (the “McNemar Amendment”) to the McNemar Agreement, pursuant to which, Sections
7(a) and 7(b) of the McNemar Agreement were amended to read as follows:
Fees. From
January 1, 2020 until April 23, 2020, the Consultant shall be paid an hourly wage of $12.75 per hour for Services performed. From April
24, 2020 onward, the Consultant shall be paid an hourly wage of $48.08 an hour for Services performed (the “Fees”).
Fees may accrue at the discretion of management.
Conversion of
Accrued and Unpaid Fees. At any time, the Consultant shall have the right to convert any accrued and unpaid Fees into shares of Common
Stock of the Company (the “Conversion Shares”). The conversion price shall equal 90% multiplied by the Market Price
(as defined herein) (representing a discount rate of 10%) (the “Conversion Price”). “Market Price” means
the average of the Trading Prices (as defined below) for the shares of Common Stock of the Company during the thirty (30) day period ending
on the latest complete trading day prior to the Conversion Date. “Trading Price” and “Trading Prices” means, for
any security as of any date, the closing trade price of the Company’s Common Stock on the OTC Pink, OTCQB or applicable trading
market as reported by a reliable reporting service (“Reporting Service”) designated by the Consultant or, if the OTC
Pink is not the principal trading market for such security, the trading price of such security on the principal securities exchange or
trading market where such security is listed or traded or, if no trading price of such security is available in any of the foregoing manners,
the average of the trading prices of any market makers for such security that are listed in the “pink sheets” by the National
Quotation Bureau, Inc. “Conversion Date” shall mean the date of receipt by the Company of the completed and executed Notice
of Conversion, the form of which is attached hereto as Exhibit A.
Pursuant to the McNemar Amendment, Section 11
was also eliminated from the McNemar Agreement.
On October 1, 2021, the McNemar Agreement terminated
pursuant to its terms.
McNemar Employment Contract
On June 2, 2022, the
Board of Directors of Company approved the Employment Contract dated effective April 1, 2022 with Ms. McNemar (the “McNemar Contract”).
The term of the McNemar Contract is from the effective date until the McNemar Contract is terminated pursuant to its terms. The services
to be provided by Ms. McNemar pursuant to the McNemar Contract are those customary for the positions in which she is serving.
Pursuant to the McNemar
Contract, Ms. McNemar shall receive an annual salary of $100,000 which accrues unless converted into shares of Common Stock of the Company
at a conversion rate specified in the McNemar Contract. If the Company reaches $1,000,000 in cumulative sales over a 12-month period,
the annual salary will increase to $150,000, commencing the following month. If the Company reaches $5,000,000 in cumulative sales over
a 12-month period, the annual salary will increase to $200,000, commencing the following month.
As of the effective date,
the Company will award to Ms. McNemar an aggregate of 7,000,000 shares of the Company’s Common Stock which will vest as follows
(the “McNemar Contract Shares”):
|
1. |
1,500,000 shares on the first-year anniversary of the effective date; |
|
2. |
2,500,000 shares on the second-year anniversary of the effective date; and |
|
3. |
3,000,000 shares on the third-year anniversary of the effective date. |
The McNemar Contract
Shares are awarded under the 2022 Plan. Vesting of the McNemar Contract Shares is subject to acceleration of vesting upon the occurrence
of certain events such as a Change of Control (as defined in the McNemar Contract) or the listing of the Company’s Common Stock
on a senior exchange.
Debt Forgiveness Agreements
On June 11, 2020, the Company entered into Debt
Forgiveness Agreements with Mr. Emmons and Ms. McNemar, pursuant to which:
|
· |
Mr. Emmons forgave $185,000 of accrued and unpaid consulting fees owed to him pursuant to his consulting agreement with the Company; and |
|
· |
Ms. McNemar forgave $103,250 of accrued and unpaid consulting fees owed to her pursuant to her current and previous consulting agreement with the Company. |
Share Exchange Agreements
As of November 9, 2020, we entered into a Share
Exchange Agreements (the “Exchange Agreements”) with Mr. Emmons, Vidhyadhar Mitta, our director, and Ms. McNemar pursuant
to which:
|
· |
we agreed to sell Mr. Emmons 7,800 shares of Series A Preferred Stock (as defined below) in exchange for 780,000 unissued, vested shares of our Common Stock; |
|
· |
we agreed to sell Mr. Mitta 12,000 shares of Series A Preferred in exchange for 1,000,000 unissued, awarded shares of our Common Stock and $168 in accrued and unpaid interest pursuant to a note issued to Mr. Mitta; and |
|
· |
we agreed to sell Ms. McNemar 6,045 shares of Series A Preferred Stock in exchange for 604,500 unissued, vested shares of our Common Stock. |
Equity Awards
The following table provides information on stock and option awards
held by the named executive officers as of December 31, 2022:
Stock Awards | |
| |
| | | |
| Market Value
of | |
| |
| |
| Number of Shares | | |
| Shares of Units of | |
| |
| |
| or Units of Stock that | | |
| Stock that Have Not | |
| |
Grant | |
| Have Not Vested | | |
| Vested | |
Name | |
Date | |
| (#) | | |
| ($) | |
Clifford L. Emmons | |
6/2/22 | |
| 7,000,000 | (1) | |
| 65,800 | |
Karen McNemar | |
6/2/22 | |
| 7,000,000 | (1) | |
| 65,800 | |
(1) |
1,500,000 shares on the first-year anniversary of the grant date; 2,500,000 shares on the second-year anniversary of the grant date; and 3,000,000 shares on the third-year anniversary of the grant date |
Compensation of Directors
Besides Mr. Emmons’ compensation (whose
compensation is disclosed above), no compensation was awarded to, earned by, or paid to any remaining directors for services rendered
in all capacities to our Company and its subsidiaries for the year ended December 31, 2022.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table and footnotes thereto sets
forth information regarding the number of shares of common stock beneficially owned by (i) each director and named executive officer
of our company, (ii) each person known by us to be the beneficial owner of 5% or more of its issued and outstanding shares of common
stock, and (iii) named executive officers, executive officers, and directors of the Company as a group as of March 30, 2023. In calculating
any percentage in the following table of common stock beneficially owned by one or more persons named therein, the following table assumes
401,865,786 shares of common stock outstanding. Unless otherwise further indicated in the following table, the footnotes thereto
and/or elsewhere in this report, the persons and entities named in the following table have sole voting and sole investment power with
respect to the shares set forth opposite the shareholder’s name, subject to community property laws, where applicable. Unless as
otherwise indicated in the following table and/or the footnotes thereto, the address of our named executive officers and directors in
the following tables is: 705 Cambridge Street, Cambridge, MA 02141.
Name and Address of Beneficial Owner | |
Amount and Nature of Beneficial Ownership(1) | | |
Percent of Class (1) | |
Named Executive Officers and Directors | |
| | | |
| | |
Clifford Emmons | |
| 97,536,982
(2) | | |
| 19.62% | |
Karen McNemar | |
| 63,226,582
(3) | | |
| 13.65% | |
Vidhyadhar Mitta | |
| 226,184,343
(4) | | |
| 36.11% | |
Executive Officers, Named Executive Officers, and Directors as a Group (3 Persons) | |
| 386,947,907 | | |
| 49.42% | |
5% Beneficial Holders (Not Named Above) | |
| | | |
| | |
Cambridge MedSpace LLC 705 Cambridge Street Cambridge, MA 02141 | |
| 83,176,667
(5) | | |
| 17.15% | |
______________________
*Less than 1%
(1) |
Under Rule 13d-3 of the Exchange Act, a beneficial owner
of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or
otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment
power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned
by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares
are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of
an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person,
the amount of shares outstanding is deemed to include the number of shares beneficially owned by such person (and only such person)
by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in the above table
does not necessarily reflect the person’s actual ownership or voting power with respect to the number of shares of common stock
actually outstanding on the March 30, 2023. |
(2) |
Includes 13,333 shares issuable upon the exercise of warrants issued to Cambridge MedSpace LLC, an entity of which Mr. Emmons is a 36.36% owner. Also includes 30,229,704 shares issuable upon the conversion of a note issued to Cambridge MedSpace LLC. Includes 64,233,945 shares of Common Stock issuable upon the conversion of $142,424 in accrued and unpaid consulting fees. Lastly, includes 780,000 shares issuable upon the conversion of shares of Series A Preferred Stock owned by Mr. Emmons. |
|
|
(3) |
Includes 60,817,582 shares of Common Stock issuable upon the conversion of $134,849 in accrued and unpaid consulting fees. Also includes 604,500 shares issuable upon the conversion of shares of Series A Preferred Stock owned by Ms. McNemar. |
|
|
(4) |
Includes 1,562,500 shares issuable upon the exercise of warrants. Also includes 221,685,000 shares issuable upon the conversion of a note issued to Mr. Mitta. Lastly, includes 1,200,000 shares issuable upon the conversion of shares of Series A Preferred Stock owned by Mr. Mitta. |
|
|
(5) |
Includes 36,667 shares
issuable upon the exercise of warrants issued to Cambridge MedSpace LLC, an entity of which Mr. Emmons is an owner. Also includes
83,140,000 shares issuable upon the conversion of a note issued to Cambridge MedSpace LLC. |
The following table sets forth information known
to us regarding the beneficial ownership of our Series A Supervoting Preferred Stock as of March 30, 2023.
Title of Class |
|
Name and address of beneficial owner |
|
Amount and nature of beneficial ownership |
|
Percent of Class |
Series A Supervoting Preferred Stock |
|
Vidhyadhar Mitta |
|
12,000 |
|
46.43% |
|
|
Clifford L. Emmons |
|
7,800 |
|
30.18% |
|
|
Karen McNemar |
|
6,045 |
|
23.39% |
The following table sets forth information known
to us regarding the beneficial ownership of our Series B Convertible Preferred Stock as of March 30, 2023.
Title of Class |
|
Name and address of beneficial owner (1) |
|
Amount and nature of beneficial ownership |
|
Percent of Class |
Series B Convertible Preferred Stock |
|
GHS Investments, LLC |
|
454 |
|
100% |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For transactions with our executive officers,
please see the disclosure under “Item 11. Executive Compensation.” above.
Coufal Amended and Restated Consulting Agreement
On March 11, 2019, the Company’s Board of
Directors approved the Amended and Restated Consulting Agreement dated effective April 23, 2018 with Antony Coufal, the Company’s
Chief Technology Officer (the “Coufal Agreement”). The term of the Coufal Agreement is for three years beginning as
of the effective date, unless terminated earlier pursuant to the agreement and is automatically renewable for one-year terms upon the
consent of the parties. The services to be provided by Mr. Coufal pursuant to the Coufal Agreement are those customary for the position
in which he is serving.
Mr. Coufal shall receive a monthly fee of $9,375
which accrues unless converted into shares of Common Stock of the Company at a conversion rate specified in the Coufal Agreement. Until
the Company closes a minimum $500,000 capital raise, the monthly fee accrues and, upon the closing of such a capital raise, $3,125 of
the monthly fee will be paid to Mr. Coufal in cash and the remainder will continue to accrue. Upon the closing of a capital raise of at
least $2,000,000, the entire monthly fee will be paid to Mr. Coufal in cash and all accrued and unpaid monthly fees will be paid by the
Company within one year of the closing of such a capital raise.
As of the effective date, the Company shall issue
to Mr. Coufal an aggregate of 1,800,000 shares of the Company’s Common Stock which vest as follows:
|
1. |
300,000 shares on the first-year anniversary of the effective date; |
|
2. |
600,000 shares on the second-year anniversary of the effective date; and |
|
3. |
900,000 shares on the third-year anniversary of the effective date. |
The shares are granted under the 2017 Stock Incentive
Plan. Vesting of the shares is subject to acceleration of vesting upon the occurrence of certain events such as a Change of Control (as
defined in the Coufal Agreement) or the listing of the Company’s Common Stock on a senior exchange.
On June 12, 2020, the Company entered into an
amendment effective January 1, 2020 (the “Coufal Amendment”) to the Coufal Agreement, pursuant to which, Sections 7(a)
and 7(b) of the Coufal Agreement were amended to read as follows:
Fees. From
January 1, 2020 until April 23, 2020, the Consultant shall be paid an hourly wage of $12.75 per hour for Services performed. From April
24, 2020 onward, the Consultant shall be paid an hourly wage of $48.08 an hour for Services performed (the “Fees”).
Fees may accrue at the discretion of management.
Conversion of
Accrued and Unpaid Fees. At any time, the Consultant shall have the right to convert any accrued and unpaid Fees into shares of Common
Stock of the Company (the “Conversion Shares”). The conversion price shall equal 90% multiplied by the Market Price
(as defined herein) (representing a discount rate of 10%) (the “Conversion Price”). “Market Price” means
the average of the Trading Prices (as defined below) for the shares of Common Stock of the Company during the thirty (30) day period ending
on the latest complete trading day prior to the Conversion Date. “Trading Price” and “Trading Prices” means, for
any security as of any date, the closing trade price of the Company’s Common Stock on the OTC Pink, OTCQB or applicable trading
market as reported by a reliable reporting service (“Reporting Service”) designated by the Consultant or, if the OTC
Pink is not the principal trading market for such security, the trading price of such security on the principal securities exchange or
trading market where such security is listed or traded or, if no trading price of such security is available in any of the foregoing manners,
the average of the trading prices of any market makers for such security that are listed in the “pink sheets” by the National
Quotation Bureau, Inc. “Conversion Date” shall mean the date of receipt by the Company of the completed and executed Notice
of Conversion, the form of which is attached hereto as Exhibit A.
Pursuant to the Coufal Amendment, Section 11 was
also eliminated from the Coufal Agreement.
Coufal Debt Forgiveness Agreement
On June 11, 2020, the Company entered into Debt
Forgiveness Agreements with Mr. Coufal pursuant to which Mr. Coufal forgave $82,475 of accrued and unpaid consulting fees owed to him
pursuant to his consulting agreement with the Company.
Coufal Termination Agreement
Effective March 31, 2021, the Company entered
into a Termination Agreement (the “Termination Agreement”) with Mr. Coufal, pursuant to which Mr. Coufal resigned and
from all positions within the Company and any of its subsidiaries. In addition, the Termination Agreement provided for the payment of
$11,144.42 in reimbursable expenses and $130,451 in accrued and unpaid consulting fees to Mr. Coufal within five business days of the
effective date. The Termination Agreement also provided for the issuance to Mr. Coufal 843,288 shares of the Company’s Common Stock
within five business days of the effective date.
Cambridge MedSpace Note
On January 22, 2019, we entered into a Securities
Purchase Agreement with Cambridge MedSpace, LLC, a Massachusetts limited liability company for the purchase of a 5% Secured Convertible
Note in the principal amount of $55,000. The note was convertible, in whole or in part, into shares of our Common Stock, at any time at
a rate of $0.65 per share with fractions rounded up to the nearest whole share, unless paid in cash at our election. The note bears interest
at a rate of 5% per annum and interest payments will be made on an annual basis. The original maturity date of the note was January 22,
2020. The note is governed by the SPA and is secured by all our assets (but is not a senior secured note) pursuant to the Security Agreement.
In addition to the issuance of the note, we issued to Cambridge MedSpace warrants to purchase one share of our Common Stock for 50% of
the number of shares of Common Stock issuable upon conversion of the note. Each warrant was originally immediately exercisable at $0.75
per share and expires on January 22, 2024. The lender is owned by shareholders of the Company, or their affiliates, including Clifford
L. Emmons, our Chief Executive Officer, Interim Chief Financial Officer, and director.
On June 12, 2020, the Company entered into Amendment
No. 1 to the note with Cambridge MedSpace pursuant to which the note was amended to extend the maturity date to March 1, 2021.
On April 6, 2022, the Company entered into Amendment
No. 2 to the note with Cambridge MedSpace pursuant to which the maturity date as extended to March 1, 2024.
Due to adjustments to the conversion price of
the note, the conversion price is currently $0.0008.
Mitta Note
On August 2, 2019, we entered into a Securities
Purchase Agreement with Vidhyadhar Mitta, a director of the Company, for the purchase of a 12% Secured Convertible Note in the principal
amount of up to $125,000. The note was originally convertible, in whole or in part, into shares of our Common Stock, at any time at a
rate of $0.08 per share with fractions rounded up to the nearest whole share, unless paid in cash at our election. The note bears interest
at a rate of 12% per annum and interest payments were originally to be made on a quarterly basis. The note originally matured August 2,
2021. On August 2, 2019, the first closing of the note occurred pursuant to which we received $75,000. On September 6, 2019, the second
closing occurred pursuant to which the Company received $25,000. On October 16, 2019, the third closing occurred pursuant to which the
Company received $25,000.
The note is governed by the SPA and is secured
by all the assets of the Company (but is not a senior secured note) pursuant to the Security Agreement. In addition to the issuance of
the note, we issued to the Mr. Mitta warrants to purchase one share our Common Stock for 50% of the number of shares of Common Stock issuable
upon conversion of the funds received. Each warrant was originally immediately exercisable at $0.12 per share and expires on August 2,
2024.
On August 2, 2021, the Company entered into Amendment
No. 1 to the note with Vidhyadhar Mitta pursuant to which the note was amended to extend the maturity date to August 2, 2022.
Effective August 2, 2022, the Company entered
into Amendment No. 1 to the note with Vidhyadhar Mitta pursuant to which the note was amended to extend the maturity date to August 2,
2024.
Due to adjustments to the conversion price of
the note, the conversion price is currently $0.0008.
Director Independence
We are not currently subject to listing requirements
of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the board of directors
be “independent” and, as a result, we are not at this time required to have our Board of Directors comprised of a majority
of “independent directors.” Although we have not have adopted the independence standards any national securities exchange
to determine the independence of directors, the NYSE MKT LLC provides that a person will be considered an independent director if he or
she is not an officer of the company and is, in the view of our board of directors, free of any relationship that would interfere with
the exercise of independent judgment. Under this standard, our board of directors has determined that Mr. Mitta would meet this standard,
and therefore, would be considered to be independent.
INDEX TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of IIOT-OXYS, Inc
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of IIOT-OXYS,
Inc. (the Company) as of December 31, 2022, and 2021, and the related consolidated statements of operations, stockholders’ equity
(deficit), and cash flows for each of the years in the two-year period ended December 31, 2022, and the related consolidated notes (collectively
referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects,
the consolidated financial position of the Company as of December 31, 2022, and 2021 and the results of its consolidated operations and
its cash flows for each of the years in the two-year period ended December 31, 2022 and 2021, in conformity with accounting principles
generally accepted in the United States of America.
Consideration of the Company’s Ability to Continue as a Going
Concern
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As more fully described in Note 1 to the consolidated financial statements,
the Company has incurred net losses since inception and has negative cash flows from operations. These factors raise substantial doubt
about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described
in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal
control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising
from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the
audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in
any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit
matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Complex Debt and Equity Transactions
Description of the Matter
As discussed in Note 9, the Company holds Series B Convertible Preferred
Stock that qualifies for derivative treatment under ASC 815, Derivatives and Hedging. Management uses the Black Scholes Model to value
their derivatives. This model requires management to make assumptions, use judgment, and can be complex.
How We Addressed the Matter in Our Audit
We gained an understanding of management’s processes and methodology
to develop the estimates. We reviewed the underlying agreement. We evaluated management’s selection of a valuation method, tested
the inputs used in the Black-Scholes calculation by agreeing terms of the underlying agreements and market information to third-party
sites, and recalculated the value of the derivatives. We also evaluated the adequacy of the disclosures related to these fair value measurements
and related gains and losses.
/s/ Haynie & Company
Haynie & Company
Salt Lake City, Utah
April 13, 2023
PCAOB ID: 457
We have served as auditors for the company since 2018.
IIOT-OXYS, Inc. and Subsidiaries
Consolidated Balance Sheets
| |
| | | |
| | |
| |
December 31, 2022 | | |
December 31, 2021 | |
ASSETS | |
| | | |
| | |
Current Assets | |
| | | |
| | |
Cash and cash equivalents | |
$ | 33,336 | | |
$ | 46,821 | |
Accounts receivable, net | |
| 28,941 | | |
| 11,280 | |
Prepaid expenses | |
| 7,773 | | |
| 7,773 | |
Total Current Assets | |
| 70,050 | | |
| 65,874 | |
| |
| | | |
| | |
Note receivable, net of discount of $4,716 and $0
as of December 31, 2022 and 2021, respectively | |
| 195,284 | | |
| – | |
Intangible assets, net | |
| 248,585 | | |
| 298,085 | |
| |
| | | |
| | |
Total Assets | |
$ | 513,919 | | |
$ | 363,959 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | |
| | | |
| | |
Current Liabilities | |
| | | |
| | |
Accounts payable | |
$ | 133,408 | | |
$ | 161,171 | |
Accrued liabilities | |
| 395,714 | | |
| 247,155 | |
Deferred revenue | |
| 31,425 | | |
| 46,425 | |
Unearned interest | |
| 5,151 | | |
| – | |
Notes payable - current, net of discounts of $0 and $57,148 at December 31, 2022 and 2021, respectively | |
| 363,167 | | |
| 233,167 | |
Shares payable to related parties | |
| 14,624 | | |
| – | |
Salaries payable to related parties | |
| 263,516 | | |
| 273,926 | |
Derivative liabilities | |
| 469,873 | | |
| 202,616 | |
Total Current Liabilities | |
| 1,676,878 | | |
| 1,164,460 | |
| |
| | | |
| | |
Notes payable | |
| 104,300 | | |
| 267,152 | |
Due to stockholders | |
| 1,000 | | |
| 1,000 | |
Total Liabilities | |
| 1,782,178 | | |
| 1,432,612 | |
| |
| | | |
| | |
Commitments and Contingencies (Note 4) | |
| – | | |
| – | |
| |
| | | |
| | |
Series B Convertible Preferred Stock, 600 shares designated, $0.001 Par Value, $1,200 stated value; 454 shares and 206 shares issued and outstanding at December 31, 2022 and 2021, respectively. Liquidation preference $544,800 and $247,200 as of December 31, 2022 and 2021, respectively | |
| 544,800 | | |
| 247,200 | |
| |
| | | |
| | |
Stockholders' Equity (Deficit) | |
| | | |
| | |
Series A Preferred Stock, $0.001 par value, 10,000,000 Shares authorized; 25,845 shares issued and outstanding at December 31, 2022 and 2021, respectively | |
| 26 | | |
| 26 | |
Common Stock $0.001 Par Value, 1,000,000,000 shares authorized; 352,174,583 shares and 220,254,395 shares issued and outstanding at December 31, 2022 and 2020, respectively | |
| 352,175 | | |
| 220,255 | |
Additional paid in capital | |
| 7,141,877 | | |
| 7,008,098 | |
Accumulated deficit | |
| (9,307,137 | ) | |
| (8,544,232 | ) |
Total Stockholders' Equity (Deficit) | |
| (1,813,059 | ) | |
| (1,315,853 | ) |
| |
| | | |
| | |
Total Liabilities and Stockholders' Equity (Deficit) | |
$ | 513,919 | | |
$ | 363,959 | |
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, | |
| |
2022 | | |
2021 | |
Revenues | |
$ | 88,904 | | |
$ | 11,280 | |
| |
| | | |
| | |
Cost of Sales | |
| 10,499 | | |
| 2,040 | |
| |
| | | |
| | |
Gross Profit | |
| 78,405 | | |
| 9,240 | |
| |
| | | |
| | |
Operating Expenses | |
| | | |
| | |
General and administrative | |
| 683,571 | | |
| 839,370 | |
Amortization of intangible assets | |
| 49,500 | | |
| 49,771 | |
Total Operating Expenses | |
| 733,071 | | |
| 889,141 | |
| |
| | | |
| | |
Other Income (Expense) | |
| | | |
| | |
Gain (Loss) on change in FMV of derivative liability | |
| 190,462 | | |
| 102,966 | |
Loss on derivative | |
| (200,519 | ) | |
| – | |
Gain (loss) on extinguishment of debt | |
| – | | |
| 120,000 | |
Interest income | |
| 17,634 | | |
| – | |
Interest expense | |
| (377,138 | ) | |
| (430,999 | ) |
Other income | |
| – | | |
| 46,700 | |
Total Other Income (Expense) | |
| (369,561 | ) | |
| (161,333 | ) |
| |
| | | |
| | |
Net Loss Before Income Taxes | |
| (1,024,227 | ) | |
| (1,041,234 | ) |
| |
| | | |
| | |
Provision for Income Tax | |
| – | | |
| – | |
| |
| | | |
| | |
Net Loss | |
$ | (1,024,227 | ) | |
$ | (1,041,234 | ) |
| |
| | | |
| | |
Convertible Preferred Stock Dividend | |
| (52,654 | ) | |
| (22,320 | ) |
| |
| | | |
| | |
Net Loss Attributable to Common Stockholders | |
$ | (1,076,881 | ) | |
$ | (1,063,554 | ) |
| |
| | | |
| | |
Net Loss Per Share Attributable to Common Stockholders - Basic and Diluted | |
$ | (0.00 | ) | |
$ | (0.01 | ) |
| |
| | | |
| | |
Weighted Average Shares Outstanding Attributable to Common Stockholders - Basic and Diluted | |
| 273,238,664 | | |
| 195,264,873 | |
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, 2022 and 2021
| |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | |
| |
Preferred
Stock | | |
Common
Stock | | |
Additional Paid-In | | |
Accumulated | | |
Total
Stockholders’ Equity | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
(Deficit) | |
Balance - December 31, 2020 | |
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 | ) | |
| – | | |
| – | |
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 | |
25,845 | | |
$ | 26 | | |
220,254,395 | | |
$ | 220,255 | | |
$ | 7,008,098 | | |
$ | (8,544,232 | ) | |
$ | (1,315,853 | ) |
Common stock issued for conversion of convertible note payable | |
– | | |
| – | | |
11,250,000 | | |
| 11,250 | | |
| 78,750 | | |
| – | | |
| 90,000 | |
Common stock issued for financing commitment | |
– | | |
| – | | |
120,570,188 | | |
| 120,570 | | |
| 436,495 | | |
| – | | |
| 557,065 | |
Sales commissions paid on capital raise | |
– | | |
| – | | |
– | | |
| – | | |
| (11,141 | ) | |
| – | | |
| (11,141 | ) |
Common stock issued for services | |
– | | |
| – | | |
100,000 | | |
| 100 | | |
| 800 | | |
| – | | |
| 900 | |
Beneficial Conversion Feature Associated with Discounts | |
– | | |
| – | | |
– | | |
| – | | |
| (371,125 | ) | |
| 313,976 | | |
| (57,149 | ) |
Net loss | |
– | | |
| – | | |
– | | |
| – | | |
| – | | |
| (1,076,881 | ) | |
| (1,076,881 | ) |
Balance - December 31, 2022 | |
25,845 | | |
$ | 26 | | |
352,174,583 | | |
$ | 352,175 | | |
$ | 7,141,877 | | |
$ | (9,307,137 | ) | |
$ | (1,813,059 | ) |
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, | |
| |
2022 | | |
2021 | |
Cash Flows From Operating Activities | |
| | | |
| | |
Net loss | |
$ | (1,076,881 | ) | |
$ | (1,063,554 | ) |
Adjustments to reconcile net loss to net cash (used) by operating activities | |
| | | |
| | |
Stock compensation expense for services | |
| 900 | | |
| – | |
Discount on note receivable | |
| 4,716 | | |
| – | |
Forgiveness of PPP Loan | |
| – | | |
| (36,700 | ) |
Debt discount on notes payable | |
| – | | |
| (129,380 | ) |
Amortization of beneficial conversion feature | |
| – | | |
| 360,000 | |
Amortization of Intangible Assets | |
| 49,500 | | |
| 49,771 | |
Changes in Operating Assets and Liabilities | |
| | | |
| | |
(Increase) Decrease in: | |
| | | |
| | |
Accounts receivable | |
| (17,661 | ) | |
| (11,280 | ) |
Prepaid expense | |
| – | | |
| (5,346 | ) |
Increase (Decrease) in: | |
| | | |
| | |
Accounts payable | |
| (27,763 | ) | |
| (8,743 | ) |
Accrued liabilities | |
| 148,558 | | |
| 110,789 | |
Derivative liability | |
| 267,257 | | |
| (102,966 | ) |
Unearned interest | |
| 5,151 | | |
| – | |
Deferred revenue | |
| (15,000 | ) | |
| – | |
Shares payable to related parties | |
| 14,624 | | |
| 342,650 | |
Salaries payable to related parties | |
| (10,410 | ) | |
| (133,345 | ) |
Net Cash Used by Operating Activities | |
| (657,009 | ) | |
| (628,103 | ) |
| |
| | | |
| | |
Cash Flows from Investing Activities | |
| | | |
| | |
Cash paid for note receivable | |
| (200,000 | ) | |
| – | |
Net Cash used in Investing Activities | |
| (200,000 | ) | |
| – | |
| |
| | | |
| | |
Cash Flows From Financing Activities | |
| | | |
| | |
Cash received from Convertible Note Payable | |
| 545,924 | | |
| 470,850 | |
Proceeds from sale of Series B Preferred Stock | |
| 297,600 | | |
| 101,000 | |
Net Cash Provided By Financing Activities | |
| 843,524 | | |
| 571,850 | |
| |
| | | |
| | |
Net Decrease in Cash and Cash Equivalents | |
| (13,485 | ) | |
| (56,253 | ) |
| |
| | | |
| | |
Cash and Cash Equivalents - Beginning of Period | |
| 46,821 | | |
| 103,074 | |
| |
| | | |
| | |
Cash and Cash Equivalents - End of Period | |
$ | 33,336 | | |
$ | 46,821 | |
| |
| | | |
| | |
Supplement Disclosures of Cash Flow Information | |
| | | |
| | |
Interest paid | |
$ | – | | |
$ | – | |
Income taxes paid | |
$ | – | | |
$ | – | |
| |
| | | |
| | |
Supplemental Disclosures of Non-Cash Investing and Financing Activities | |
| | | |
| | |
Discount on notes payable | |
$ | 32,852 | | |
$ | 26,833 | |
Conversion of convertible notes payable and derivative liabilities | |
$ | 90,000 | | |
$ | 288,029 | |
Warrant anti-dilution issuance | |
$ | – | | |
$ | 203,597 | |
Discount on Series B Convertible Preferred Stock | |
$ | 297,600 | | |
$ | 247,200 | |
The accompanying notes are an integral part of these consolidated financial statements.
IIOT-OXYS, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 1 - NATURE OF OPERATIONS, BASIS OF PRESENTATION
AND GOING CONCERN
Unless otherwise indicated, any reference to “the
Company”, “our company”, “we”, “us”, or “our” refers to IIOT-OXYS, Inc., a Nevada
corporation, and as applicable to its wholly-owned subsidiaries, OXYS Corporation, a Nevada corporation, and HereLab, Inc., a Delaware
corporation.
IIOT-OXYS, Inc., a Nevada corporation (the “Company”)
was originally established for the purpose of designing, building, testing, and selling Edge Computing Systems for the Industrial Internet.
The Company is currently devoting substantially all its efforts in identifying, developing and marketing engineered products, software
and services for applications in the Industrial Internet which involves collecting and processing data collected from a wide variety of
industrial systems and machines.
We were incorporated in the state of New Jersey
on October 1, 2003 under the name of Creative Beauty Supply Corporation and commenced operations as of January 1, 2004. On November 30,
2007, our Board of Directors approved a plan to dispose of our wholesale and retail beauty supply business. On May 18, 2015, we changed
our name to Gotham Capital Holdings. From January 1, 2009 until July 28, 2017, we had no operations. On March 16, 2017, our Board of Directors
approved to change our name to “IIOT-OXYS, Inc.” and authorized a change of domicile from New Jersey to Nevada.
Impact of COVID-19
During the year ended December 31, 2022, the effects
of a new coronavirus (“COVID-19”) and related actions to attempt to control its spread began to impact our business. The impact
of COVID-19 on our operating results for the year ended December 31, 2022 was limited, in all material respects, due to the government
mandated numerous measures, including closures of businesses, limitations on movements of individuals and goods, and the imposition of
other restrictive measures, in its efforts to mitigate the spread of COVID-19 within the country.
On March 11, 2020, the World Health Organization
designated COVID-19 as a global pandemic. Governments around the world have mandated, and continue to introduce, orders to slow the transmission
of the virus, including but not limited to shelter-in-place orders, quarantines, significant restrictions on travel, as well as work restrictions
that prohibit many employees from going to work. Uncertainty with respect to the economic effects of the pandemic has introduced significant
volatility in the financial markets.
Basis of Presentation
The accompanying financial statements have been
prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include
the accounts of the Company. The financial statements and accompanying notes are the representations of the Company’s management,
who is responsible for their integrity and objectivity. In the opinion of the Company’s management, the financial statements reflect
all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.
Principles of Consolidation
The consolidated financial statements for the
years ended December 31, 2022 and 2021, respectively, include the accounts of Company, and its wholly-owned subsidiaries OXYS Corporation
and HereLab, Inc. All significant intercompany balances and transactions have been eliminated.
Reclassifications
Certain amounts in the prior periods presented
have been reclassified to conform to the current period financial statement presentation. These reclassifications have no effect on previously
reported net income.
Use of Estimates
The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of accounts payable, accrued
liabilities and payable to related party. The Company bases its estimates and assumptions on current facts, historical experience and
various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.
The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there
are material differences between the estimates and the actual results, future results of operations will be affected.
Going Concern
The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has
suffered continuing operating losses and reported a net loss of $1,076,881 for the year ended December 31, 2022, used cash flows in operating
activities of $657,009 and has recorded an accumulated deficit of $9,307,137 as of December 31, 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 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 $33,336 and
$46,821 as of December 31, 2022 and 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. There was no allowance for doubtful accounts as of December 31, 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 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, 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 principally of cash, accounts receivable, prepaid expenses, note receivable, accounts payable, accrued liabilities, notes payable
and related parties payable. The Company believes that the recorded values of all the financial instruments approximate their current
fair values because of their nature and respective maturity dates or durations.
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 has adopted this guidance and it does not have
any material impact on its consolidated financial statements.
Other accounting standards that have been issued
or proposed by FASB and do not require adoption until a future date are not expected to have a material impact on the consolidated financial
statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated
to its financial condition, results of operations, cash flows or disclosures.
NOTE 3 - INTANGIBLE ASSETS
The Company’s intangible assets comprise
of intellectual property revolving around their field tests, sensor integrations, and board designs. Intangible assets, net of amortization
at December 31, 2022 and 2021, amounted to $248,585
and $298,085, respectively.
Schedule of intangible assets | |
| | | |
| | |
| |
December 31, 2022 | | |
December 31, 2021 | |
Intangible Assets | |
$ | 495,000 | | |
$ | 495,000 | |
Accumulated amortization | |
| (246,415 | ) | |
| (196,915 | ) |
Intangible Assets, net | |
$ | 248,585 | | |
$ | 298,085 | |
The Company determined that none of its intangible
assets were impaired at December 31, 2022 and 2021, respectively. Amortizable intangible assets are amortized using the straight-line
method over their estimated useful lives of ten years. Amortization expense of finite-lived intangibles was $49,500 and $49,771 for the
years ended December 31, 2022 and 2021, respectively.
The following table summarizes the Company’s
estimated future amortization expense of intangible assets with finite lives as of December 31, 2022:
Schedule of future amortization | |
| | |
| |
Amortization
expense | |
2023 | |
$ | 49,500 | |
2024 | |
| 49,500 | |
2025 | |
| 49,500 | |
2026 | |
| 49,500 | |
Thereafter | |
| 50,585 | |
Total | |
$ | 248,585 | |
NOTE 4 - COMMITMENTS AND CONTINGENCIES
In prior years, the Company entered into consulting
agreements with one director, three executive officers, and one engineer of the Company, which include commitments to issue shares of
the Company’s common stock from the Company’s 2017 Stock Incentive Plan and 2019 Stock Incentive Plans. All the consulting
agreements have been terminated and shares have been issued in conjunction with the related separation agreements. According to the terms
of the agreements, 3,547,788 shares were vested and issued per the Company’s 2017 Stock Incentive Plan as of December 31, 2022 and
2021, respectively, and 3,080,000 shares and 2,980,000 shares were vested and issued per the Company’s 2019 Stock Incentive Plan
as of December 31, 2022 and 2021, respectively.
In the event that the agreement is terminated
by either party pursuant to the terms of the agreement, all unvested shares which have been earned shall vest on a pro-rata basis as of
the effective date of the termination of the agreement and all unearned, unvested shares shall be terminated. The value of the shares
was assigned at fair market value on the effective date of the agreement and the pro-rata number of shares earned was calculated and amortized
at the end of each reporting period.
On March 18, 2022, the Company adopted 2022 Stock
Incentive Plan and reserved for issuance 20,000,000 shares of common stock for incentivizing its management team.
Employment Agreement - CEO
On
June 2, 2022, the Board approved an Employment Agreement with the CEO dated effective April 1, 2022 whereby, the CEO will receive an
annual salary of $100,000 which accrues unless converted into shares of common stock of the Company at a stipulated conversion rate.
If the Company reaches $1,000,000 in cumulative sales over a 12-month period, the annual salary will increase to $150,000 commencing
the following month. If the Company reaches $5,000,000 in cumulative sales over a 12-month period, the annual salary will increase
to $200,000 commencing the following month. The Company awarded the CEO an aggregate of 7,000,000
shares of the Company’s common stock under the 2022 Stock Incentive Plan, which will vest (i) 1,500,000 shares
on April 1, 2023, (ii) 2,500,000 shares
on April 1, 2024, and (iii) 3,000,000 shares
on April 1, 2025. The shares are valued at the 90% of the average market price of the shares of 30 trading days at the end of each
quarter. The Company has recorded $142,424
and $128,082
in salaries payable to the CEO as of December 31, 2022 and December 31, 2021, respectively.
Employment Agreement – COO/Interim CFO
On June 2, 2022, the Board approved an
Employment Agreement with the COO/Interim CFO dated effective April 1, 2022, whereby, the officer will receive an annual salary of
$100,000 which accrues unless converted into shares of common stock of the Company at a stipulated conversion rate. If the Company
reaches $1,000,000 in cumulative sales over a 12-month period, the annual salary will increase to $150,000 commencing the following
month. If the Company reaches $5,000,000 in cumulative sales over a 12-month period, the annual salary will increase to $200,000
commencing the following month. The Company awarded the COO/Interim CFO an aggregate of 7,000,000 shares
of the Company common stock under the 2022 Stock Incentive Plan, which will vest (i) 1,500,000 shares
on April 1, 2023, (ii) 2,500,000 shares
on April 1, 2024, and (iii) 3,000,000 shares
on April 1, 2025. The shares are valued at the 90% of the average market price
of the shares of 30 trading days at the end of each quarter. The Company recorded $121,092
and $145,844
in salaries payable to the COO/Interim CFO as of December 31, 2022 and December 31, 2021, respectively.
Consulting Agreement – CTO
Effective March 31, 2021, the Company entered
into a Termination Agreement (the “Termination Agreement”) with the CTO, pursuant to which the CTO resigned and from
all positions within the Company and any of its subsidiaries. In addition, the Termination Agreement provided for the payment of $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 for the past services
which were valued at $270,493, within five business days of the effective date. The Company recorded $0 in salaries payable to the CTO
at December 31, 2022 and 2021, 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, 2022 and December 31, 2021, respectively.
Schedule of convertible notes payable |
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
|
|
|
|
|
|
|
A. Convertible note payable to an investor with interest at 12% per annum, convertible at any time into shares of common stock at $0.008 per share. Interest is payable quarterly with the balance of principal and interest due on maturity on March 1, 2023. The note is secured by substantially all the assets of the Company. |
|
$ |
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 $0.0008 per share. Interest is payable annually with the balance of principal and interest due on maturity on March 1, 2024. The note is secured by substantially all the assets of the Company. |
|
|
55,000 |
|
|
|
55,000 |
|
|
|
|
|
|
|
|
|
|
D. Convertible note payable to an investor with interest at 12% per annum, principal and interest convertible into shares of common stock at $0.008 per share. Interest is payable quarterly with the balance of principal and interest due on maturity on March 1, 2023. The note is secured by substantially all the assets of the Company. |
|
|
50,000 |
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
E. Convertible note payable to a related party with interest at 12% per annum, convertible at any time into shares of common stock at $0.0008 per share. Interest is payable quarterly with the balance of principal and interest due on maturity on August 2, 2024. The note is secured by substantially all the assets of the Company. |
|
|
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 |
|
|
– |
|
|
|
(57,158 |
) |
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 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). 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).
The conversion shares totaled 45,608,457 and 42,603,642
shares of common stock, upon conversion of the total principal and accrued interest of $364,868 and $426,036 as of December 31, 2022 and
2021, respectively.
The Company amortized the beneficial conversion
feature discount to interest expense of $0 and $254,660 for the years ended December 31, 2022 and 2021, respectively. The unamortized
discount totaled $0 and $45,340 at December 31, 2022 and 2021, respectively. The Company adopted ASU 2020-06 in 2022 eliminating the use
of beneficial conversion feature, hence no beneficial conversion feature expense was recorded for 2022 extensions. In addition, the Company
recorded interest expense of $28,832 and $45,212 for the years ended December 31, 2022 and 2021, respectively. Accrued interest payable
on Note A was $159,868 and $131,036 as of December 31, 2022 and 2021, respectively.
The principal balance payable on Note A amounted
to $205,000 and $295,000 at December 31, 2022 and 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 the Senior Secured Convertible Promissory Note to March 1, 2022, and all prior Events of Default
(as defined in the Note B) including penalties were waived, and all other terms of the Note B remain the same (Note 9). On April 6, 2022,
the Noteholder of Note B agreed to extend the maturity date of the Note B to March 1, 2024.
The unpaid principal balance of the Note B and
accrued interest is $55,000 and $10,842 at December 31, 2022 and $55,000 and $8,092 as of December 31, 2021, respectively. The Company
recorded interest expense of $2,750 and $2,750 for the years ended December 31, 2022 and 2021, respectively. This note and accrued interest
is due to a related party. The conversion shares totaled 82,301,918 and 78,864,418 shares of common stock upon the conversion of the total
principal and accrued interest of $65,842 and $63,092 as of December 31, 2022 and 2021, respectively.
D. |
March 2019 Convertible Note and Warrants (“Note D”) |
On January 28, 2021, the noteholder of Note D
agreed to extend the maturity date of the Senior Secured Convertible Promissory Note to March 1, 2022 in exchange for the reduction of
the conversion price to $0.01 per share, and all prior Events of Default (as defined in the Note D) including penalties of $10,000 were
waived, and all future Events of Default (as defined in the Note D) pertaining to the future payment of interest were waived through maturity.
On December 14, 2021, the Company entered into amendment to the Note D which limits the respective
holder to conversions resulting in beneficial ownership by the holder and its affiliates of no more than 4.99% of the outstanding shares
of common stock of the Company. The Company recorded $10,000 as extinguishment of debt in its statements of operations for the
year ended December 31, 2021. The Company recorded $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 $0 and $25,466 for the years
ended December 31, 2022 and 2021, respectively. The unamortized discount was $0 and $4,534 at December 31, 2022 and 2021, respectively.
In addition, the Company recorded interest expense of $6,000 and $6,115 for the years ended December 31, 2022 and 2021, respectively.
Accrued interest payable on Note D was $20,698 and $14,698 as of December 31, 2022 and 2021, respectively. The principal balance payable
on Note D amounted to $50,000 and $50,000 on December 31, 2022 and 2021, 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 Company adopted ASU 2020-06
in 2022 eliminating the use of beneficial conversion feature, hence no beneficial conversion feature expense was recorded for 2022 extensions.
The conversion shares of Note D totaled 8,837,192
shares and 6,469,754 shares of common stock upon the conversion of the total principal and accrued interest of $70,698 and $64,698 as
of December 31, 2022 and 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 adopted ASU 2020-06 in 2022 eliminating the use of beneficial conversion feature, hence no beneficial
conversion feature expense was recorded for 2022 extensions. The Company amortized the debt discount on Note E to interest expense of
$0 and $34,104 for the years ended December 31, 2022 and 2021, respectively. The unamortized discount was $0 at December 31, 2022 and
2021, respectively. The Company recorded interest expense of $15,000 and $15,000 on Note E for the years ended December 31, 2022 and 2021,
respectively. Accrued interest payable on Note E was $48,690 and $33,690 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, 2022 and 2021, respectively. This note is payable to a related
party. The conversion shares totaled 217,112,620 shares and 188,916,781 shares of common stock upon conversion of the total principal
and accrued interest of $173,690 and $158,690 as of December 31, 2022 and 2021, respectively.
| F. | August 29, 2019 Convertible Note and Warrants (“Note F”) |
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 $3,637 and $1,925 for the years
ended December 31, 2022 and 2021, and unamortized debt balance of $0 and $3,637 at December 31, 2022 and 2021, respectively. The Company
recorded interest expense of $3,317 and $3,903 for the years ended December 31, 2022 and 2021, respectively. Accrued interest payable
on Note F was $5,029 and $1,712 as of December 31, 2022 and 2021, respectively. The principal balance payable on Note F amounted to $33,167
on December 31, 2022 and 2021, respectively.
G . |
July 2020 Equity Financing Arrangement (“Note G”) |
As of December 31, 2022 and 2021, the unpaid principal
balance of Note G was $75,000, and the accrued interest was $17,240 and $9,740, respectively. The Company recorded interest expense of
$7,500 and $7,500 for the years ended December 31, 2022 and 2021, respectively. The Company recorded amortization of debt to interest
expense of $3,637 and $1,925 for the years ended December 31, 2022 and 2021, leaving an unamortized debt balance of $0 and $3,637 at December
31, 2022 and 2021, respectively. The conversion shares totaled 9,317,144 and 8,473,973 shares of common stock upon conversion of the total
principal and accrued interest of $92,240 and $84,740 as of December 31, 2022 and 2021, respectively.
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 years ended December 31, 2022 and 2021:
Schedule of earnings per share | |
| | | |
| | |
| |
Year ended December 31, | |
| |
2022 | | |
2021 | |
Net loss attributable to common stockholders (basic) | |
$ | (1,076,881 | ) | |
$ | (1,063,554 | ) |
| |
| | | |
| | |
Shares used to compute net loss per common share, basic and diluted | |
| 273,238,664 | | |
| 195,264,873 | |
| |
| | | |
| | |
Net loss per share attributable to common stockholders, basic and diluted | |
$ | (0.00 | ) | |
$ | (0.01 | ) |
Basic net loss per share is calculated by dividing
net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing
net loss by the weighted-average number of common shares and common share equivalents outstanding for the period. Common stock equivalents
are only included when their effect is dilutive. The Company’s potentially dilutive securities which include stock options, convertible
debt, convertible preferred stock and common stock warrants have been excluded from the computation of diluted net loss per share as they
would be anti-dilutive. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares
outstanding due to the Company’s net loss position.
The following outstanding common stock equivalents
have been excluded from diluted net loss per common share for the years ended December 31, 2022 and 2021, respectively, because their
inclusion would be anti-dilutive:
Schedule of antidilutive shares | |
| | | |
| | |
| |
As of December 31, | |
| |
2022 | | |
2021 | |
Warrants to purchase common stock | |
| 2,868,397 | | |
| 2,868,397 | |
Potentially issuable shares related to convertible notes payable | |
| 366,996,915 | | |
| 328,816,461 | |
Total anti-dilutive common stock equivalents | |
| 369,865,312 | | |
| 331,684,858 | |
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 $36,700 as other income in its statements of operations for the year
ended December 31, 2021.
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, 2022 and 2021, 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, 2022 and 2021, rent expense
earned by the stockholder amounted to $3,000 and $3,000, respectively. The Company has recorded $250 and $750 of rent payable to the stockholder
in accounts payable as of December 31, 2022 and 2021, respectively.
The Company awarded shares payable to officers
and a director valued at $13,941 and $349,657 for the years ended December 31, 2022 and 2021, respectively, pursuant to the terms of an
exchange agreement (Note 4). Shares payable to officers and a director were $13,941 and $0 at December 31, 2022 and 2021, 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. No convertible preferred stock was issued to related parties in 2022 and 2021, respectively.
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, 2022. The Company had 352,174,583
shares and 220,254,395 shares of common
stock, and 25,845
shares of preferred stock, issued and outstanding as of December 31, 2022 and 2021, respectively.
On January 4, 2021, pursuant to the authorization
and approval previously provided by the stockholders, the Company filed a Certificate of Amendment to its Articles of Incorporation with
the Secretary of State of Nevada to increase its authorized shares of common stock, $0.001 par value per share, from 190,000,000 shares
to 1,000,000,000 shares, which filing became effective on January 18, 2021.
Common Stock
Holders of shares of common stock are entitled
to one vote for each share on all matters to be voted on by the stockholders. Holders of common stock do not have cumulative voting rights.
Holders of common stock are entitled to share ratably in dividends, if any, as may be declared from time to time by the Board of Directors
in its discretion from funds legally available, therefore. In the event of liquidation, dissolution, or winding up of the Company, the
holders of common stock are entitled to share pro rata in all assets remaining after payment in full of all liabilities. All of the outstanding
shares of common stock are fully paid and non-assessable. Holders of common stock have no preemptive rights to purchase the Company’s
common stock. There are no conversion or redemption rights or sinking fund provisions with respect to the common stock.
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. From February 26, 2021 to December 31, 2021, the investor purchased 35,500,000 shares of
common stock for a cash consideration of $532,500, and from January 1, 2022 to December 31, 2022, the investor purchased 120,570,188 shares
of common stock for a cash consideration of $557,065, 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).
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)
As a result of all common stock issuances, the
Company recorded 352,174,583 shares and 220,254,396 shares of common stock issued and outstanding at December 31, 2022 and December 31,
2021, respectively.
Stock Incentive Plans
On December 14, 2017 (the “Effective Date”),
the Board of Directors of the Company approved the 2017 Stock Inventive Plan (the “2017 Plan”). Awards may be made under the
2017 Plan for up to 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.
On
March 18, 2022, the Board of Directors approved and adopted the 2022 Stock Incentive Plan (the “2022 Plan”). Awards may
be made under the 2022 Plan for up to 20,000,000 shares
of common stock of the Company, subject to adjustment as to the number and kind of shares awarded. Only employees and directors of
the Company or an Affiliated company are eligible to receive Incentive Options under the 2022 Plan. The Company awarded 7,000,000 shares
of the Company’s common stock to an officer and 7,000,000
shares of common stock to a director of the Company (see Note 4) vesting 1,500,000 shares vesting on the first anniversary on the
date of issuance, 2,500,000 shares vesting on the second anniversary of the date of issuance, and 3,000,000 shares on the third
anniversary of the date of issuance. In addition, on October 3, 2022, the Company awarded 300,000
shares of common stock to an advisor vesting 100,000 shares on the first anniversary date of issuance, 100,000 shares vesting on the
second anniversary, and the remaining 100,000 vesting the third anniversary of the date of issuance. The common shares vested
pursuant to the 2022 Plan amounted to 0 shares
at December 31, 2022 and the 14,300,000 shares
remain unvested as of that date.
For
the year ended December 31, 2022, under the 2022 Plan, the Company recorded stock compensation expense of $14,624
for 2,568,493
shares payable to an officer, an advisor and a director that remain unvested as of December 31, 2022. The
shares earned are valued at the 90% of the average market price of the shares of 30 trading days at the end of each
quarter.
Shares earned and issued related to the consulting
agreements are issued under the 2017 Plan and the 2019 Plan (Note 4). Vesting of the shares is subject to acceleration of vesting upon
the occurrence of certain events such as a Change of Control (as defined in the agreement) or the listing of the Company’s common
stock on a senior exchange.
A summary of the status of the Company’s
non-vested shares at December 31, 2022 and 2021 and changes during the year then ended, is presented below:
Summary of non-vested shares | |
| | | |
| | |
2017 Stock Incentive Plan | |
Shares of
Common Stock | | |
Weighted
Average
Fair Value | |
Authorized Shares | |
| 4,500,000 | | |
$ | – | |
| |
| | | |
| | |
Balance – December 31, 2020 | |
| 1,504,500 | | |
$ | 0.30 | |
Awarded and issued | |
| 2,043,288 | | |
| 0.30 | |
Vested | |
| (3,547,788 | ) | |
| – | |
Forfeited | |
| – | | |
| – | |
Balance at December 31, 2021 | |
| – | | |
| 0.30 | |
Awarded and issued | |
| – | | |
| – | |
Vested | |
| – | | |
| – | |
Forfeited | |
| – | | |
| – | |
Balance at December 31, 2022 | |
| – | | |
$ | 0.30 | |
| |
| | | |
| | |
Unvested common shares - December 31, 2022 | |
| – | | |
| | |
2019 Stock Incentive Plan | |
| Shares of
Common Stock | | |
| Weighted
Average
Fair Value | |
Authorized Shares | |
| 5,000,000 | | |
$ | – | |
| |
| | | |
| | |
Balance - December 31, 2020 | |
| 780,000 | | |
$ | 0.30 | |
Awarded and issued | |
| 2,200,000 | | |
| 0.30 | |
Vested | |
| (2,980,000 | ) | |
| – | |
Forfeited | |
| – | | |
| – | |
Balance at December 31, 2021 | |
| – | | |
| 0.30 | |
Awarded and issued | |
| 100,000 | | |
| – | |
Vested | |
| (100,000 | ) | |
| – | |
Forfeited | |
| – | | |
| – | |
Balance at December 31, 2022 | |
| – | | |
$ | 0.30 | |
| |
| | | |
| | |
Unvested common shares - December 31, 2022 | |
| – | | |
| | |
2022 Stock Incentive Plan | |
| Shares of
Common Stock | | |
| Weighted
Average
Fair Value | |
Authorized Shares | |
| 20,000,000 | | |
$ | – | |
| |
| | | |
| | |
Balance at December 31, 2021 | |
| – | | |
$ | – | |
Awarded | |
| 14,300,000 | | |
| 0.006146 | |
Vested | |
| – | | |
| – | |
Forfeited | |
| – | | |
| – | |
Balance at December 31, 2022 | |
| 14,300,000 | | |
$ | – | |
| |
| | | |
| | |
Unvested common shares - December 31, 2022 | |
| 14,300,000 | | |
| | |
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.
The total fair value of shares compensation recognized
during the years ended December 31, 2022 and 2021, was $0 and $351,457, respectively.
On October 1, 2022, the Company cancelled 51 shares
of Series A Preferred stock valued at $51,000, and issued Series B Convertible Preferred Stock, valued at $51,000 for equity financing
to GHS Investments (See Series B Convertible Preferred Stock Equity Financing dated December 20, 2021).
The Company did not issue any Series A Supervoting
Convertible Preferred Stock during the years ended December 31, 2022 and 2021, respectively. The Company reported 25,845 shares of Series
A Supervoting Convertible Preferred Stock issued and outstanding at December 31, 2022 and December 31, 2021, respectively.
Series B Convertible Preferred Stock Equity
Financing
On November 16, 2020, the Board of Directors of
the Corporation had authorized issuance of up to 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.
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.
December 20, 2021
On December 20, 2021, pursuant to the terms of
the SPA, GHS purchased an additional 51 shares of Series B Convertible Preferred Stock for gross proceeds of $51,000. The Company paid
$1,000 in selling commissions to complete this financing. For the year ended December 31, 2021, the Company inadvertently reported this
sale of 51 shares as Series A Preferred stock (See Series A Supervoting Preferred Stock). The accompanying financial statements reflect
the correct purchase of Series B Convertible Preferred Stock rather than Series A Convertible Preferred Stock. The overall effect of this
correction was not significant to the December 31, 2021 financial statements
The Company recalculated the value of the derivative
liability associated with this convertible preferred stock recording a loss of $52,789 for the year ended December 31, 2022 in connection
with the change in fair market value of the derivative liability. In addition, the Company recorded $9,200 in interest expense to record
the fair value of derivative liability. The Company recorded $7,565 as preferred stock dividend expense for the year ended December 31,
2022, and $7,565 as preferred stock dividend payable as of December 31, 2022. Derivative liability payable for this transaction totaled
$52,789 at December 31, 2022 and Series B Convertible Preferred Stock mezzanine liability was $61,200 at December 31, 2022
The Company valued the conversion feature using
the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0019 to $0.005 the closing
stock price of the Company's common stock on the date of valuation ranging from $0.0022 to $0.0060, an expected dividend yield of 0%,
expected volatility ranging from 174.58% to 208.19%, risk-free interest rates ranging from 0.91% to 4.737%, and an expected term of 1.50
years.
February 7, 2022
On February 7, 2022, pursuant to the terms of
the SPA, GHS purchased an additional 51 shares of Series B Convertible Preferred Stock for gross proceeds of $51,000. The Company paid
$1,000 in selling commissions to complete this financing.
On February 7, 2022 (the date of receipt of
cash proceeds of $51,000
issuance), the Company valued the fair value of the derivative and recorded an initial derivative liability of $65,025,
$14,025
as day one loss on the derivative, $10,200
as interest expense, and $10,200
as Series B Convertible Preferred Stock mezzanine liability, and $51,000
as amortization. The Company recalculated the value of the derivative liability associated with the convertible note and recorded a
gain of $12,234
for the year ended December 31, 2022 in connection with the change in fair market value of the derivative liability. In addition,
the Company recorded $6,579
as preferred stock dividend expense for the year ended December 31, 2022, and preferred stock dividend payable to GHS on this
derivative totaled $6,579
as of December 31, 2022. Derivative liability payable for this transaction totaled $52,789
at December 31, 2022 and Series B Convertible Preferred Stock mezzanine liability was $61,200
at December 31, 2022.
The Company valued the conversion feature using
the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0019 to $0.0096, the
closing stock price of the Company's common stock on the date of valuation ranging from $0.0022 to $0.0172, an expected dividend yield
of 0%, expected volatility ranging from 160.35% to 177.44%, risk-free interest rates ranging from 1.09% to 4.73%, and an expected term
of 1.35 to 1.5 years.
March 24, 2022
On March 24, 2022, pursuant to the terms of the
SPA, GHS purchased an additional 136 shares of Series B Convertible Preferred Stock for gross proceeds of $136,000. The Company paid $2,720
in selling commissions to complete this financing.
On March 24, 2022 (the date of receipt of
cash proceeds of $136,000
issuance), the Company valued the fair value of the derivative and recorded an initial derivative liability of $328,422,
$192,422
as day one loss on the derivative, $27,200
as interest expense, and $27,200
as Series B Convertible Preferred Stock mezzanine liability, and $136,000
as amortization. The Company recalculated the value of the derivative liability associated with the convertible note and recorded a
gain of $187,650
for the year ended December 31, 2022, in connection with the change in fair market value of the derivative liability. In addition,
the Company recorded preferred stock dividend expense of $15,131
for the year ended December 31, 2022. Preferred stock dividend payable to GHS for this derivative totaled $15,131 at
December 31, 2022. Derivative liability payable for this transaction totaled $140,772
at December 31, 2022 and Series B Convertible Preferred Stock mezzanine liability was $163,200
at December 31, 2022.
The Company valued the conversion feature using
the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0019 to $0.0096, the
closing stock price of the Company's common stock on the date of valuation ranging from $0.0022 to $0.0183, an expected dividend yield
of 0%, expected volatility ranging from 160.35% to 177.44%, risk-free interest rates ranging from 1.55% to 4.73%, and an expected term
of 1.48 to 1.5 years.
November 17, 2022
On November 17, 2022, pursuant to the terms of
the SPA, GHS purchased an additional 61 shares of Series B Convertible Preferred Stock for gross proceeds of $61,000. The Company paid
$1,220 in selling commissions to complete this financing.
On November 17, 2022 (the date of receipt of
cash proceeds of $61,000 issuance), the Company valued the fair value of the derivative and recorded an initial derivative liability
of $54,072, $6,928 as day one gain on the derivative, $12,200 as interest expense, and $12,200 as Series B Convertible
Preferred Stock mezzanine liability, and $61,000 as amortization. The Company recalculated the value of the derivative liability
associated with the convertible note and recorded a loss of $9,069 for the year ended December 31, 2022, in connection with the
change in fair market value of the derivative liability. In addition, the Company recorded preferred stock dividend expense of
$1,059 for the year ended December 31, 2022. Preferred stock dividend payable to GHS for this derivative totaled $1,059 at
December 31, 2022. Derivative liability payable for this transaction totaled $63,140 at December 31, 2022 and Series B Convertible
Preferred Stock mezzanine liability was $73,200 at December 31, 2022.
The Company valued the conversion feature using
the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0019 to $0.0020, the
closing stock price of the Company's common stock on the date of valuation ranging from $0.0020 to $0.0022, an expected dividend yield
of 0%, expected volatility ranging from 174.58% to 179.98%, risk-free interest rates ranging from 4.68% to 4.73%, and an expected term
of 1.5 years.
As a result of issuance of derivative instruments,
the Company recorded a derivative liability of $469,873 and $202,616 as of December 31, 2022 and 2021, and Series B Convertible Preferred
Stock liability of $544,800 and $247,200 as of December 31, 2022 and 2021, respectively.
Warrants
A summary of the status of the Company’s
warrants as of December 31, 2022 and 2021 and changes during the years then ended, is presented below:
Summary of warrant activity | |
| | | |
| | | |
| | |
| |
Shares
Under
Warrants | | |
Weighted
Average
Exercise Price | | |
Weighted
Average
Remaining
Contractual Life | |
Outstanding at December 31, 2020 | |
| 3,043,397 | | |
$ | 0.01229 | | |
| 3.4 Years | |
Issued | |
| – | | |
| – | | |
| | |
Expired/Forfeited | |
| (175,000 | ) | |
| 0.20 | | |
| | |
Outstanding at December 31, 2021 | |
| 2,868,397 | | |
$ | 0.01229 | | |
| 2.4 Years | |
Issued | |
| – | | |
| – | | |
| | |
Exercised | |
| – | | |
| – | | |
| | |
Expired/Forfeited | |
| – | | |
| – | | |
| | |
Outstanding at December 31, 2022 | |
| 2,868,397 | | |
$ | 0.00084 | | |
| 1.4 Years | |
NOTE 10 - INCOME TAXES
Income tax expense for the year ended December
31, 2022 and 2021 is summarized as follows:
Schedule of components of income tax expense (benefit) | |
| | | |
| | |
| |
December 31, 2022 | | |
December 31, 2021 | |
Deferred: | |
| | | |
| | |
Federal | |
$ | (226,145 | ) | |
$ | (223,346 | ) |
State | |
| (52,229 | ) | |
| (51,582 | ) |
Change in valuation allowance | |
| 278,374 | | |
| 274,929 | |
Income tax expense (benefit) | |
$ | – | | |
$ | – | |
The following is a reconciliation of the provision
for income taxes at the U.S. federal income tax rate to the income taxes reflected in the Statement of Operations:
Schedule of effective income tax rate reconciliation | |
| | | |
| | |
| |
December 31, 2022 | | |
December 31, 2021 | |
Tax at statutory tax rate | |
| 21.00% | | |
| 21.00% | |
State taxes | |
| 4.85% | | |
| 4.85% | |
Other permanent items | |
| (0.24)% | | |
| 2.50% | |
Valuation allowance | |
| -25.61% | | |
| -28.35% | |
Income tax expense | |
| – | | |
| – | |
The tax effects of temporary differences that
gave rise to significant portions of deferred tax assets and liabilities at December 31, 2022 and 2021 are as follows:
Schedule of deferred tax assets and liabilities | |
| | | |
| | |
| |
December 31, 2022 | | |
December 31, 2021 | |
Deferred tax assets: | |
| | | |
| | |
Net operating loss carry forward | |
$ | 2,405,788 | | |
$ | 2,130,588 | |
Total gross deferred tax assets | |
| 2,405,788 | | |
| 2,130,588 | |
Less: valuation allowance | |
| (2,405,788 | ) | |
| (2,130,588 | ) |
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.
At December 31, 2022 and 2021, the Company had
accumulated net operating losses of approximately $9,307,000
and $8,242,000, 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 carry forward for twenty years, whereas the net operating losses generated after December 31, 2017 can 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.
In the ordinary course of business, the Company’s
income tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessment
by these taxing authorities. Accordingly, the Company believes that it is more likely than not that it will realize the benefits of tax
positions it has taken in its tax returns or for the amount of any tax benefit that exceeds the cumulative probability threshold in accordance
with FASB ASC 740. Differences between the estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate,
are not expected to have a material adverse effect on the Company’s financial position. The Company believes its tax positions are
all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits.
As of December 31, 2022, tax years 2021, 2020, and 2019 remain open for examination by the Internal Revenue Service and the Massachusetts
Division of Revenue. The Company has received no notice of audit from the Internal Revenue Service or the Massachusetts Division of Revenue for
any of the open tax years.
NOTE 11 - SUBSEQUENT EVENTS
Management has evaluated subsequent events through
the date of this Report, the date the financial statements were available to be issued, noting the following items that would impact the
accounting for events or transactions in the current period or require additional disclosure.
On January 16, 2023, the Company issued 10,650,921
shares of common stock to GHS Investments, LLC for a cash consideration of $16,557. The Company paid a sales commission of $331.
On February 6, 2023, the Company issued 16,854,990
shares of common stock to GHS Investments, LLC for a cash consideration of $27,581. The Company paid a sales commission of $552.
On February 10, 2023, the Company issued 50,000
shares of common stock under 2019 Plan to an employee for past services. The shares were valued at the fair value of common stock on the
date of issuance.
On February 21, 2023, the Company issued 100,000
shares of common stock under 2019 Plan to an advisor of the Company. The shares were valued at their fair value on the date of issuance.
On February 22, 2023, the Company issued 4,097,453
shares of common stock to GHS Investments, LLC for a cash consideration of $10,057. The Company paid a sales commission of $201.
On March 13, 2023, the Company issued 100,000
shares of common stock under 2019 Plan to an advisor of the Company. The shares were valued at their fair value on the date of issuance.
On March 23, 2023, the noteholder of Convertible
Promissory Note F elected to convert $27,814 of the principal amount of the note and accrued and unpaid interest of $7,186 into 17,837,838
shares of common stock at the conversion price of $0.00185 per share.
On April
1, 2023, pursuant to their respective employment agreements, 1,500,000 shares of common stock previously awarded to each of the Company’s
CEO and COO vested.
As of the
date of this filing, the Company is in default with the terms of the Notes A and D, which matured for payment on March 1, 2023. The Company
is negotiating with the noteholders to extend the maturity date to cure the default.
150,000,000 Shares of Common Stock
IIOT-OXYS, INC.
PROSPECTUS
MAY 8, 2023
IIOT OXYS (PK) (USOTC:ITOX)
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