Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x
. ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31,
2019
¨
. TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from __________
to __________
Commission File Number: 000-50773
IIOT-OXYS,
INC.
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(Exact name of Registrant as specified in its
charter)
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Nevada
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81-3485426
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(State or other jurisdiction of incorporation
or organization)
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(I.R.S. Employer Identification No.)
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705 Cambridge
Street, Cambridge, Massachusetts
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02141
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(Address of principal executive offices)
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(Zip Code)
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Issuer’s telephone
number, including area code: (401) 307-3092
Securities registered
pursuant to Section 12(b) of the Act:
Title of each class
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Trading
Symbol(s)
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Name
of each exchange on which registered
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N/A
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N/A
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N/A
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Securities registered pursuant to Section
12(g) of the Act: Common Stock, Par Value $0.001
Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. (1) Yes ☒ No ☐ (2) Yes ☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files). Yes ☒ No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting
company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer
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☐
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Accelerated filer
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☐.
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Non-accelerated filer
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☐ .
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Smaller reporting company
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☒
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Emerging growth company
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☒
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If an emerging growth company, indicate
by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting
and non-voting common equity held by non-affiliates of the registrant as of the last business day of its most recently completed
second fiscal quarter based upon the price at which the common equity was last sold was $4,608,850.
As of June 19, 2020, there were 135,167,713
shares of the registrant’s Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
TABLE OF CONTENTS
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 and supply chain, consultants, service providers, stockholders, investors and other stakeholders;
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general market and economic conditions;
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our ability to maintain and grow our business with our current
customers;
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our ability to meet the volume and service requirements of our
customers;
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industry consolidation, including acquisitions by us or our
competitors;
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capacity utilization and the efficiency of manufacturing operations;
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success in developing new products;
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timing of our new product introductions;
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new product introductions by competitors;
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the ability of competitors to more fully leverage low cost geographies
for manufacturing or distribution;
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product pricing, including the impact of currency exchange rates;
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effectiveness of sales and marketing resources and strategies;
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adequate manufacturing capacity and supply of components and
materials;
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strategic relationships with our suppliers;
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product quality and performance;
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protection of our products and brand by effective use of intellectual
property laws;
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the financial strength of our competitors;
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the outcome of any future litigation or commercial dispute;
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barriers to entry imposed by competitors with significant market
power in new markets;
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government actions throughout the world; and
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our ability to service secured debt, when due.
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Should one or more of these risks materialize
(or the consequences of such a development worsen), or should the underlying assumptions prove incorrect, actual results could
differ materially from those expected. We disclaim any intention or obligation to update publicly or revise such statements whether
as a result of new information, future events or otherwise.
There may also be other risks and uncertainties
that we are unable to identify and/or predict at this time or that we do not now expect to have a material adverse impact on our
business.
Introductory Comment
Unless otherwise indicated, any reference
to “the Company”, “our company”, “we”, “us”, or “our” refers to IIOT-OXYS,
Inc., a Nevada corporation, and as applicable to its wholly owned subsidiaries, OXYS Corporation, a Nevada corporation, and HereLab,
Inc., a Delaware corporation.
In filing the Annual Report on Form 10-K
(the “Annual Report”) at this time, we are relying upon the orders (the “Orders”) issued
by the Securities and Exchange Commission (the “SEC”) on March 4, 2020 and March 25, 2020 pursuant to Section
36 (Release Nos. 34-88318 and 34-88465) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
extending the time in which certain reports required to be filed pursuant to the Exchange Act are filed, and the Current Report
on Form 8-K we filed on March 27, 2020, pursuant to which we reported that we may be unable to file this Annual Report on a timely
basis because of the impact of COVID-19, which had and would adversely impact the ability of the individuals preparing the Annual
Report to complete such task on a timely basis. We were unable to file this Annual Report on the original due date because (i)
of the impact of COVID-19 for the reasons disclosed in the Current Report on Form 8-K filed on March 27, 2020 and (ii) management's
devoting significant time and attention to assessing and responding to the impact of COVID-19.
PART I
Item 1. 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 our 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.
On December 14, 2017, we entered into
a Share Exchange Agreement (the “HereLab SEA”) with HereLab, Inc., a Delaware corporation (“HereLab”),
and HereLab’s two shareholders pursuant to which we would acquire all the issued and outstanding shares of HereLab in exchange
for the issuance of 1,650,000 shares of our Common Stock, on a pro rata basis, to HereLab’s two shareholders. The closing
of the transaction occurred on January 11, 2018 and HereLab became our wholly-owned subsidiary.
A new management team was put into place
in 2018, which constitutes our current management team.
At the present time, we have two, wholly-owned
subsidiaries which are OXYS Corporation and HereLab, Inc., through which our operations are conducted.
General Overview
IIOT-OXYS, Inc., a Nevada corporation
(the “Company”), and OXYS, were originally established for the purposes of designing, building, testing, and
selling Edge Computing systems for the Industrial Internet. Both companies were, and presently are, early stage technology
startups that are largely pre-revenue in their development phase. HereLab is also an early-stage technology development
company. The Company received its first revenues in the last quarter of 2017, continued to realize revenues during 2018 and 2019,
and expects to realize revenue growth in 2020 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.
Our customers
have issues and they need improvements. We design a system of hardware and software, assemble, install, monitor data and apply
our algorithms to help provide the customer insights.
We use off the
shelf components, with reconfigurable hardware architecture that adapts to a wide range of customer needs and applications. We
use open source software tools, while still creating proprietary content for customers, thereby reducing software development
time and cost. The software works with the hardware to collect data from the equipment or structure that is being monitored.
We focus on developing
insights. We develop algorithms that help our customers create insights from vast data streams. The data collected is analyzed
and reports are created for the customer. From these insights, the customer can act to improve their process, product or structure.
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.
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RISK MINIMIZATION
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We use simple measurements requiring almost zero integration
– minimally invasive.
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We do not interfere with command and control of critical equipment.
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We do not physically touch machine control networks –
total isolation of networks.
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HOW WE DO IT
Our location in Cambridge, Massachusetts
is ideal since market-leading Biotech, Medtech, and Pharma multinational firms have offices or R&D centers in Cambridge or
the Greater Boston area, which gives us easier access to potential sales which, in turn, lowers out cost of sales. Additionally,
we continue to add value to structural health monitoring and smart manufacturing customers as well. We, therefore, have a range
of opportunities as we continue to expand our customer base.
Our goal is to help Biotech, Pharma, and
Medical Device companies realize the next wave of performance, productivity, and quality gains for their organizations, and become
Industry 4.0 compliant.
We have a unique value proposition in
a fast-growing worldwide multi-billion USD market, and have positioned with strategic partners for accelerated growth. We are
therefore well-poised for rapid growth in 2019 and beyond, as we execute our plans and quickly acquire additional customers.
WHAT MARKETS WE SERVE
SMART MANUFACTURING
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.
BIOTECH, PHARMACEUTICAL, AND MEDICAL
DEVICES
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.
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 world-leading research institutions. 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.
PROGRESS IN 2020
Marketing
Our marketing and sales efforts are divided
into several distinct categories:
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Working with technical partners who have larger sales forces;
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Direct business development and discussions with end use customers
by company management; and
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Trade shows and international technical, sales and marketing
meetings.
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Competition
We have two principal sources of competition.
The first comes from large companies such as 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.
Most of the IIoT implementations involve
data going from sensor to cloud. This involves sending vast amounts of data to the cloud and then processing the data there. This
requires a large computational footprint (many processors) and a large memory requirement to store the data. From our actual experience
and according to many technical experts in the field (see for example the discussion on edge data in “Structural Health
Monitoring” A Machine Learning Perspective,” by C.R. Farrar and K. Worden, John Wiley and Sons, New York, 2013), a
better approach is to use Edge Computing. Edge Computing takes the raw data, which could be MB or GB per second, and extracts
features. Features are attributes of the signal that preserve the essential physics of the signal but reduce the data density
by a very large amount (up to a factor of one million). After the feature extraction step, the data has a data rate of approximately
10KB or 100KB per second. Next comes the classification step, which further reduces data by classifying data into at least two
bins: nominal behavior or off-nominal or abnormal behavior. For example, in monitoring a machine tool in a factory, if the machine
tool is behaving normally, there is nothing to report and therefore no data needs to be sent or transferred anywhere. Only the
abnormal condition data needs to be sent along with a description of the problem. This is what Edge Computing accomplishes and
it accomplishes this right where the data is being collected using relatively small computational and memory resources (For example
our systems have a 1GHz processor and one few GB of RAM plus up to 32 GB of storage – which is less computational power
than the average smart phone.). so considering all of these technical aspects, we are able to assert that our Edge Computing process
is more efficient in terms of computational power and memory as compared to a cloud-based solution, that it only sends along the
information (not just data) that is really needed, and it can still interact with cloud based services to provide data sharing
across different platforms.
The second source of competition is from
startups who are in the edge computing space. The most prominent example is FogHorn Systems Inc. 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
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. We are an emerging growth, early-stage, technology company and,
as such, most of our expenditures are aimed at innovation and product development.
We have a technology maturation model
so that we avoid doing work on technologies that are too early and too new and belong in a pure search environment. When the technology
is ready to leave the lab, we take over the further development. Along the way we expect to file additional IP and otherwise protect
technology by using trademarks, for example.
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.
All the present projects that we are working
on internally as research and development projects will go forward, so we do not have any projects in the category of projects
that have incurred significant expense but that will not result in present or future product.
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 $71,352 in fees owed to MIT are still
owing as of the date of this Annual Report. 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.
We continue to develop
our proprietary algorithms and plan to protect them through a combination of trade secret, copyright, and patents.
Customers
Due to our status of a start-up, at the
moment, we depend on a few major customers. This should change as we implement plans for future growth.
Employees
We had one full time employee in 2019;
however, we had contractor employees (1099 basis) who were working daily on the core business activities of the business and have
been doing so since the beginning of the business formation. As of April 23, 2020, we have five employees, all on W2’s,
including the CEO, COO and CTO. All employees are currently part time.
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.
Item 1A. 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 or those
of our suppliers, 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.
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, 2018 and 2019 were prepared assuming that we would continue as a going concern. Our significant cumulative
losses from operations as of December 31, 2019, 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, 2019, we have continued to experience losses from operations. We have continued to fund operations primarily through the sale
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 partnership
with Aingura) 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.
Most of our sales come from a small
number of customers and a reduction in demand or loss of one or more of our significant customers may adversely affect our business.
At the present time, we are dependent
on a small number of direct customers for most of our business, revenue and results of operations. We at present have customers
in the civil infrastructure sector, and the pharmaceutical sector. Our customers are a state government and a large pharmaceutical
company. To date, these customers have 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. Although we believe that our relationships with our major customers are good, we generally do not
have long-term contracts with any of them, which is typical of our industry. In addition, orders can be, and often are, rescheduled,
canceled and modified with little or no notice. 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. To date we have generated
approximately $439,000_ in sales from business operations, none of which was generated from HereLab in 2019 as we focused solely
on OXYS during 2019. 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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file for bankruptcy;
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seek to sell some or all our assets; and/or
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cease our operations.
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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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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.
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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:
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General Electric with its GE Predix product for IoT;
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IBM with its IBM BlueMix and IBM IoT Watson products;
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Siemens with its MindSphere IoT product;
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Microsoft with its Microsoft Azure IoT Suite;
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FogHorn Systems;
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Tulip.io; and
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Uptake.
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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:
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global pandemics such as the COVID-19 pandemic;
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fluctuations in foreign currency exchange rates;
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changes in global economic conditions;
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changes in the mix of products sold;
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the availability and pricing of components from third parties
(especially limited sources);
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the difficulty in maintaining margins, including the higher
margins traditionally achieved in international sales;
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changes in pricing policies by us, our competitors or suppliers;
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the timing, cost or outcome of any future intellectual property
litigation or commercial disputes;
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delays in product shipments caused by human error or other factors;
or
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disruptions in transportation channels.
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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 significant 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, Karen McNemar, and Antony Coufal, 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. 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, none of which are issued and outstanding
as of the date of this Annual Report. 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 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. Preferred shares issued by our board of directors could include voting rights,
or even super voting rights, which could shift the ability to control our company to the holders of our preferred stock. 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 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.
We are an “emerging growth
company,” and will be able take advantage of reduced disclosure requirements applicable to “emerging growth companies,”
which could make our common stock less attractive to investors.
We are an “emerging growth company,”
as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act, and, for as long as we continue to be an “emerging
growth company,” we intend to take advantage of certain exemptions from various reporting requirements applicable to other
public companies but not to “emerging growth companies,” including, but not limited to, not being required to comply
with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive
compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory
vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be
an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year
in which our annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as
defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates
exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which
we have issued more than $1 billion in non-convertible debt during the preceding three year period. We cannot predict if investors
will find our common stock less attractive if we choose to rely on these exemptions. If some investors find our common stock less
attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock
and our stock price may be more volatile.
Item 1B. Unresolved
Staff Comments
Not applicable.
Item 2. Properties
We currently do not own any properties.
We entered into a lease agreement on August 1, 2017 which began on January 1, 2018 and terminated on December 31, 2018. We entered
into a new lease agreement on March 12, 2019, which began on January 1, 2019 and terminated on June 30, 2019. Pursuant to the
lease, we are obligated to pay the landlord monthly installments of $2,000 for a total lease payment of $12,000 in 2019. We secured
a 2nd lease for July – December 2019 at $2,000/ month for an additional $12,000 in 2019. As of 2020, we reduced
the amount of space required and are in negotiations to finalize the lease terms.
Item 3. Legal Proceedings
We are currently not aware of any such
legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business,
financial condition or operating results. From time to time, we may become involved in various lawsuits and legal proceedings,
which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result
in these or other matters may arise from time to time that may harm our business.
Item 4. Mine Safety
Disclosures
Not Applicable.
PART II
Item 5. Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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, 2020
|
|
|
First
|
|
|
$
|
0.1169
|
|
|
$
|
0.0022
|
|
|
|
Quarter
|
|
|
High
|
|
|
Low
|
|
FISCAL YEAR ENDED DECEMBER 31, 2019
|
|
|
First
|
|
|
$
|
0.23
|
|
|
$
|
0.071
|
|
|
|
|
Second
|
|
|
$
|
0.12
|
|
|
$
|
0.08
|
|
|
|
|
Third
|
|
|
$
|
0.26
|
|
|
$
|
0.0501
|
|
|
|
|
Fourth
|
|
|
$
|
0.15
|
|
|
$
|
0.04
|
|
|
|
Quarter
|
|
|
High
|
|
|
Low
|
|
FISCAL YEAR ENDED DECEMBER 31, 2018
|
|
|
First
|
|
|
$
|
3.00
|
|
|
$
|
1.42
|
|
|
|
|
Second
|
|
|
$
|
2.40
|
|
|
$
|
2.01
|
|
|
|
|
Third
|
|
|
$
|
2.20
|
|
|
$
|
0.55
|
|
|
|
|
Fourth
|
|
|
$
|
0.71
|
|
|
$
|
0.22
|
|
Our common stock is considered to be penny
stock under rules promulgated by the Securities and Exchange Commission (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 June 19,
2020, we had approximately 133 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 Issuer Direct, 1981 East 4800 South, Suite 100, Salt Lake City, UT
84117, to act as transfer agent for the common stock.
Dividends
We have not declared or paid any cash
dividends on our common stock during the fiscal years ended December 31, 2019 and 2018, or in any subsequent period. We do not
anticipate or contemplate paying dividends on our common stock at the present time. The only restrictions that limit the ability
to pay dividends on common equity, or that are likely to do so in the future, are those restrictions imposed by law.
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
|
|
|
1,627,532
|
|
|
$
|
0.21
|
|
|
|
1,576,454
|
(1)(2)(3)(4)
|
Total
|
|
|
1,627,532
|
|
|
$
|
0.21
|
|
|
|
1,576,454
|
|
|
(1)
|
Effective July 1, 2018, the Company issued to Sam Burke 200,000
unvested shares of the Company’s Common Stock under the 2017 Plan, as defined below. As of December 31, 2019, 50,000
shares were vested and the remaining 150,000 unvested shares were cancelled.
|
|
(2)
|
Effective April 23, 2018, the Company issued to Antony Coufal
1,800,000 unvested shares of the Company’s Common Stock under the 2017 Plan, as defined below. As of December 31, 2019,
300,000 shares were vested.
|
|
(3)
|
Effective October 1, 2018, the Company issued to Karen McNemar
2,409,000 unvested shares of the Company’s Common Stock under the 2017 Plan, as defined below. As of December 31, 2019,
409,000 shares were vested.
|
|
(4)
|
Effective June 4, 2018, the Company issued to Clifford Emmons
3,060,000 unvested shares of the Company’s Common Stock under the 2017 Plan, as defined below. As of December 31, 2019,
560,000 shares were vested.
|
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, 2019, the Board had
granted 4,409,000 shares of Common Stock 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. 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, 2019, the Board had
granted 3,514,546 shares Common Stock under the 2019 Plan.
Recent Sales of Unregistered Securities
The Company had no unreported sales of
unregistered securities in the fourth quarter of 2019.
Item 6. Selected
Financial Data
As a Smaller Reporting Company, we are
not required to furnish information under this Item 6.
Item 7. 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, 2018 and 2019 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;
|
|
·
|
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.
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.
On December 14, 2017, we entered into
a Share Exchange Agreement (the “HereLab SEA”) with HereLab, Inc., a Delaware corporation (“HereLab”),
and HereLab’s two shareholders pursuant to which we would acquire all the issued and outstanding shares of HereLab in exchange
for the issuance of 1,650,000 shares of our Common Stock, on a pro rata basis, to HereLab’s two shareholders. The closing
of the transaction occurred on January 11, 2018 and HereLab became our wholly-owned subsidiary.
A new management team was put into place
in 2018, which constitutes our current management team.
At the present time, we have two, wholly-owned
subsidiaries which are OXYS Corporation and HereLab, Inc., through which our operations are conducted.
General Overview
IIOT-OXYS, Inc., a Nevada corporation
(the “Company”), and OXYS, were originally established for the purposes of designing, building, testing, and
selling Edge Computing systems for the Industrial Internet. Both companies were, and presently are, early stage technology
startups that are largely pre-revenue in their development phase. HereLab is also an early-stage technology development
company. The Company received its first revenues in the last quarter of 2017, continued to realize revenues during 2018 and 2019,
and expects to realize revenue growth in 2020 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.
Our customers
have issues and they need improvements. We design a system of hardware and software, assemble, install, monitor data and
apply our algorithms to help provide the customer insights.
We use off
the shelf components, with reconfigurable hardware architecture that adapts to a wide range of customer needs and
applications. We use open source software tools, while still creating proprietary content for customers, thereby
reducing software development time and cost. The software works with the hardware to collect data from the equipment or
structure that is being monitored.
We focus on developing
insights. We develop algorithms that help our customers create insights from vast data streams. The data collected
is analyzed and reports are created for the customer. From these insights, the customer can act to improve their process,
product or structure.
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 requiring almost zero integration
– minimally invasive.
|
|
·
|
We do not interfere with command and control of critical equipment.
|
|
·
|
We do not physically touch machine control networks –
total isolation of networks.
|
HOW WE DO IT
Our location in Cambridge, Massachusetts
is ideal since market-leading Biotech, Medtech, and Pharma multinational firms have offices 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 add value to structural health monitoring and smart manufacturing customers as well. We, therefore, have a range
of opportunities as we continue to expand our customer base.
Our goal is to help Biotech, Pharma, and
Medical Device companies realize the next wave of performance, productivity, and quality gains for their organizations, and become
Industry 4.0 compliant.
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 2020 and beyond, as we execute our plans and acquire additional customers.
WHAT MARKETS WE SERVE
SMART MANUFACTURING
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.
BIOTECH, PHARMACEUTICAL, AND MEDICAL
DEVICES
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.
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.
Liquidity and Capital Resources
for the Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018
At December 31, 2019, we had a cash balance
of $24,212, which represents a $15,014 decrease from the $39,226 balance at December 31, 2018. This decrease was primarily the
result of cash used to satisfy the requirements of a reporting company and due to acceleration in product development activities.
Our working capital at December 31, 2019 was negative $1,609,005, as compared to a December 31, 2018 working capital of negative
$750,696.
For the year ended December 31, 2019,
we incurred a net loss of $1,887,287. Net cash used in operating activities was $325,014 for the year ended December 31, 2019.
For the year ended December 31, 2018,
we incurred a net loss of $1,613,299. Net cash used in operating activities was $521,637 for the year ended December 31, 2018.
For the year ended December 31, 2019,
financing activities consisted of $310,000 of cash received from the issuance of Convertible Notes.
For the year ended December 31, 2018,
financing activities consisted of $500,000 of cash received from the issuance of a convertible note.
The accompanying financial statements
have been prepared assuming we will continue as a going concern. As shown in the accompanying financial statements, we have incurred
losses from operations of $1,887,287 for the year ended December 31, 2019, and $1,613,299 for the year ended December 31, 2018
and has an accumulated deficiency which raises substantial doubt about our ability to continue as a going concern.
Results of Operations for the Year
Ended December 31, 2019 compared to the year ended December 31, 2018
For the year ended December 31, 2019,
we earned revenues of $147,151 and incurred related cost of sales of $38,960. We incurred professional fees of $1,807,286 and
other general and administrative expenses of $164,501. We incurred other expenses net of income of $23,690. As a result, we incurred
a net loss of $1,887,287 for the year ended December 31, 2019.
Comparatively, for the year ended December
31, 2018, we earned revenues of $224,643 and incurred related cost of sales of $135,008. We incurred professional fees of $1,152,798
and other general and administrative expenses of $259,592. We incurred other expenses net of income of $290,544. As a result,
we incurred a net loss of $1,613,299 for the year ended December 31, 2018.
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 was less
in 2019 than 2018. This was due to several reasons, including: challenges raising substantial capital and longer than anticipated
customer acquisition times. These two factors led to cash flow issues, which in turn led to additional and aging AP. All this
resulted in a difficult fourth quarter 2019, and thus the negative YoY revenue growth. Our Quarterly Report on Form 10-Q for the
period ended September 30, 2019 disclosed risks of ongoing concerns, and those concerns still exist. A counter balance to these
headwinds are the achievements in 2019: We won additional work with a Fortune 500 Pharma company and delivered solid results and
we installed and initiated monitoring of pilot bridge structural health systems for a New England state’s DOT. Despite cash
flow issues, cost cutting allowed us to weather a difficult fourth quarter 2019. The underlying strengths of the Company are still
in place: an experienced leadership team; recruitment of a PhD level Machine Learning Algorithm engineer for our technology team;
and strong execution of contracts secured. Our continued focus on high potential growth markets (specifically Biotech, Pharma,
and Medical Device Operations), have yielded numerous prospects for future growth. Furthermore, the strength of our target market,
the Industrial Internet of Things (IIoT), continues: Market research shows the worldwide IIoT market in 2017 was $92 billion and
is projected to be $227 billion by 2021 (25% CAGR).1
It is anticipated that 2020 YoY revenue
growth will meet or exceed that of 2019. This is due to the following reasons: the strength of the Aingura IIoT, S.G. collaboration
agreement, which brings financial stability, added talent breadth and depth, and complimentary industry segment experience. We
anticipate the collaboration will yield breakthroughs in new contracts with current customers, as well as new customers in all
targeted industry segments. Furthermore, recent liquidity of our stock has attracted funding opportunities, and access to additional
capital would enable funding of business development and staff augmentation. Combined with our underlying strengths: experienced
leadership; savvy technological talent, and operational execution excellence; we believe these revenue goals are achievable.
Recently Issued Accounting Standards
Management does not believe that any other
recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying
financial statements.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future material effect on our consolidated financial condition, changes
in financial condition, revenues or expenses, results of operations, liquidity capital expenditures or capital resources.
Emerging Growth Company
We are an “emerging growth company,”
as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Certain specified reduced reporting and other
regulatory requirements that are available to public companies that are emerging growth companies. These provisions include:
|
1.
|
an exemption from the auditor attestation requirement in the
assessment of our internal controls over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002;
|
|
2.
|
an exemption from the adoption of new or revised financial accounting
standards until they would apply to private companies;
|
|
3.
|
an exemption from compliance with any new requirements adopted
by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to
the auditor’s report in which the auditor would be required to provide additional information about our audit and our
financial statements; and
|
|
4.
|
reduced disclosure about our executive compensation arrangements.
|
We have elected to take advantage of the
exemption from the adoption of new or revised financial accounting standards until they would apply to private companies. As a
result of this election, our financial statements may not be comparable to public companies required to adopt these new requirements.
_______________________
1
https://www.ptc.com/-/media/Files/PDFs/IoT/State-of-IIoT-Whitepaper.pdf
Item 7A. Quantitative
And Qualitative Disclosures About Market Risk
As a Smaller Reporting Company, we are
not required to furnish information under this Item 7A.
Item 8. Financial
Statements
The financial statements and supplementary
data required by this item are included following the signature page of this report.
Item 9. Changes
in and Disagreements with Accountants on Accounting and Financial Disclosures
None.
Item 9A. Controls
and Procedures
Disclosure Controls and Procedures
We have established disclosure controls
and procedures that are designed to ensure that information required to be disclosed in reports filed or submitted under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within
the time periods specified in the rules and forms of the Securities and Exchange Commission and, as such, is accumulated and communicated
to our Chief Executive Officer and Interim Chief Financial Officer, Clifford Emmons, who serves as our principal executive officer
and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Mr. Emmons, evaluated
the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, as of December
31, 2019. Based on his evaluation, Mr. Emmons concluded that, due to a material weakness in our internal control over financial
reporting as described below, our disclosure controls and procedures were not effective as of December 31, 2019. In light of the
material weakness in internal control over financial reporting, we completed substantive procedures, including validating the
completeness and accuracy of the underlying data used for accounting prior to filing this Annual Report.
These additional procedures have allowed
us to conclude that, notwithstanding the material weakness in our internal control over financial reporting, the consolidated
financial statements included in this report fairly present, in all material respects, our financial position, results of operations
and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.
Management’s Report on Internal
Control over Financial Reporting
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Internal
control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of
the effectiveness of our internal control over financial reporting as of December 31, 2019 based upon Internal Control-Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
During its evaluation, management noted
certain matters involving internal control and its operation that we consider to be significant deficiencies or material weaknesses
under standards of the Public Company Accounting Oversight Board (“PCAOB”). A control deficiency exists when
the design or operation of a control does not allow management or employees, in the normal course of performing their assigned
functions, to prevent or detect misstatements on a timely basis.
A material weakness is a deficiency, or
a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that
a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely
basis.
We noted deficiencies involving lack of segregation of duties, lack of governance/oversight, and lack of internal control documentation
that we believe to be material weaknesses.
Because of this material weaknesses, management
concluded that we did not maintain effective internal control over financial reporting as of December 31, 2019, based on criteria
described in Internal Control – Integrated Framework (2013) issued by COSO.
Remediation of the Material Weakness
We are evaluating the material weaknesses
and developing a plan of remediation to strengthen our overall internal control over financial reporting. The remediation plan
will include the following actions:
|
·
|
Separation of corporate responsibilities, e.g. CEO, CFO, Secretary,
etc. to different key management individuals; and
|
|
·
|
Creation and adoption of a formal policy manual specifically
dealing with financial controls.
|
Due to a material weakness as disclosed
in the 2018 Annual Report on Form 10-K, we committed to the same remediation plan, as disclosed above, and were able to separate
some of the intended corporate responsibilities through the appointment of a Chief Operating Officer, in addition to a Chief Executive
Officer; however, due to lack of resources, we were unable to execute the complete remediation plan.
We are committed to maintaining a strong
internal control environment and we believe that these remediation efforts will represent significant improvements in our controls.
We have started to implement these steps, as disclosed above; however, some of these steps will take time to be fully integrated
and confirmed to be effective and sustainable. Additional controls may also be required over time. Until the remediation steps
set forth above are fully implemented and tested, the material weakness described above will continue to exist.
Changes in Internal Control over
Financial Reporting
There has been no change in our internal
control over financial reporting, as defined in Rules 13a-15(f) of the Exchange Act, during our most recent fiscal quarter ended
December 31, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
Item 9B. Other
Information
None.
PART III
Item 10. 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 Financial Officer
|
|
58
|
Karen McNemar
|
|
Chief Operating Officer
|
|
51
|
Antony Coufal
|
|
Chief Technology Officer and President of HereLab
|
|
43
|
|
|
|
|
|
Directors:
|
|
|
|
|
Clifford L. Emmons
|
|
Director
|
|
58
|
Vidhyadhar Mitta
|
|
Director
|
|
47
|
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, Interim Chief Financial Officer, and director since June 4, 2018. 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. 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.
Antony Coufal: Mr. Coufal has served
as our Chief Technology Officer since April 23, 2018. From December 2008 to December 2017, Mr. Coufal served as the Chief Executive
Officer of INTEX Corp., a telecommunications contractor. Mr. Coufal is a multicultural leader with
strong business acumen and diverse technical skills who has 20+ years of experience launching several successful technology focused
corporations serving government, Fortune 500, and global entities requiring innovative solutions in engineering, construction,
intelligent security, IT & telecom, industrial electrical and HVAC in numerous US and LATAM markets. He is a graduate of Rensselaer
Polytechnic Institute with degrees in Engineering Sciences and Business Administration.
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.
Compliance with Section 16(a) of
the Securities Exchange Act of 1934
The following table identifies each person
who, at any time during the fiscal year ended December 31, 2019, was a director, executive officer, or beneficial owner of more
than 10% of our common stock that failed to file on a timely basis reports required by Section 16(a) of the Exchange Act during
the most recent fiscal year:
Name
|
|
Number
of Late Reports
|
|
Number
of Transactions Not Reported on a Timely Basis
|
|
Reports
Not Filed
|
|
Clifford L. Emmons
|
|
1
|
|
1
|
|
0
|
|
Vidhyadhar Mitta
|
|
1
|
|
1
|
|
0
|
|
Code of Ethics
On March 9, 2018, the Board of Directors
adopted a Code of Ethics (the “Code”). The purpose of the Code of Ethics is to deter wrongdoing and to promote:
|
·
|
honest and ethical conduct;
|
|
·
|
full, fair, accurate, timely, and understandable disclosure
in reports and documents that a registrant files with, or submits to, the SEC and in other public communications made by the
Company;
|
|
·
|
avoidance and ethical handling of actual or apparent conflicts
of interest, including disclosure to an appropriate person of any material transaction or relationship that reasonably could
be expected to give rise to such a conflict;
|
|
·
|
confidentiality of corporate information;
|
|
·
|
protection and proper use of corporate assets and opportunities;
|
|
·
|
compliance with applicable governmental laws, rules, and regulations;
|
|
·
|
prompt internal reporting of any violations of this Code to
an appropriate person; and
|
|
·
|
accountability for adherence to the Code.
|
The Code of Ethics applies to all directors,
officers, and employees of the Company and its subsidiaries, including, but not limited to, the Company’s principal executive
officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The
Code of Ethics is available at www.oxyscorp.com and is included as an exhibit to this Annual Report. The Company will provide
any person, without charge and upon request through our website, a copy of the Code of Ethics.
Item 11. Executive
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, 2019 and 2018.
Summary Compensation Table
Name and
principal position
|
|
Year
|
|
Salary
($)
|
|
Stock
Awards
($)
|
|
Total
($)
|
Clifford Emmons(1)
|
|
2019
|
|
180,000(2)
|
|
228,871(3)
|
|
408,871
|
|
|
|
2018
|
|
151,283(4)
|
|
179,409(5)
|
|
330,692
|
|
Antony Coufal(6)
|
|
2019
|
|
112,500(7)
|
|
134,630(8)
|
|
247,130
|
|
|
|
2018
|
|
92,903
|
|
135,617(9)
|
|
228,520
|
|
Karen McNemar(10)
|
|
2019
|
|
153,000(11)
|
|
180,180(12)
|
|
333,180
|
|
|
|
2018
|
|
55,541(13)
|
|
60,720(14)
|
|
116,261
|
|
|
(1)
|
Mr. Emmons was appointed as our CEO, President,
and interim CFO on June 4, 2018.
|
|
(2)
|
Effective December 31, 2019, Mr. Emmons forgave
$185,000 of accrued and unpaid consulting fees. As of December 31, 2019, Mr. Emmons was owed $100,000 in accrued and unpaid
consulting fees and $17,001 in reimbursable expenses.
|
|
(3)
|
On June 4, 2019, 560,000 shares of Common
Stock previously granted to Mr. Emmons vested.
|
|
(4)
|
$46,283 of Mr. Emmons’ salary for 2018
was owed to Accelerated Healthcare Innovations LLC, a limited liability company owned by Mr. Emmons.
|
|
(5)
|
Represents shares which have been granted
but were unvested at December 31, 2018.
|
|
(6)
|
Mr. Coufal was appointed as our CTO on April
23, 2018.
|
|
(7)
|
Effective December 31, 2019, Mr. Coufal forgave
$82,475 of accrued and unpaid consulting fees. As of December 31, 2019, Mr. Coufal was owed $100,000 in accrued and unpaid
consulting fees and $8,225 in reimbursable expenses.
|
|
(8)
|
On April 23, 2019, 300,000 shares of Common
Stock previously granted to Mr. Coufal vested.
|
|
(9)
|
Represents shares which have been granted
but were unvested at December 31, 2018.
|
|
(10)
|
Ms. McNemar was appointed as our COO effective
as of September 20, 2018.
|
|
(11)
|
Effective December 31, 2019, Ms. McNemar forgave
$103,250 of accrued and unpaid consulting fees. As of December 31, 2019, Ms. McNemar was owed $100,000 in accrued and unpaid
consulting fees and $18,000 in reimbursable expenses.
|
|
(12)
|
On October 1, 2019, 409,000 shares of Common
Stock previously granted to Ms. McNemar vested.
|
|
(13)
|
$52,479 of Ms. McNemar’s salary for
2018 was accrued and unpaid.
|
|
(14)
|
Represents shares which have been granted
but were unvested at December 31, 2018.
|
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.
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.
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.
Debt Forgiveness Agreements
On June 11, 2020, the Company entered
into Debt Forgiveness Agreements with Cliff Emmons, Karen McNemar, and Antony Coufal, 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;
|
|
·
|
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; and
|
|
·
|
Mr.
Coufal forgave $82,475 of accrued and unpaid consulting fees owed to him pursuant to
his consulting agreement with the Company.
|
Equity Awards
The following table sets forth information
concerning as of the year ended December 31, 2019 for our named executive officers.
Outstanding Equity Awards at Fiscal
Year-End
|
|
Stock
awards
|
Name
|
|
Number of
shares or units of stock that have not vested
(#)
|
|
Market value
of shares of units of stock that have not vested
($)
|
|
Equity
incentive
plan awards: Number of
unearned
shares, units or other rights that have not vested
(#)
|
|
Equity
incentive
plan awards: Market or payout value of
unearned
shares, units or other rights that have not vested
($)
|
Clifford Emmons
|
|
2,500,000
|
|
750,000(1)
|
|
2,500,000
|
|
750,000
|
Antony Coufal
|
|
1,500,000
|
|
450,000(1)
|
|
1,500,000
|
|
450,000
|
Karen McNemar
|
|
2,000,000
|
|
600,000(1)
|
|
2,000,000
|
|
600,000
|
|
(1)
|
The
fair market value was deemed $0.30 per share.
|
Compensation of Directors
The following table sets forth information
concerning the compensation awarded to, earned by, or paid to the following directors for all services rendered in all capacities
to our company and its subsidiaries for the year ended December 31, 2019. Except for Mr. Emmons (whose compensation is disclosed
above), this table includes any person who served as a director at any time during fiscal 2019.
Except as described below, we have not
entered into any employment or compensation agreements or arrangements with Mr. Mitta for his services as a director of our company.
Director Compensation
Name
|
|
Fees earned or paid in cash
($)
|
|
Total
($)
|
Vidhyadhar Mitta
|
|
0
|
|
0
|
|
Item 12. 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. In calculating
any percentage in the following table of common stock beneficially owned by one or more persons named therein, the following table
assumes 135,167,713 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 table 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
|
|
|
20,117,491
|
(2)
|
|
|
13.09%
|
|
Antony Coufal
|
|
|
9,608,658
|
(3)
|
|
|
6.68%
|
|
Karen McNemar
|
|
|
9,204,265
|
(4)
|
|
|
6.39%
|
|
Vidhyadhar Mitta
|
|
|
25,130,926
|
(5)
|
|
|
15.85%
|
|
Executive Officers, Named Executive Officers, and Directors as
a Group (4 Persons)
|
|
|
64,061,340
|
|
|
|
32.92%
|
|
*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 date of
this Annual Report.
|
|
(2)
|
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 9,812,166 shares issuable
upon the conversion of a note issued to Cambridge MedSpace LLC. Lastly, includes 8,708,658 shares of Common Stock issuable
upon the conversion of $104,777 in accrued and unpaid salary.
|
|
(3)
|
Includes 8,708,658 shares of Common Stock
issuable upon the conversion of $104,777 in accrued and unpaid salary.
|
|
(4)
|
Includes 8,795,265 shares of Common Stock
issuable upon the conversion of $105,819 in accrued and unpaid salary.
|
|
(5)
|
Includes 781,250 shares issuable upon the
exercise of warrants. Also includes 22,612,833 shares issuable upon the conversion of a note issued to Mr. Vidhyadhar.
|
Item 13. Certain
Relationships and Related Transactions, and Director Independence
Certain Relationships and Related
Transactions
For transactions with our executive officers,
please see the disclosure under “Item 11. Executive Compensation.” above.
Accelerated Healthcare Consulting Agreement
On December 1, 2017, we entered into a
Consulting Agreement with Accelerated Healthcare Innovations LLC, a company owned by Clifford Emmons (“AHI”),
our current CEO and Director pursuant to which we agreed to pay to AHI a flat fee of $24,000 and 30,000 shares of our Common Stock
in exchange for consulting services to be provided by AHI. The term of the agreement is until the completion of the Services,
as defined in the agreement or until early termination upon 10 days’ written notice given by either party.
On July 31, 2018, we entered into Amendment
No. 1 to Consulting Agreement dated December 1, 2017 with AHI which changed the fee from a flat fee to an hourly fee not to exceed
$24,000 in the aggregate and also eliminated the obligation of the Company to issue to the Consultant any equity compensation
pursuant to the agreement.
On March 1, 2018, we entered into a Consulting
Agreement with AHI. The term of the agreement is until the completion of the Services, as defined in the agreement or until early
termination upon 10 days’ written notice given by either party. Pursuant to the agreement, the consultant agreed to provide
business consulting services to us in exchange for a flat fee of $48,000 and the issuance of 60,000 shares of our Common Stock.
On July 31, 2018, we entered into Amendment
No. 1 to Consulting Agreement dated March 1, 2018 with Accelerated Healthcare Innovations LLC which changed the fee from a flat
fee to an hourly fee not to exceed $48,000 in the aggregate and also eliminated the obligation of the Company to issue to the
Consultant any equity compensation pursuant to the agreement.
On July 31, 2018, we entered into the
Termination Agreement with Accelerated Healthcare Innovations LLC which terminated the Consulting Agreement, as amended, dated
March 1, 2018 effective June 4, 2018.
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 is 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
note matures 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
is 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 Emmons, our Chief Executive Officer, Interim Chief Financial Officer, and director.
On June 12, 2020, the Company entered
into Amendment No. 1 to the 5% Secured Convertible Note with Cambridge MedSpace pursuant to which the note was amended to extend
the maturity date to January 22, 2021.
Due to adjustments to the conversion price
of the note, the conversion price is currently $0.006.
Vidhyadhar 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 is 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 will be made on a quarterly basis. The note matures 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 is immediately exercisable at $0.12 per share
and expires on August 2, 2024.
Due to adjustments to the conversion price
of the note, the conversion price is currently $0.006.
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.
Item 14. Principal
Accountant Fees and Services
Fees Paid
Audit Fees
The aggregate fees billed for professional
services rendered by our principal accountants for the audit of our annual financial statements, review of financial statements
included in the quarterly reports and other fees that are normally provided by the accountant in connection with statutory and
regulatory filings or engagements for the year ended December 31, 2019 were $31,520 and $59,109 for the period ended December
31, 2018.
Audit-Related Fees
There were no fees billed for assurance
and related services by our principal accountants that are reasonably related to the performance of the audit or review of the
financial statements, other than those reported above, for the years ended December 31, 2018 and 2019.
Tax Fees
There were no fees billed for professional
services rendered by our principal accountants for tax compliance, tax advice and tax planning in the years ended December 31,
2019 and 2018.
All Other Fees
There were no other fees billed for products
or services provided by the principal accountants, other than those previously reported above, for the years ended December 31,
2019 and 2018.
Audit Committee
We do not have an Audit Committee; therefore,
the Board of Directors has considered whether the non-audit services provided by our auditors to us are compatible with maintaining
the independence of our auditors and concluded that the independence of our auditors is not compromised by the provision of such
services. Our Board of Directors pre-approves all auditing services and permitted non-audit services, including the fees and terms
of those services, to be performed for us by our independent auditor prior to engagement.
PART IV
Item 15. Exhibits,
Financial Statement Schedules
Financial Statements
The following financial statements are
filed with this Annual Report:
Report of Independent Registered
Public Accounting Firm
Balance Sheets at
December 31, 2019 and 2018
Statements of Operations for
the years ended December 31, 2019 and 2018
Statements of Changes in Stockholders’
Deficit for the years ended December 31, 2019 and 2018
Statements of Cash Flows for
the years ended December 31, 2019 and 2018
Notes to Financial
Statements
Exhibits
The following exhibits are included with
this report:
Incorporated
by Reference
|
|
|
|
Exhibit
Number
|
|
Exhibit Description
|
|
Form
|
|
File
No.
|
|
Exhibit
|
|
Filing
Date
|
|
Filed
Here-
with
|
2.1 & 10.1
|
|
Securities
Exchange Agreement dated March 16, 2017, by and among Gotham Capital Holdings, Inc., OXYS Corp. and the Shareholders of OXYS
Corp.
|
|
8-K
|
|
000-50773
|
|
2.1
|
|
8/3/17
|
|
|
2.2 & 10.2
|
|
Agreement
and Plan of Merger dated July 10, 2017
|
|
8-K
|
|
000-50773
|
|
2.1
|
|
11/1/17
|
|
|
2.3 & 10.3
|
|
Securities
Exchange Agreement dated December 14, 2017, with HereLab, Inc.
|
|
8-K
|
|
000-50773
|
|
2.1
|
|
12/19/17
|
|
|
3.1
|
|
Nevada
Articles of Incorporation for IIOT-OXYS, Inc.
|
|
8-K
|
|
000-50773
|
|
3.1
|
|
11/1/17
|
|
|
3.2
|
|
Bylaws
for IIOT-OXYS, Inc.
|
|
8-K
|
|
000-50773
|
|
3.2
|
|
11/1/17
|
|
|
3.3
|
|
Nevada
Articles of Merger dated July 14, 2017
|
|
8-K
|
|
000-50773
|
|
3.3
|
|
11/1/17
|
|
|
3.4
|
|
New
Jersey Certificate of Merger dated October 26, 2017
|
|
8-K
|
|
000-50773
|
|
3.4
|
|
11/1/17
|
|
|
3.5
|
|
Articles
of Exchange
|
|
8-K
|
|
000-50773
|
|
2.1
|
|
1/12/18
|
|
|
4.1 & 10.4*
|
|
2017
Stock Incentive Plan
|
|
8-K
|
|
000-50773
|
|
4.1
|
|
12/19/17
|
|
|
4.2 & 10.5*
|
|
2019
Stock Incentive Plan
|
|
8-K
|
|
000-50773
|
|
4.1
|
|
3/12/19
|
|
|
10.6
|
|
Non-Exclusive
Patent License Agreement with MIT dated February 5, 2018
|
|
10-K
|
|
000-50773
|
|
10.7
|
|
4/17/18
|
|
|
10.7
|
|
Form
of 12% Senior Secured Convertible Note
|
|
8-K
|
|
000-50773
|
|
99.1
|
|
2/13/18
|
|
|
10.8
|
|
Form
of Securities Purchase Agreement
|
|
8-K
|
|
000-50773
|
|
99.2
|
|
2/13/18
|
|
|
10.9
|
|
Form
of Security and Pledge Agreement
|
|
8-K
|
|
000-50773
|
|
99.3
|
|
2/13/18
|
|
|
10.10
|
|
Form
of Warrant
|
|
8-K
|
|
000-50773
|
|
99.4
|
|
2/13/18
|
|
|
10.11
|
|
Amendment
No. 1 to the 12% Senior Secured Convertible Promissory Note Issued to Sergey Gogin on January 22, 2018
|
|
8-K
|
|
000-50773
|
|
99.3
|
|
3/12/19
|
|
|
10.12
|
|
Amendment
No. 1 to the Warrant Agreement Issued to Sergey Gogin on January 22, 2018
|
|
8-K
|
|
000-50773
|
|
99.4
|
|
3/12/19
|
|
|
10.13
|
|
Form
of 12% Senior Secured Convertible Note
|
|
8-K
|
|
000-50773
|
|
99.5
|
|
3/12/19
|
|
|
10.14
|
|
Form
of Securities Purchase Agreement
|
|
8-K
|
|
000-50773
|
|
99.6
|
|
3/12/19
|
|
|
10.15
|
|
Form
of Security and Pledge Agreement
|
|
8-K
|
|
000-50773
|
|
99.7
|
|
3/12/19
|
|
|
10.16
|
|
Form
of Warrant
|
|
8-K
|
|
000-50773
|
|
99.8
|
|
3/12/19
|
|
|
10.17*
|
|
Amended
and Restated Consulting Agreement with Antony Coufal dated effective April 23, 2018
|
|
8-K
|
|
000-50773
|
|
99.11
|
|
3/12/19
|
|
|
10.18*
|
|
Consulting
Agreement with Clifford Emmons dated effective June 4, 2018
|
|
8-K
|
|
000-50773
|
|
99.9
|
|
3/12/19
|
|
|
10.19*
|
|
Consulting
Agreement with Karen McNemar dated effective October 1, 2018
|
|
8-K
|
|
000-50773
|
|
99.10
|
|
3/12/19
|
|
|
10.20*
|
|
Amendment
No. 1 to the Consulting Agreement with Karen McNemar dated October 5, 2018
|
|
8-K
|
|
000-50773
|
|
99.1
|
|
10/11/18
|
|
|
10.21
|
|
Financial
Consulting Agreement with Draco Financial LLC dated effective March 4, 2019
|
|
8-K
|
|
000-50773
|
|
99.2
|
|
3/12/19
|
|
|
10.22
|
|
Securities
Purchase Agreement with Cambridge MedSpace, LLC dated January 22, 2019
|
|
8-K
|
|
000-50773
|
|
99.1
|
|
1/23/19
|
|
|
10.23
|
|
5%
Convertible Secured Note with Cambridge MedSpace, LLC dated January 22, 2019
|
|
8-K
|
|
000-50773
|
|
99.2
|
|
1/23/19
|
|
|
10.24
|
|
Security
Agreement with Cambridge MedSpace, LLC dated January 22, 2019
|
|
8-K
|
|
000-50773
|
|
99.3
|
|
1/23/19
|
|
|
10.25
|
|
Warrant
Agreement with Cambridge MedSpace, LLC dated January 22, 2019
|
|
8-K
|
|
000-50773
|
|
99.4
|
|
1/23/19
|
|
|
10.26
|
|
Strategic
Advisory Agreement with Uptick Capital LLC dated January 10, 2019
|
|
8-K
|
|
000-50773
|
|
99.1
|
|
1/14/19
|
|
|
10.27
|
|
Securities
Purchase Agreement with Vidhyadhar Mitta dated August 2, 2019
|
|
8-K
|
|
000-50773
|
|
99.1
|
|
8/8/19
|
|
|
10.28
|
|
12%
Convertible Secured Note with Vidhyadhar Mitta dated August 2, 2019
|
|
8-K
|
|
000-50773
|
|
99.2
|
|
8/8/19
|
|
|
10.29
|
|
Security
Agreement with Vidhyadhar Mitta dated August 2, 2019
|
|
8-K
|
|
000-50773
|
|
99.3
|
|
8/8/19
|
|
|
10.30
|
|
Warrant
Agreement with Vidhyadhar Mitta dated August 2, 2019
|
|
8-K
|
|
000-50773
|
|
99.4
|
|
8/8/19
|
|
|
10.31
|
|
Warrant Agreement with Vidhyadhar Mitta dated September 6, 2019
|
|
|
|
|
|
|
|
|
|
X
|
10.32
|
|
Warrant Agreement with Vidhyadhar Mitta dated October 16, 2019
|
|
|
|
|
|
|
|
|
|
X
|
10.33
|
|
Advisory
Agreement with ThinkEquity dated August 7, 2019
|
|
8-K
|
|
000-50773
|
|
99.5
|
|
8/8/19
|
|
|
10.34
|
|
Securities
Purchase Agreement with Crown Bridge Partners, LLC dated August 29, 2019
|
|
8-K
|
|
000-50773
|
|
99.1
|
|
9/10/19
|
|
|
10.35
|
|
12%
Convertible Secured Note with Crown Bridge Partners, LLC dated August 29, 2019
|
|
8-K
|
|
000-50773
|
|
99.2
|
|
9/10/19
|
|
|
10.36
|
|
Warrant
Agreement with Crown Bridge Partners, LLC dated August 29, 2019
|
|
8-K
|
|
000-50773
|
|
99.3
|
|
9/10/19
|
|
|
10.37
|
|
Financial
Public Relations Agreement dated September 6, 2019 with SmallCapVoice.com
|
|
8-K
|
|
000-50773
|
|
99.4
|
|
9/10/19
|
|
|
14.1
|
|
Code
of Ethics
|
|
10-K
|
|
000-50773
|
|
14.1
|
|
4/17/18
|
|
|
16.1
|
|
Letter
from Pritchett Siler & Hardy, P.C. Dated January 19, 2018 Regarding Change in Certifying Accountant
|
|
8-K
|
|
000-50773
|
|
16.1
|
|
1/19/18
|
|
|
21.1
|
|
List
of Subsidiaries
|
|
10-K
|
|
000-50773
|
|
21.1
|
|
4/17/18
|
|
|
23.1
|
|
Consent
of Haynie & Company, independent registered public accounting firm
|
|
S-1/A
|
|
333-222311
|
|
23.1
|
|
4/29/19
|
|
|
23.2
|
|
Consent
of Attorney
|
|
S-1/A
|
|
333-222311
|
|
23.2
|
|
4/29/19
|
|
|
31.1
|
|
Rule 13a-14(a) Certification by Principal Executive
Officer
|
|
|
|
|
|
|
|
|
|
X
|
32.1
|
|
Section 1350 Certification of Principal Executive
Officer
|
|
|
|
|
|
|
|
|
|
X
|
101.INS
|
|
XBRL Instance Document
|
|
|
|
|
|
|
|
|
|
X
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
|
|
|
|
|
|
X
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
|
|
|
|
|
|
|
X
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
|
|
|
|
|
|
X
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase
Document
|
|
|
|
|
|
|
|
|
|
X
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
|
|
|
|
|
|
|
|
X
|
*Management contract or compensatory plan
or arrangement.
Item 16. Form 10-K
Summary
None.
SIGNATURE PAGE FOLLOWS
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
IIOT-OXYS, INC.
|
|
|
|
|
|
|
Date: June 22, 2020
|
By:
|
/s/ Clifford L. Emmons
|
|
|
Clifford L. Emmons, Chief Executive Officer and Interim Chief
Financial Officer
|
|
|
(Principal Executive Officer and Principal Financial Officer)
|
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
NAME
|
|
TITLE
|
|
DATE
|
|
|
|
|
|
/s/ Clifford L. Emmons
|
|
Director
|
|
June 22, 2020
|
Clifford L. Emmons
|
|
|
|
|
|
|
|
|
|
/s/ Vidhyadhar Mitta
|
|
Director
|
|
June 22, 2020
|
Vidhyadhar Mitta
|
|
|
|
|
INDEX TO FINANCIAL
STATEMENTS
|
|
Page
|
Report of Independent Registered Public Accounting Firm
|
|
F-2
|
|
|
|
Balance Sheets at December 31, 2019 and 2018
|
|
F-3
|
|
|
|
Statements of Operations for the years ended December 31, 2019 and 2018
|
|
F-4
|
|
|
|
Statements of Changes in Stockholders’ Deficit for the years ended December
31, 2019 and 2018
|
|
F-5
|
|
|
|
Statements of Cash Flows for the years ended December 31, 2019 and 2018
|
|
F-6
|
|
|
|
Notes to Financial Statements
|
|
F-7
|
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, 2019 and 2018, 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, 2019, and
the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly,
in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations
and its cash flows for each of the years in the two-year period ended December 31, 2019, in conformity with accounting principles
generally accepted in the United States of America.
Consideration of the Company’s
Ability to Continue as a Going Concern
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2 to the financial statements,
the Company has incurred net losses since inception and has negative cash flows from operations. These factors raise substantial
doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are
also described in Note 2 to the financial statements. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required
to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/ Haynie & Company
Haynie & Company
Salt Lake City, Utah
June 22, 2020
We have served as the Company’s auditor
since 2018.
IIOT-OXYS, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
As of December 31, 2019 and December 31, 2018
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
24,212
|
|
|
$
|
39,226
|
|
Accounts Receivable, net
|
|
|
28,004
|
|
|
|
33,000
|
|
Prepaid Expense
|
|
|
3,710
|
|
|
|
4,452
|
|
Inventory
|
|
|
–
|
|
|
|
317
|
|
Total Current Assets
|
|
|
55,926
|
|
|
|
76,995
|
|
|
|
|
|
|
|
|
|
|
Intangible Assets, net
|
|
|
397,492
|
|
|
|
446,992
|
|
Total Assets
|
|
$
|
453,418
|
|
|
$
|
523,987
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' (Deficit) Equity
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Shares Payable to Related Parties
|
|
$
|
1,102,645
|
|
|
$
|
449,729
|
|
Salaries Payable to Related Parties
|
|
|
343,227
|
|
|
|
231,674
|
|
Accounts Payable
|
|
|
164,562
|
|
|
|
146,288
|
|
Accrued Liabilities
|
|
|
54,497
|
|
|
|
–
|
|
Total Current Liabilities
|
|
|
1,664,931
|
|
|
|
827,691
|
|
|
|
|
|
|
|
|
|
|
Notes Payable, net
|
|
|
706,508
|
|
|
|
234,932
|
|
Due to Stockholder
|
|
|
1,000
|
|
|
|
1,000
|
|
Total Liabilities
|
|
|
2,372,439
|
|
|
|
1,063,623
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' (Deficit) Equity
|
|
|
|
|
|
|
|
|
Preferred stock $0.001 par value, 10,000,000 shares authorized; 0 issued and outstanding
|
|
|
–
|
|
|
|
–
|
|
Common stock $0.001 par value, 190,000,000 shares authorized; 43,313,547 and 40,633,327 shares issued and outstanding, respectively
|
|
|
43,314
|
|
|
|
40,633
|
|
Additional Paid-in Capital
|
|
|
3,077,972
|
|
|
|
2,572,751
|
|
Accumulated Deficit
|
|
|
(5,040,307
|
)
|
|
|
(3,153,020
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Deficit
|
|
|
(1,919,021
|
)
|
|
|
(539,636
|
)
|
Total Liabilities and Stockholders' Deficit
|
|
$
|
453,418
|
|
|
$
|
523,987
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to audited condensed
consolidated financial statements.
IIOT-OXYS, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
For the Years Ended December 31, 2019 and
2018
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Revenues
|
|
|
|
|
|
|
Sales
|
|
$
|
147,151
|
|
|
$
|
224,643
|
|
Cost of Sales
|
|
|
38,960
|
|
|
|
135,008
|
|
Gross Profit
|
|
|
108,191
|
|
|
|
89,635
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
Demo Parts
|
|
|
570
|
|
|
|
3,217
|
|
Bank Service Charges
|
|
|
3,467
|
|
|
|
718
|
|
Office Expenses
|
|
|
34,650
|
|
|
|
38,279
|
|
Organization Costs
|
|
|
19,997
|
|
|
|
22,930
|
|
Insurance
|
|
|
17,268
|
|
|
|
24,518
|
|
Professional
|
|
|
1,807,286
|
|
|
|
1,152,798
|
|
Travel
|
|
|
32,684
|
|
|
|
15,645
|
|
Patent License Fee
|
|
|
6,363
|
|
|
|
106,065
|
|
Amortization of Intangible Assets
|
|
|
49,500
|
|
|
|
48,220
|
|
Total Expenses
|
|
|
1,971,787
|
|
|
|
1,412,390
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
Gain on Forgiveness of Salaries Payable to Related Parties
|
|
|
370,725
|
|
|
|
–
|
|
Loss on Extinguishment of Debt
|
|
|
(221,232
|
)
|
|
|
–
|
|
Interest Expense
|
|
|
(173,183
|
)
|
|
|
(291,729
|
)
|
Miscellaneous Income
|
|
|
–
|
|
|
|
1,185
|
|
Total Other Income (Expense)
|
|
|
(23,690
|
)
|
|
|
(290,544
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss Before Income Taxes
|
|
$
|
(1,887,287
|
)
|
|
$
|
(1,613,299
|
)
|
|
|
|
|
|
|
|
|
|
Loss per Common Share
|
|
$
|
(0.04
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares Outstanding - Basic and Diluted
|
|
|
42,334,210
|
|
|
|
40,601,683
|
|
See accompanying notes to audited condensed
consolidated financial statements.
IIOT-OXYS, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity (Deficit)
For the Years Ended December 31, 2019 and 2018
|
|
Common
Stock
|
|
|
Additional
Paid-In Capital
|
|
|
Accumulated
Deficit
|
|
|
Total
Stockholders' Equity (Deficit)
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2017
|
|
|
38,983,327
|
|
|
|
38,983
|
|
|
|
1,579,401
|
|
|
|
(1,539,721
|
)
|
|
|
78,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of HereLab
|
|
|
1,650,000
|
|
|
|
1,650
|
|
|
|
493,350
|
|
|
|
–
|
|
|
|
495,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial conversion feature discount on note
payable
|
|
|
–
|
|
|
|
–
|
|
|
|
500,000
|
|
|
|
–
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(1,613,299
|
)
|
|
|
(1,613,299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2018
|
|
|
40,633,327
|
|
|
$
|
40,633
|
|
|
$
|
2,572,751
|
|
|
$
|
(3,153,020
|
)
|
|
$
|
(539,636
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
2,680,220
|
|
|
|
2,680
|
|
|
|
351,680
|
|
|
|
–
|
|
|
|
354,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount on notes payable
|
|
|
–
|
|
|
|
–
|
|
|
|
153,541
|
|
|
|
–
|
|
|
|
153,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(1,887,287
|
)
|
|
|
(1,887,287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2019
|
|
|
43,313,547
|
|
|
$
|
43,314
|
|
|
$
|
3,077,972
|
|
|
$
|
(5,040,307
|
)
|
|
$
|
(1,919,021
|
)
|
See accompanying notes to audited condensed
consolidated financial statements.
IIOT-OXYS, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Years Ended September 30, 2019 and
2018
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(1,887,287
|
)
|
|
$
|
(1,613,299
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash (used) by operating activities:
|
|
|
|
|
|
|
|
|
Loss on Extinguishment of Debt
|
|
|
221,232
|
|
|
|
–
|
|
Stock Based Compensation
|
|
|
354,360
|
|
|
|
449,729
|
|
Acquisition of Net Assets
|
|
|
–
|
|
|
|
(212
|
)
|
Amortization of Discount on Notes Payable
|
|
|
93,886
|
|
|
|
234,932
|
|
Amortization of Intangible Assets
|
|
|
49,500
|
|
|
|
48,220
|
|
Forgiveness of Salaries Payable to Related Parties
|
|
|
(370,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase) Decrease in:
|
|
|
|
|
|
|
|
|
Accounts Receivable
|
|
|
4,996
|
|
|
|
6,800
|
|
Inventory
|
|
|
317
|
|
|
|
(317
|
)
|
Prepaid Expense
|
|
|
742
|
|
|
|
10,326
|
|
Escrow
|
|
|
–
|
|
|
|
1,782
|
|
Licensing Agreement
|
|
|
–
|
|
|
|
1,000
|
|
Increase (Decrease) in:
|
|
|
|
|
|
|
|
|
Shares Payable to Related Parties
|
|
|
652,916
|
|
|
|
–
|
|
Salaries Payable to Related Parties
|
|
|
482,278
|
|
|
|
|
|
Accounts Payable
|
|
|
18,274
|
|
|
|
339,402
|
|
Accrued Liabilities
|
|
|
54,497
|
|
|
|
–
|
|
Net Cash Used by Operating Activities
|
|
|
(325,014
|
)
|
|
|
(521,637
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Cash Received from Convertible Note Payable
|
|
|
310,000
|
|
|
|
500,000
|
|
Net Cash Provided by Financing Activities
|
|
|
310,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
Net Decrease in Cash and Cash Equivalents
|
|
|
(15,014
|
)
|
|
|
(21,637
|
)
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at Beginning of Period
|
|
|
39,226
|
|
|
|
60,863
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period
|
|
$
|
24,212
|
|
|
$
|
39,226
|
|
|
|
|
|
|
|
|
447,947
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid during the period
|
|
$
|
53,367
|
|
|
$
|
56,797
|
|
Taxes paid during the period
|
|
$
|
–
|
|
|
$
|
–
|
|
Supplemental disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Fair value of shares issued in acquisition of subsidiary
|
|
$
|
–
|
|
|
$
|
495,000
|
|
Fair value of intangible assets received in acquisition of subsidiary
|
|
$
|
–
|
|
|
$
|
495,212
|
|
Discount on notes payable
|
|
$
|
153,541
|
|
|
$
|
–
|
|
See accompanying notes to audited condensed
consolidated financial statements.
IIOT-OXYS, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2019
1. NATURE OF OPERATIONS
The Company was only recently formed and
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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The Company's financial statements are
prepared on the accrual method of accounting. The accounting and reporting policies of the Company conform with generally accepted
accounting principles (“GAAP”).
Principles of Consolidation
The consolidated financial statements for
December 31, 2019 include the accounts of IIOT-OXYS, Inc., OXYS Corporation, and HereLab, Inc. All significant intercompany balances
and transactions have been eliminated.
The consolidated financial statements for
December 31, 2018 include the accounts of IIOT-OXYS, Inc., OXYS Corporation, and HereLab, Inc. as of the closing date of the acquisition
agreement dated January 11, 2018. All significant intercompany balances and transactions have been eliminated.
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, using the modified
retrospective method, which was elected to apply to all active contracts as of the adoption date. Application of the modified retrospective
method did not impact amounts previously reported by the Company, nor did it require a cumulative effect adjustment upon adoption,
as the Company's method of recognizing revenue under ASC 606 yielded similar results to the method utilized immediately prior to
adoption. Accordingly, there was no effect to each financial statement line item as a result of applying the new revenue standard.
According to ASC 606, the Company recognizes
revenue based on the following criteria:
|
·
|
Identification of a contract or contracts, with a customer.
|
|
·
|
Identification of the performance obligations in the contract.
|
|
·
|
Determination of contract price.
|
|
·
|
Allocation of transaction price to the performance obligation.
|
|
·
|
Recognition of revenue when, or as, performance obligation is satisfied.
|
The Company used a practical expedient
available under ASC 606-10-65-1(f)4 that permits it to consider the aggregate effect of all contract modifications that occurred
before the beginning of the earliest period presented when identifying satisfied and unsatisfied performance obligations, transaction
price, and allocating the transaction price to the satisfied and unsatisfied performance obligations.
The Company has elected to treat shipping
and handling activities as cost of sales. Additionally, the Company has elected to record revenue net of sales and other similar
taxes.
Use of Estimates
Management uses estimates and assumptions
in preparing these financial statements in accordance with generally accepted accounting principles. These estimates and assumptions
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported revenues and expenses during the reporting period. Actual results could vary from the estimates that
were used.
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 was only recently formed, has incurred continuing operating losses and has an accumulated deficit of $5,040,307 and $3,153,020
at December 31, 2019 and 2018, respectively. These factors raise substantial doubt about the ability of the Company to continue
as a going concern.
Management believes that it 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 issuances 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.
Concentration of 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, 2019 and 2018, the Company had no amounts in excess of the FDIC insurance limit.
Cash and Cash Equivalents
For purposes of the statement of cash flows,
the Company considers all unrestricted highly liquid investments with an original maturity of three months or less to be cash equivalents.
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 at December 31, 2019 and 2018.
Fair Value of Financial Instruments
The fair value of the Company’s financial
instruments is determined in accordance with ASC 820, Fair Value Measurements and Disclosures.
Income Taxes
The Company accounts for income taxes in
accordance with FASB ASC 740, Income Taxes.
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.
Convertible Debt
Convertible debt is accounted for under
FASB ASC 470, Debt – Debt with Conversion and Other Options.
Basic and Diluted Net Loss Per Common
Share
The Company computes basic and diluted
net loss attributable to common stockholders for the period under ASC 260-10, Earnings Per Share.
3. RECENT ACCOUNTING PRONOUNCEMENTS
ASU 2016-02
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842). The new standard establishes a right-of-use ("ROU") model that requires a lessee to record
a ROU asset and a lease liability on the consolidated balance sheet for all leases with terms longer than 12 months. Leases will
be classified as either finance or operating, with classification affecting the pattern of expense recognition in the consolidated
statement of operations. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods
within those annual periods, with early adoption permitted. A modified retrospective transition approach is required for lessees
for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented
in the financial statements, with certain practical expedients available. On January 1, 2019, the Company adopted ASU 2016-02.
The Company is not a lessee of a lease longer than 12 months nor has the Company been a lessee of a lease longer than 12 months
in prior periods therefore there is no impact of the adoption of this standard.
ASU 2018-07
In June 2018, the FASB issued ASU 2018-07,
Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting, which aligned
certain aspects of share-based payments accounting between employees and nonemployees. Specifically, nonemployee share-based payment
awards within the scope of Topic 718 are measured at grant-date fair value of the equity instruments that an entity is obligated
to issue when the good has been delivered or the service has been rendered and any other conditions necessary to earn the right
to benefit from the instruments have been satisfied and an entity considers the probability of satisfying performance conditions
when nonemployee share-based payment awards contain such conditions. On January 1, 2019, the Company adopted ASU 2018-17. The new
standard did not have a significant impact on the Company’s financial statements or disclosures.
ASU 2019-12
In December 2019, the FASB issued ASU No.
2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related
to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies
and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2021, and interim periods within fiscal years beginning after December
15, 2022, with early adoption permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial
statements.
Other accounting standards that have been
issued or proposed by FASB and do not require adoption until a future date are not expected to have a material impact on the consolidated
financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact
on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
4. FAIR VALUE MEASUREMENTS
ASC 820 "Fair Value Measurements,"
defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances
disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value
under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a
fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable,
that may be used to measure fair value which are the following:
|
·
|
Level 1—Observable inputs such as quoted prices (unadjusted) for identical instruments in active markets.
|
|
·
|
Level 2—Observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-derived valuations whose significant inputs are observable.
|
|
·
|
Level 3—Unobservable inputs that reflect the reporting entity’s own assumptions.
|
The following tables set forth the liabilities
measured at fair value on a non-recurring basis presented in the Company’s consolidated financial statements as of December
31, 2019 and 2018:
|
|
December 31, 2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Shares issued in acquisition of HereLab
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Accrued share compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
1,102,645
|
|
|
|
1,102,645
|
|
Total fair value
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
1,102,645
|
|
|
$
|
1,102,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
Level 1
|
|
|
|
Level 2
|
|
|
|
Level 3
|
|
|
|
Total
|
|
Shares issued in acquisition of HereLab
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
495,000
|
|
|
$
|
495,000
|
|
Accrued share compensation
|
|
|
32,500
|
|
|
|
–
|
|
|
|
417,229
|
|
|
|
449,729
|
|
Total fair value
|
|
$
|
32,500
|
|
|
$
|
–
|
|
|
$
|
912,229
|
|
|
$
|
944,729
|
|
The shares of common stock associated with
the Level 3 accrued share compensation liability are the unvested shares earned on a pro-rata basis as of December 31, 2019 and
2018 related to the consulting agreements discussed in Note 7. The fair value was calculated based on comparable adjusted amounts
the Company was raising funds at multiplied by the total shares agreed upon on the effective date of the respective agreements.
The share compensation amount is amortized over the life of the agreements.
The shares of common stock associated with
the Level 1 accrued share compensation liability are shares issued to a consultant in exchange for work provided during the period,
but not yet issued as of December 31, 2018, related to a settlement agreement discussed in Note 7. The fair value was calculated
based on market prices for the shares in an active market on the effective date of the agreement.
The shares of common stock associated with
the Level 3 shares issued in the acquisition of Herelab as of December 31, 2018 were valued based on comparable adjusted amounts
the Company was raising funds at on the effective date of the agreement.
5. INCOME TAXES
The Company accounts for income taxes in
accordance with ASC Topic No. 740. This standard requires the Company to provide a net deferred tax asset or liability equal to
the expected future tax benefit or expense of temporary reporting differences between book and tax accounting methods and any available
operating loss or tax credit carryforwards. Income tax returns open for examination by the Internal Revenue Service consist of
tax years ended December 31, 2019, 2018 and 2017.
The Company has available at December 31,
2019, unused operating loss carryforwards of approximately $5,040,911 which may be applied against future taxable income and which
expire in various years through 2036. However, if certain substantial changes in the Company’s ownership should occur, there
could be an annual limitation on the amount of net operating loss carryforward which can be utilized. The amount of and ultimate
realization of the benefits from the operating loss carryforwards for income tax purposes is dependent, in part, upon the tax laws
in effect, the future earnings of the Company and other future events, the effects of which cannot be determined. Because of the
uncertainty surrounding the realization of the loss carryforwards, the Company has established a valuation allowance equal to the
tax effect of the loss carryforwards and other temporary differences of approximately $1,303,076 and $815,056 at December 31, 2019
and 2018, respectively, and therefore, no deferred tax asset has been recognized for the loss carryforwards. The change in the
valuation allowance is approximately $488,020 and $417,038 for the years ended December 31, 2019 and 2018, respectively.
Deferred tax assets are comprised of the
following:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
NOL carryover
|
|
$
|
1,303,076
|
|
|
$
|
815,056
|
|
Valuation allowance
|
|
|
(1,303,076
|
)
|
|
|
(815,056
|
)
|
Net deferred tax asset
|
|
$
|
–
|
|
|
$
|
–
|
|
The reconciliation of the provisions for
income taxes computed at the U.S. federal statutory tax rate (21%) to the Company’s effective tax rate for the periods ended
December 31, 2019 and 2018 is as follows:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Book loss
|
|
$
|
396,457
|
|
|
$
|
338,793
|
|
State taxes
|
|
|
91,563
|
|
|
|
78,245
|
|
Change in valuation allowance
|
|
|
(488,020
|
)
|
|
|
(417,038
|
)
|
Provision for income taxes
|
|
$
|
–
|
|
|
$
|
–
|
|
6. INTANGIBLE ASSETS, NET
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, 2019 and 2018 amounted to $397,492 and $446,992, respectively.
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Intangible Assets
|
|
$
|
495,000
|
|
|
$
|
495,000
|
|
Accumulated amortization
|
|
|
(97,508
|
)
|
|
|
(48,008
|
)
|
Intangible Assets, net
|
|
$
|
397,492
|
|
|
$
|
446,992
|
|
At December 31, 2019 the Company determined
that none of its intangible assets were impaired. Amortizable intangible assets are amortized using the straight-line method over
their estimated useful lives of ten years. Amortization expense of finite-lived intangibles was $49,500 and $48,220 for the years
ended December 31, 2019 and 2018, respectively.
The following table summarizes the Company’s
estimated future amortization expense of intangible assets with finite lives as of December 31, 2019:
|
|
Amortization expense
|
|
2020
|
|
$
|
49,500
|
|
2021
|
|
|
49,500
|
|
2022
|
|
|
49,500
|
|
2023
|
|
|
49,500
|
|
2024
|
|
|
49,500
|
|
Thereafter
|
|
|
149,992
|
|
|
|
$
|
397,492
|
|
7. COMMITMENTS AND CONTINGENCIES
In prior years, the Company entered into
consulting agreements with one director, three executive officers, and one engineer of the Company which include commitments to
issue shares of the Company’s common stock from the Company’s Stock Incentive Plans. Two agreements have been terminated
and shares have been issued in conjunction with the related separation agreements, but the vested shares related to the remaining
consulting agreements with the three executive officers have not yet been issued and therefore remain a liability. According to
the remaining three agreements, 1,269,000 shares vested in 2019, 2,400,000 shares of common stock will vest in 2020, and 3,600,000
shares of common stock will vest in 2021.
According to the agreements with the executive
officers the shares vest annually over three years on the anniversary of each agreement.
In the event that the agreement is terminated
by either party pursuant to the terms of the agreement, all unvested shares which have been earned shall vest on a pro-rata basis
as of the effective date of the termination of the agreement and all unearned, unvested shares shall be terminated.
The value of the shares was assigned at
fair market value on the effective date of the agreement and the pro-rata number of shares earned was calculated and amortized
at the end of each reporting period. The Company accrued $1,102,645 and $944,467 in shares payable in conjunction with these agreements
as of December 31, 2019 and 2018, respectively. A summary of these agreements is as follows.
On March 11, 2019, the Company’s
Board of Directors approved the Consulting Agreement dated effective June 4, 2018 with its CEO. The term of the agreement is for
three years beginning as of the effective date, unless terminated earlier pursuant to the agreement and is automatically renewable
for one-year terms upon the consent of the parties. The services to be provided by the CEO pursuant to the agreement are those
customary for the position in which the CEO is serving. The CEO 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 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 the CEO in cash and the remainder will continue to accrue. Upon the closing of a capital raise of at least $2,000,000,
the entire monthly fee will be paid to the CEO 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 the CEO an aggregate of 3,060,000
shares of the Company’s common stock which vest as follows:
|
1.
|
560,000 shares on the first-year anniversary of the effective date;
|
|
2.
|
1,000,000 shares on the second-year anniversary of the effective date; and
|
|
3.
|
1,500,000 shares on the third-year anniversary of the effective date.
|
The shares are issued under the 2019 Stock
Incentive Plan. Vesting of the shares is subject to acceleration of vesting upon the occurrence of certain events such as a Change
of Control (as defined in the agreement) or the listing of the Company’s common stock on a senior exchange. As of December
31, 2019, 560,000 shares had vested, but were not yet issued.
On March 11, 2019, the Company’s
Board of Directors approved the Consulting Agreement dated effective October 1, 2018 with its COO. The term of the agreement is
for three years beginning as of the effective date, unless terminated earlier pursuant to the agreement and is automatically renewable
for one-year terms upon the consent of the parties. The services to be provided by the COO pursuant to the agreement are those
customary for the position in which the COO is serving. The COO 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 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 the COO in cash and the remainder will continue to accrue. Upon the closing of a capital raise of at least $2,000,000,
the entire monthly fee will be paid to the COO 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 the COO an aggregate of 2,409,000
shares of the Company’s common stock which vest as follows:
|
1.
|
409,000 shares on the first-year anniversary of the effective date;
|
|
2.
|
800,000 shares on the second-year anniversary of the effective date; and
|
|
3.
|
1,200,000 shares on the third-year anniversary of the effective date.
|
The shares are issued under the 2017 Stock
Incentive Plan. Vesting of the shares is subject to acceleration of vesting upon the occurrence of certain events such as a Change
of Control (as defined in the agreement) or the listing of the Company’s common stock on a senior exchange. As of December
31, 2019, 409,000 shares had vested, but were not yet issued.
On March 11, 2019, the Company’s
Board of Directors approved the Amended and Restated Consulting Agreement dated effective April 23, 2018 with its CTO. The term
of the agreement is for three years beginning as of the effective date, unless terminated earlier pursuant to the agreement and
is automatically renewable for one-year terms upon the consent of the parties. The services to be provided by the CTO pursuant
to the agreement are those customary for the position in which the CTO is serving. The CTO shall receive a monthly fee of $9,375
which accrues unless converted into shares of common stock of the Company at a conversion rate specified in the agreement. Until
the Company closes a minimum $500,000 capital raise, the monthly fee accrues and, upon the closing of such a capital raise, $3,125
of the monthly fee will be paid to the CTO in cash and the remainder will continue to accrue. Upon the closing of a capital raise
of at least $2,000,000, the entire monthly fee will be paid to the CTO in cash and all accrued and unpaid monthly fees will be
paid by the Company within one year of the closing of such a capital raise. As of the effective date, the Company shall issue to
the CTO an aggregate of 1,800,000 shares of the Company’s common stock which vest as follows:
|
1.
|
300,000 shares on the first-year anniversary of the effective date;
|
|
2.
|
600,000 shares on the second-year anniversary of the effective date; and
|
|
3.
|
900,000 shares on the third-year anniversary of the effective date.
|
As of December 31, 2019, 300,000 shares
had vested, but were not yet issued.
8. STOCKHOLDERS' EQUITY
Common Stock
The Company has authorized 190,000,000
shares of $0.001 par value common stock and 10,000,000 shares of $0.001 par value preferred stock. At December 31, 2019 and 2018,
the Company had 43,313,547 and 40,633,327 shares of common stock and no shares of preferred stock issued and outstanding, respectively.
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 March 16, 2017, the Board of Directors
of IIOT-OXYS, Inc. and a majority of the shareholders of IIOT-OXYS, Inc. approved the IIOT-OXYS, Inc. 2017 Stock Awards Plan, (the
“Plan”). The Plan provided for granted incentive stock options, options that do not constitute incentive stock
options, stock appreciation rights, restricted stock awards, phantom stock awards, or any combination of the foregoing, as is best
suited to the particular circumstances. The Plan was effective upon its adoption by the Board.
The aggregate number of common shares that
may be issued under the Plan were 7,000,000 common shares. No further awards were to be granted under the Plan after ten years
following the effective date. The Plan was to remain in effect until all awards granted under the Plan had been satisfied or expired.
This Plan was terminated and replaced by the 2017 Stock Inventive Plan (the “2017 Plan”) on December 14, 2017
(the “Effective Date”) as approved by the Board of Directors of the Company.
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. With the approval of the 2017 Stock Incentive Plan, the Board terminated the 2017 Stock Awards Plan with no awards
having been granted thereunder.
On March 11, 2019 (the “Effective
Date”) the Board of Directors of the Company approved the 2019 Stock Incentive Plan (the “Plan”).
Awards may be made under the Plan for up to 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 Plan. No
awards can be granted under the Plan after the expiration of 10 years from the Effective Date but awards previously granted may
extend beyond that date. Awards may consist of both incentive and non-statutory options, restricted stock units, stock appreciation
rights, and restricted stock awards.
Shares earned and issued related to the
consulting agreements discussed in Note 7 are issued under the 2017 Stock Incentive Plan and the 2019 Stock Incentive Plan. Vesting
of the shares is subject to acceleration of vesting upon the occurrence of certain events such as a Change of Control (as defined
in the agreement) or the listing of the Company’s common stock on a senior exchange.
A summary of the status of the Company’s
non-vested shares as of December 31, 2019 and changes during the year then ended, is presented below:
|
|
Non-vested Shares of Common Stock
|
|
|
Weighted Average Fair Value
|
|
Balance at December 31, 2018
|
|
|
7,469,000
|
|
|
$
|
0.30
|
|
Awarded
|
|
|
–
|
|
|
|
–
|
|
Vested
|
|
|
(1,319,000
|
)
|
|
$
|
0.30
|
|
Forfeited
|
|
|
(150,000
|
)
|
|
$
|
0.30
|
|
Balance at December 31, 2019
|
|
|
6,000,000
|
|
|
$
|
0.30
|
|
As of December 31, 2019 and 2018, there
was $1,078,055 and $1,854,873, respectively, of total unrecognized compensation costs related to the non-vested share-based compensation
arrangements awarded to consultants. That cost is expected to be recognized over a weighted-average period of 1.4 years. The total
fair value of shares vested during the year ended December 31, 2019 and 2018 was $723,068 and $449,729, respectively.
A consulting agreement with an engineer
was terminated upon the resignation of the engineer on August 30, 2019 as of which 50,000 earned shares were vested and were issued
on October 10, 2019 amounting to $6,250. A consulting agreement with a director was terminated upon the resignation of the director
on September 20, 2018 and, pursuant to a Settlement Agreement, 104,673 earned shares were vested and issued on January 1, 2019
amounting to $21,458.
On January 11, 2018 the Company issued
1,650,000 shares in acquisition of HereLab, Inc. in the amount of $495,000.
On October 5, 2018 the Company entered
into a Settlement Agreement with a consultant in which 650,000 shares were issued on February 28, 2019 in the amount of $7,800.
On January 10, 2019, the Company entered
into a Strategic Advisory Agreement with a consultant. The initial term of the agreement is 90 days from the date of the agreement
and will be renewed for an additional 90-day term unless either party gives written notice at least ten days prior to the expiration
of the initial term. Pursuant to the agreement, the consultant provided the Company consulting services pertaining to strategic
planning for marketing and capital raising. In consideration of receipt of the services, the Company issued to the consultant 1,885,547
shares of the Company’s common stock amounting to $249,402 as of December 31, 2019. The agreement was terminated August 31,
2019.
On March 7, 2019, the Board of Directors
of the Company approved the Financial Consulting Agreement dated effective March 4, 2019 with a consultant pursuant to which the
Company issued to the consultant 500,000 shares of the Company’s common stock amounting to $60,000 in exchange for consulting
services provided by the consultant to the Company. The term of the agreement was six months and was not renewed.
On July 12, 2019 the Board of Directors
of the Company approved an issuance of 25,000 shares of the Company’s common stock amounting to $2,500 to a consultant as
a bonus for services performed.
On September 6, 2019, the Company entered
into a Financial Public Relations Agreement. The term of the Agreement is 45 days from the date of the Agreement and will be renewed
upon written consent of the parties. The agreement was not renewed. Pursuant to the Agreement, the consultant provided the Company
consulting services pertaining to investor relations. In consideration of receipt of the services the Company issued to the consultant
50,000 shares of the Company’s common stock amounting to $6,950.
Total share-based compensation for the
year ended December 31, 2019 and 2018 was $1,035,454 and $449,729, respectively.
Warrants
A summary of the status of the Company’s
warrants as of December 31, 2019 and 2018 and changes during the year then ended, is presented below:
|
|
Shares Under Warrants
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Life
|
Outstanding at December 31, 2017
|
|
|
–
|
|
|
|
|
|
|
|
Issued
|
|
|
384,615
|
|
|
$
|
0.75
|
|
|
|
Exercised
|
|
|
–
|
|
|
|
|
|
|
|
Expired/Forfeited
|
|
|
–
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
|
384,615
|
|
|
$
|
0.75
|
|
|
4.1 years
|
Issued
|
|
|
1,242,917
|
|
|
$
|
0.19
|
|
|
|
Exercised
|
|
|
–
|
|
|
|
|
|
|
|
Expired/Forfeited
|
|
|
–
|
|
|
|
|
|
|
|
Outstanding at December 31, 2019
|
|
|
1,627,532
|
|
|
$
|
0.21
|
|
|
4.5 years
|
9. EARNINGS PER SHARE
The following table sets forth the computation
of basic and diluted net loss per share of common stock for the year ended December 31, 2019 and 2018:
|
|
Year ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Net loss attributable to common stockholders (basic)
|
|
$
|
(1,887,287
|
)
|
|
$
|
(1,613,229
|
)
|
|
|
|
|
|
|
|
|
|
Shares used to compute net loss per common share, basic and diluted
|
|
|
42,334,210
|
|
|
|
40,601,683
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common stockholders, basic and diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.04
|
)
|
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 year ended December 31, 2019 and 2018 because their
inclusion would be anti-dilutive:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Warrants to purchase common stock
|
|
|
1,627,532
|
|
|
|
384,615
|
|
Potentially issuable shares related to convertible notes payable
|
|
|
4,787,447
|
|
|
|
–
|
|
Potentially issuable vested shares to directors and officers
|
|
|
1,269,000
|
|
|
|
104,673
|
|
Potentially issuable unvested shares to officers
|
|
|
6,000,000
|
|
|
|
7,469,000
|
|
Total anti-dilutive common stock equivalents
|
|
|
13,683,979
|
|
|
|
7,958,288
|
|
10. CONVERTIBLE NOTE PAYABLE
On January 18, 2018, the Board of Directors
of the Company approved a non-public offering of up to $1,000,000 aggregate principal amount of its 12% Senior Secured Convertible
Notes. The notes are convertible, in whole or in part, into shares of the Company’s common stock, at any time at a rate of
$0.65 per share with fractions rounded up to the nearest whole share, unless paid in cash at the Company’s election. The
notes bear interest at a rate of 12% per annum and interest payments will be made on a quarterly basis. The notes mature January
15, 2020.
The notes are governed by a Securities
Purchase Agreement and are secured by all the assets of the Company pursuant to a Security and Pledge Agreement. In addition to
the issuance of the notes in the offering, the Company’s Board of Directors approved, as part of the offering, the issuance
of warrants to purchase one share of the Company’s common stock for 50% of the number of shares of common stock issuable
upon conversion of each note. Each warrant is immediately exercisable at $0.75 per share, contains certain anti-dilution down-round
features and expires on January 15, 2023. If the Company ever defaults on the loan the warrants to be issued will increase from
50% of the number of shares of common stock issuable upon conversion to 100%.
On January 22, 2018, the Company entered
into a SPA and Security and Pledge Agreement with its first investor in the offering and issued a note to the investor in the principal
amount of $500,000. Subscription funds were received by the Company from the investor on February 7, 2018. In addition to the note,
the Company issued to the investor 384,615 warrants. The warrants are considered equity instruments based on the Company’s
adoption of ASU 2017-11.
The proceeds received upon issuing the
note and warrants were allocated to each instrument on a relative fair value basis. The initial fair value of the warrants was
$838,404 determined using the Black-Scholes valuation model with the following assumptions: expected term of 2.5 years; risk free
interest rate of 2.1%; and volatility of 142%. The effective conversion rate resulted in a Beneficial Conversion Feature greater
than the proceeds received. Thus, the discount was limited to the proceeds received of $500,000 and was amortized to interest expense
using the effective interest method over the term of the note.
On March 7, 2019, the Board of Directors
of the Company approved Amendment No. 1 to the 12% Senior Secured Convertible Promissory Note and the Warrant Agreement, each issued
January 22, 2018, respectively, to the note holder. The amendments (i) extend the maturity date of the note to March 1, 2021 and
extend the term of the warrants to March 6, 2024, (ii) lower the conversion price of the note and the exercise price of the warrants
to $0.20 and $0.30, respectively, and (iii) add an adjustment to the conversion and exercise price of the note and warrants, respectively,
in the event the Company does not achieve certain milestones during calendar 2019. The fair value of the warrants is $25,162 determined
using the Black-Scholes valuation model with the following assumptions: expected term of 2.5 years; risk free interest rate of
2.6%; and volatility of 127%. The effective conversion rate resulted in a discount of $23,956 and is amortized to interest expense
using the effective interest method over the term of the note. The Company recognized a loss on extinguishment of debt of $221,232
related to the decrease in conversion price.
On January 1, 2020, the Company failed
to achieve certain milestones during calendar 2019 and, as such, the conversion/exercise prices of the note and warrants were adjusted
to $0.10 and $0.15, respectively.
For the year ended December 31, 2019 and
2018 interest expense paid to the investor amounted to $44,877 and $56,384, respectively. The Company also accrued $15,123 and
$0 in interest expense as of December 31, 2019 and 2018, respectively. For year ended December 31, 2019 and 2018 the Company also
amortized to interest expense $53,755 and $234,932, respectively.
The unpaid principal balance of the note
is $500,000 at December 31, 2019 and December 31, 2018 and the remaining unamortized discount is $14,038 and $265,068, respectively.
On January 22, 2019, the Company entered
into a Securities Purchase Agreement and Security and Pledge Agreement with a single investor and issued a Secured Convertible
Promissory Note to the investor in the principal amount of $55,000. In addition to the note, the Company issued to the investor
36,667 warrants. Each warrant is immediately exercisable at $0.75 per share, contains certain anti-dilution down-round features
and expires on January 22, 2024. If the Company ever defaults on the loan the warrants to be issued will increase from 50% of the
number of shares of common stock issuable upon conversion to 100%. The warrants are considered equity instruments based on the
Company’s adoption of ASU 2017-11.
The proceeds received upon issuing the
note and warrants were allocated to each instrument on a relative fair value basis. The initial fair value of the warrants was
$3,217 determined using the Black-Scholes valuation model with the following assumptions: expected term of 2.5 years; risk free
interest rate of 2.6%; and volatility of 128%. The effective conversion rate resulted in a discount of $3,039 and is amortized
to interest expense using the effective interest method over the term of the note.
For the year ended December 31, 2019 interest
expense paid to the investor amounted to $0. The unpaid principal balance of the note and accrued interest is $55,000 and $2,584,
respectively, at December 31, 2019, the remaining unamortized discount is $194. For the year ended December 31, 2019 the Company
also amortized to interest expense $2,846 from the amortization of the discount. This note and accrued interest is due to a related
party.
On March 7, 2019, the Board of Directors
of the Company approved a non-public offering of up to $500,000 aggregate principal amount of its 12% Senior Secured Convertible
Notes. The notes are convertible, in whole or in part, into shares of the Company’s common stock, at any time at a rate of
$0.20 per share with fractions rounded up to the nearest whole share, unless paid in cash at the Company’s election. The
notes bear interest at a rate of 12% per annum and interest payments will be made on a quarterly basis. The notes mature March
1, 2021. The conversion price of the notes is also subject to adjustments if the Company does not achieve certain milestones during
the calendar year 2019.
The notes are governed by a Securities
Purchase Agreement and are secured by all the assets of the Company pursuant to a Security and Pledge Agreement. Funding is subject
to the occurrence of certain milestones, as stated in the SPA. In addition to the issuance of the notes in the offering, the Company’s
Board of Directors approved, as part of the offering, the issuance of warrants to purchase one share of the Company’s common
stock for 50% of the number of shares of common stock issuable upon conversion of each note. Each warrant is immediately exercisable
at $0.30 per share and expires five years from the issuance date. The exercise price of the warrants is also subject to adjustments
if the Company does not achieve certain milestones during the calendar year 2019.
On March 6, 2019, the Company entered into
SPAs and Security and Pledge Agreements with its first two investors in the offering and issued notes to the investors in the aggregate
principal amount of $100,000. Subscription funds were received by the Company from the investors on March 6, 2019. In addition
to the notes, the Company issued to the investors an aggregate of 250,000 warrants. Each warrant is immediately exercisable at
$0.30 per share, contains certain anti-dilution down-round features and expires on March 6, 2024. If the Company ever defaults
on the loan the warrants to be issued will increase from 50% of the number of shares of common stock issuable upon conversion to
100%. The warrants are considered equity instruments based on the Company’s adoption of ASU 2017-11.
On January 1, 2020, the Company failed
to achieve certain milestones during calendar 2019 and, as such, the conversion/exercise prices of the note and warrants were adjusted
to $0.10 and $0.15, respectively.
The proceeds received upon issuing the
notes and warrants were allocated to each instrument on a relative fair value basis. The initial fair value of the warrants was
$12,646 determined using the Black-Scholes valuation model with the following assumptions: expected term of 2.5 years; risk free
interest rate of 2.5%; and volatility of 127%. The effective conversion rate resulted in a discount of $11,226 and is amortized
to interest expense using the effective interest method over the term of the notes.
The unpaid principal balance of the notes
is $100,000, accrued interest is $3,025 and the balance of the unamortized discount is $2,037 at December 31, 2019. Interest expense
paid to the investors amounted to $6,838 for the year ended December 31, 2019. For the year ended December 31, 2019, the Company
also amortized to interest expense $9,189 from the amortization of the discount.
On August 2, 2019, the Company entered
into a Securities Purchase Agreement with an investor for the purchase of a 12% Secured Convertible Note in the principal amount
of up to $125,000. The note is convertible, in whole or in part, into shares of the Company’s common stock, at any time at
a rate of $0.08 per share with fractions rounded up to the nearest whole share, unless paid in cash at the Company’s election.
The note bears interest at a rate of 12% per annum and interest payments will be made on a quarterly basis. The note matures August
2, 2021. $75,000, $25,000 and $25,000 subscription funds were received by the Company from the investor on August 2, 2019, September
6, 2019, and October 16, 2019, respectively. In addition to the note, the Company issued to the investor an aggregate of 781.250
warrants. The warrants are considered equity instruments based on the Company’s adoption of ASU 2017-11.
The proceeds received upon issuing the
note and warrants were allocated to each instrument on a relative fair value basis. The initial fair value of the warrants was
$71,035 determined using the Black-Scholes valuation model with the following assumptions: expected term of 2.5 years; risk free
interest rate of 1.6%; and volatility of 132%. The effective conversion rate resulted in a discount of $104,941 and is amortized
to interest expense using the effective interest method over the term of the note.
The unpaid principal balance of the notes
is $125,000, the accrued interest is $3,649 and the balance of the unamortized discount is $86,646 at December 31, 2019. Interest
expense paid to the investor amounted to $1,652 for the year ended December 31, 2019. For the year ended December 31, 2019, the
Company also amortized to interest expense $18,295 from the amortization of the discount. This note is payable to and the
interest expense was paid to a related party.
On August 29, 2019, the Company entered
into a Securities Purchase Agreement with an investor for the purchase of a Convertible Promissory Note in the principal amount
of up to $105,000. The Note is not convertible within 180 days of receipt of funds for the first closing and is then convertible,
in whole or in part, into shares of the Company’s Common Stock at a rate of $0.20 per share. Upon an “Event of Default,”
as defined in the note, the conversion price becomes the “Variable Conversion Price” which is defined in the note as
“60% multiplied by the Marked Price.” “Market Price” is defined in the note as “the lowest one (1)
Trading Price (as defined in the note) for the common stock during the twenty-five (25) Trading Day period ending on the last complete
Trading Day prior to the Conversion Date.” The note bears interest at a rate of 10% per annum with principal and accrued
and unpaid interest payable one year from the receipt of funds for each tranche under the note. Subscription funds of $30,000 were
received by the Company from the investor on September 6, 2019 for which the Company paid a purchase price of $35,000. In addition
to the notes, the Company issued to the investor an aggregate of 175,000 warrants. The warrants are considered equity instruments
based on the Company’s adoption of ASU 2017-11.
The proceeds received upon issuing the
notes and warrants were allocated to each instrument on a relative fair value basis. The initial fair value of the warrants was
$15,868 determined using the Black-Scholes valuation model with the following assumptions: expected term of 2.5 years; risk free
interest rate of 1.4%; and volatility of 132%. The effective conversion rate resulted in a discount of $10,378 and is amortized
to interest expense using the effective interest method over the term of the notes.
The unpaid principal balance of the notes
is $35,000, accrued interest is $1,112 and the balance of the unamortized discount is $3,764 at December 31, 2019. For the year
ended December 31, 2019 the Company also amortized to interest expense $6,615 from the amortization of the discount. There
is an additional discount of $5,000 on the note resulting from the difference between the purchase price and the subscription funds
received. For the year ended December 31, 2019 $3,187 has been amortized to interest expense leaving an unamortized balance of
$1,813 as of December 31, 2019.
11. RELATED PARTIES
At December 31, 2019 and 2018 the amount
due to stockholders was $1,000. The balance is payable to two stockholders related to opening bank balances.
At December 31, 2019 and 2018 accounts
payable due to three officers was $343,227 and $237,514, respectively. The majority of the balance is related to deferred salary
expenses while the remainder is related to reimbursable expenses that were incurred throughout the year. During the year ended
December 31, 2019 the three officers forgave accrued salaries amounting to $370,725.
In January 2018 the Company entered into
a lease agreement with a stockholder of the Company and paid monthly installments of $2,000 which terminated on December 31, 2018.
The Company renewed the lease agreement in January 2019 for monthly installments of $2,000 which terminated on June 30, 2019, the
Company now rents month to month. For the year ended December 31, 2019 and 2018, rent expense earned by the stockholder amounted
to $24,000, while $15,000 and $6,000 of the rent expense is in accounts payable as of December 31, 2019 and 2018, respectively.
The Company entered into a verbal arrangement
in June of 2017 with a company controlled by a shareholder to provide administrative services. Total payments to the related party
for administrative services amounted to $0 and $26,000 for the year ended December 31, 2019 and 2018, respectively.
For the year ended December 31, 2019 professional
expense paid to directors and officers of the Company amounted to $0 and $130,000, respectively. For the year ended December 31,
2019 and 2018, travel expense paid on behalf of directors and officers of the Company amounted to approximately $10,000 and $8,000,
respectively.
12. SUBSEQUENT EVENTS
The Company has evaluated subsequent events
from the balance sheet date through the date the financial statements were issued and determined that there were the following
items to disclose:
Six months from receipt of the first tranche
of $35,000 under the Convertible Promissory Note issued on August 29, 2019, the Company failed to pay the accrued and unpaid interest,
which is considered an “Event of Default” under the note. As a result, the conversion price became a “Variable
Conversion Price.” Also, as a result of the occurrence of the “Event of Default,” all amounts owing under the
note became immediately due and payable and the Company became obligated to pay to the holder 175% of the then outstanding balance
of the note and all unpaid principal and unpaid interest accrued interest at 15%.
During 2020, the holder of the note had
converted $35,000 of principle plus fees into shares of Common Stock and, as of the date hereof, the amount of principle owing
under the note is $0. As a result of the conversions by the holder at a conversion price below the warrant exercise price of $0.20,
the exercise price of the warrants was adjusted to $0.00084. During 2020, the holder of the note exercised 38,038,165 warrants
at conversion prices ranging from $0.026 to $0.060.
On May 20, 2020, the second closing of
the Convertible Promissory Note occurred pursuant to which the Company paid a purchase price of $35,000 and received gross proceeds
of $29,300. In addition to the issuance of the note, the Company issued to the holder warrants to purchase one share of the Company’s
Common Stock for 100% of the number of shares of Common Stock issuable upon conversion of the funds received in the second closing.
Each warrant is immediately exercisable at $0.20 per share, unless adjusted, and expires on May 20, 2025.
During 2020, 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. 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.
The Company is closely monitoring the impact
of the 2019 novel coronavirus, or COVID-19, on all aspects of its business. COVID-19 was declared a global pandemic by the World
Health Organization on March 11, 2020 and the President of the United States declared the COVID-19 outbreak a national emergency.
The Company has implemented contingency plans, with office-based employees working remotely where possible. While the COVID-19
pandemic has not had a material adverse impact on the Company’s operations to date, the future impacts of the pandemic and
any resulting economic impact are largely unknown and rapidly evolving. It is possible that the COVID-19 pandemic, the measures
taken by the governments of countries affected and the resulting economic impact may materially and adversely affect the Company’s
results of operations, cash flows and financial position as well as its customers.
On June 12, 2020, the Company entered into
Amendment No. 1 to the 5% Secured Promissory Note with Cambridge Medspace, LLC, a Massachusetts limited liability company, pursuant
to which the Note was amended to extend the maturity date to January 22, 2021.
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