Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended March 31, 2019

Or

☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from _______________________to___________________________

Commission File Number: 000-50773

IIOT-OXYS, Inc.

(Exact name of registrant as specified in its charter)

Nevada	56-2415252
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

705 Cambridge Street, Cambridge, MA	02141
(Address of principal executive offices)	(Zip Code)

(617) 500-5101

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports). Yes x No ☐

Indicate by check mark whether the registrant has been subject to such filing requirements for the past 90 days. Yes x No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	x
		Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

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

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

The number of shares outstanding of the registrant’s common stock on May 15, 2019, was 42,245,930.

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3. Quantitative and Qualitative Disclosures About Market Risk	21
Item 4. Controls and Procedures	21
PART II—OTHER INFORMATION	22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 6. Exhibits	22
SIGNATURES	23

2

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

IIOT-OXYS, Inc. and Subsidiaries

Consolidated Balance Sheets

As of March 31, 2019 and December 31, 2018

(unaudited)

	March 31, 2019			December 31, 2018

Assets
Current Assets
Cash and Cash Equivalents	$	75,759		$	39,226
Accounts Receivable, net		42,837			33,000
Prepaid Expense		10,074			4,452
Inventory		507			317
Total Current Assets		129,177			76,995

Intangible Assets, net		434,786			446,992
Total Assets	$	563,963		$	523,987

Liabilities and Stockholders' (Deficit) Equity
Current Liabilities
Accounts Payable	$	484,648		$	377,962
Accrued Liabilities		570,506			449,729
Total Current Liabilities		1,055,154			827,691

Notes Payable, net		618,970			234,932
Due to Stockholder		1,000			1,000
Total Liabilities		1,675,124			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; 41,810,323 and 40,633,327 shares issued and outstanding, respectively		41,810			40,633
Additional Paid-in Capital		2,780,087			2,572,751
Accumulated Deficit		(3,933,058	)		(3,153,020	)

Total Stockholders' (Deficit) Equity		(1,111,161	)		(539,636	)
Total Liabilities and Stockholders' (Deficit) Equity	$	563,963		$	523,987

See accompanying notes to unaudited consolidated financial statements.

3

IIOT-OXYS, Inc. and Subsidiaries

Consolidated Statements of Operations

For the Three Months Ended March 31, 2019 and 2018

(unaudited)

	Three Months Ended March 31,
	2019			2018

Revenues
Sales	$	42,837		$	13,650
Cost of Sales		12,169			8,750
Gross Profit		30,668			4,900

Expenses
Demo Parts		63			230
Bank Service Charges		700			266
Office Expenses		6,871			7,459
Organization Costs		5,240			8,220
Insurance		6,906			5,708
Professional		488,806			142,994
Travel		4,816			2,342
Patent License Fee		1,430			41,076
Amortization of Intangible Assets		12,206			–
Total Expenses		527,038			208,295

Other Income (Expense)
Loss on Extinguishment of Debt		(221,232	)		–
Interest Expense		(62,436	)		(56,438	)
Total Other Income (Expense)		(283,668	)		(56,438	)

Net Loss Before Income Taxes		(780,038	)		(259,833	)

Income Tax Benefit		–			–

Net Loss	$	(780,038	)	$	(259,833	)

Loss per Common Share	$	(0.02	)	$	(0.01	)

Weighted Average Number of Shares Outstanding - Basic and Diluted		41,175,686			38,983,327

See accompanying notes to unaudited consolidated financial statements.

4

IIOT-OXYS, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Equity (Deficit)

For the Three Months Ended March 31, 2019 and 2018

(unaudited)

	Common Stock				Additional Paid-In		Accumulated			Total Stockholders' Equity
	Shares		Amount		Capital		Deficit			(Deficit)

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		–		–		–		(259,833	)		(259,833	)

Balance March 31, 2018		40,633,327	$	40,633	$	2,572,751	$	(1,799,554	)	$	813,830

Balance December 31, 2018		40,633,327	$	40,633	$	2,572,751	$	(3,153,020	)	$	(539,636	)

Stock-based compensation		1,176,996		1,177		169,114		–			170,291

Discount on notes payable		–		–		38,222		–			38,222

Net loss		–		–		–		(780,038	)		(780,038	)

Balance March 31, 2019		41,810,323	$	41,810	$	2,780,087	$	(3,933,058	)	$	(1,111,161	)

See accompanying notes to unaudited consolidated financial statements.

5

IIOT-OXYS, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2019 and 2018

(unaudited)

	Three Months Ended March 31,
	2019			2018

Cash Flows from Operating Activities:
Net Loss	$	(780,038	)	$	(259,833	)

Adjustments to reconcile net loss to net cash (used) by operating activities:
Loss on Extinguishment of Debt		221,232			–
Stock Based Compensation		290,555			–
Acquisition of Net Assets		–			(332	)
Amortization of Discount on Notes Payable		46,028			46,575
Amortization of Intangible Assets		12,206			–

Changes in assets and liabilities:
(Increase) Decrease in:
Accounts Receivable		(9,837	)		36,799
Unbilled Receivable		–			(7,380	)
Inventory		(190	)		(828	)
Prepaid Expense		(5,622	)		(10,678	)
Escrow		–			1,782
Licensing Agreement		–			1,000
Increase (Decrease) in:
Accounts Payable		106,686			(11,329	)
Accrued Liabilities		513			6,767
Deferred Revenue		–			13,648
Income Tax Payable		–			3,332
Net Cash Used by Operating Activities		(118,467	)		(180,477	)

Cash Flows from Investing Activities:
Cash Received in Acquisition of HereLab		–			119
Net Cash Provided by Investing Activities		–			119

Cash Flows from Financing Activities:
Cash Received from Convertible Note Payable		155,000			500,000
Cash Received from Owner Investment		–			677
Net Cash Provided by Financing Activities		155,000			500,677

Net Increase in Cash and Cash Equivalents		36,533			320,319

Cash and Cash Equivalents at Beginning of Period		39,226			60,863

Cash and Cash Equivalents at End of Period	$	75,759		$	381,182

Supplemental disclosure of cash flow information:
Interest paid during the period	$	15,074		$	9,863
Taxes paid during the period	$	–		$	–
Supplemental disclosure of non-cash investing and financing activities:
Discount on notes payable	$	38,222		$	500,000

See accompanying notes to unaudited consolidated financial statements.

6

IIOT-OXYS, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

March 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 ”).

Interim Financial Statements

The accompanying unaudited condensed interim financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“ U.S. GAAP ”) for interim financial information, and in accordance with the rules and regulations of the United States Securities and Exchange Commission with respect to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited interim financial statements should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2017.

Principles of Consolidation

The consolidated financial statements for March 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 March 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.

7

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.

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, Earnings Per Share, which requires a dual presentation of basic and diluted earnings or loss per share. Basic net loss per share is computed by dividing net loss attributable to common stockholders for the period by the weighted-average number of common shares, including potential dilutive shares of common stock assuming the dilutive effect of potential dilutive securities. Diluted earnings per share represent basic earnings per share adjusted to include the potentially dilutive effect of stock options, convertible debt, convertible preferred stock and common stock warrants. For periods in which the Company reports a net loss, diluted net loss per common share is the same as basic net loss per common share, because their impact would be anti-dilutive to the calculation of net loss per common share. Diluted net loss per common share is the same as basic net loss per common share for the three months ended March 31, 2019 and 2018. For the three months ended March 31, 2019 there were 671,282 anti-dilutive outstanding stock warrants. For the three months ended March 31, 2018 there were 384,615 anti-dilutive outstanding stock warrants and 3,084,615 anti-dilutive potentially issuable shares related to conversion option of notes payable.

8

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 $3,933,058 and $3,153,020 at March 31, 2019 and December 31, 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.

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.

Other accounting standards that have been issued or proposed by FASB 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.

9

4. COMMITMENTS AND CONTINGENCIES

The Company entered into a lease agreement on March 12, 2019 which began on January 1, 2019 and will terminate on June 30, 2019. The Company shall pay the landlord monthly installments of $2,000 for total future lease payments of $6,000 in 2019.

The Company entered into consulting agreements with one director, three executive officers, and one engineer of the Company throughout the prior period which include commitments to issue shares of the Company’s common stock from the Company’s Stock Incentive Plans.

According to the agreement with the director, the shares vest annually over three years at the end of the fiscal year. According to the agreements with the executive officers and engineer, 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 consulting agreement with the 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. According to the remaining four agreements, shares are scheduled to vest over the next three years according to the following schedule: 1,319,000 shares of common stock in 2019, 2,470,000 shares of common stock in 2020, and 3,680,000 shares of common stock in 2021.

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. As of March 31, 2019, 104,673 shares of common were issued to the former director. As of December 31, 2018, no shares of common stock had been issued to these individuals. The Company accrued $569,994 and $417,229 in shares payable in conjunction with these agreements as of March 31, 2019 and December 31, 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 positions 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.

10

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.

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.

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.

5. 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 March 31, 2019 and December 31, 2018, the Company had 41,810,323 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.

11

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 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 5 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.

As of March 31, 2019, and December 31, 2018, there was $1,670,706 and $1,854,873, respectively of total unrecognized compensation costs related to the non-vested share-based compensation arrangements awarded to an engineer and consultants. That cost is expected to be recognized over a weighted-average period of 2.24 years. The total fair value of shares vested during the three months ended March 31, 2019 was $184,167. Total share-based compensation for the three months ended March 31, 2019 and 2018 was $290,555 and $0, respectively.

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 507,323 shares of the Company’s common stock.

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 in exchange for consulting services provided by the consultant to the Company. The term of the agreement is six months, unless terminated earlier.

On March 7, 2019, the Board of Directors of the Company approved the Settlement Agreement dated effective October 5, 2018 with a consultant pursuant to which the Company issued to the consultant 65,000 shares of the Company’s common stock in exchange for payment, in full, for consulting services provided by the consultant to the Company in 2018.

On September 20, 2018, the consulting agreement with the director was terminated upon the resignation of the director and, pursuant to a Settlement Agreement, 104,673 earned shares were vested. The Company issued these shares in the current period.

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6. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted net loss per share of common stock for the three months ended March 31, 2019 and 2018:

	Three months ended March 31,
	2019			2018
Net loss attributable to common stockholders (basic)	$	(780,038	)	$	(259,833	)

Shares used to compute net loss per common share, basic and diluted		41,175,686			38,983,327

Net loss per share attributable to common stockholders, basic and diluted	$	(0.02	)	$	(0.01	)

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

The following outstanding common stock equivalents have been excluded from diluted net loss per common share for the three months ended March 31, 2019 and 2018 because their inclusion would be anti-dilutive:

	March 31, 2019		March 31, 2018
Warrants to purchase common stock		671,282		384,615
Potentially issuable shares related to convertible notes payable		3,084,615		–
Total anti-dilutive common stock equivalents		3,755,897		384,615

7. 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 (the “ Offering ”) of its 12% Senior Secured Convertible Notes (the “ 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 (the “ SPA ”) and are secured by all of 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 (the “ Warrants ”). 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.

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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 a 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 127.4%. 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.

For the three months ended March 31, 2019 and 2018 interest expense paid to the investor amounted to $14,795 and $11,178, respectively. For the three months ended March 31, 2019 and 2018 the Company also amortized to interest expense $44,693 and $46,575, respectively from the amortization of the discount.

The unpaid principal balance of the Note is $500,000 at March 31, 2019 and December 31, 2018 and the remaining unamortized discount is $23,100 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. $54,000 of the subscription funds were received by the Company from the investor on February 5, 2019 and February 8, 2019. $1,000 of the subscription funds were received by the Company from the investor on March 26, 2019. In addition to the note, the Company issued to the investor 36,667 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 $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 three months ended March 31, 2019 interest expense paid to the investor amounted to $0. The unpaid principal balance of the Note is $55,000 at March 31, 2019, the remaining unamortized discount is $2,473, and accrued interest is $512. For the three months ended March 31, 2019 the Company also amortized to interest expense $566 from the amortization of the discount.

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 (the “ SPA ”) 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.

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. The Warrants are considered equity instruments based on the Company’s adoption of ASU 2017-11.

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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 $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 Note.

The unpaid principal balance of the Notes is $100,000 and the balance of the unamortized discount is $10,457 at March 31, 2019. Interest expense paid to the investors amounted to $822 for the three months ended March 31, 2019. For the three months ended March 31, 2019 the Company also amortized to interest expense $769 from the amortization of the discount.

8. RELATED PARTIES

At March 31, 2019 and December 31, 2018, the amount due to stockholders was $1,000. The balance is payable to two stockholders related to opening bank balances.

At March 31, 2019 and December 31, 2018 accounts payable due to three officers was $338,876 and $237,514, respectively which is represented in accounts payable on the consolidated balance sheets. 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.

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 terminates on June 30, 2019. For the three months ended March 31, 2019 and 2018, rent expense paid to the stockholder amounted to $6,000.

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 approximately $0 and approximately $21,000, for the three months ended March 31, 2019 and 2018, respectively.

For the three months ended March 31, 2019 and 2018, professional expense paid to directors and officers of the Company amounted to approximately $0 and $43,000, respectively. For the three months ended March 31, 2019 and 2018, travel expense paid on behalf of directors and officers of the Company amounted to approximately $10,000 and $0, respectively.

9. 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 was nothing material to disclose.

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contain certain forward-looking statements. Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events; are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited to, those discussed 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 March 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:

	·	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 by effective use of intellectual property laws;

·

the financial strength of our competitors;

·

the outcome of any future litigation or commercial dispute;

·

barriers to entry imposed by competitors with significant market power in new markets;

	·	government actions throughout the world; and
	·	our ability to service secured debt, when due.

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

Critical Accounting Policies

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

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

Trends and Uncertainties

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

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

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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 expects to realize revenue growth in 2019 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 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 our business 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.

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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.

Liquidity and Capital Resources

At March 31, 2019, the Company had a cash balance of $75,759, which represents a $36,533 increase from the $39,226 balance at December 31, 2018. This increase was primarily the result of cash received from the issuance of convertible notes offset by cash used to satisfy the requirements of a reporting company and due to acceleration in product development activities. The Company’s working capital at March 31, 2019 was a deficit of $925,977, as compared to a December 31, 2018 working capital deficit of $750,696.

For the three months ended March 31, 2019, we incurred a net loss of $780,038. Net cash used in operating activities was $118,467 for the three months ended March 31, 2019.

For the three months ended March 31, 2018, we incurred a net loss of $259,833. Net cash used in operating activities was $180,477 for the three months ended March 31, 2018.

For the three months ended March 31, 2019, investing activities consisted of $0. During the same period, financing activities consisted of $155,000 of cash received from the issuance of Convertible Notes.

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For the three months ended March 31, 2018, investing activities consisted of $119 of cash received in conjunction with the acquisition of HereLab, Inc. During the same period, financing activities consisted of cash received totaling $500,677 from an infusion of owner’s capital and proceeds from a convertible note payable.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has incurred losses from operations of $780,038 for the three months ended March 31, 2019, and $259,833 for the three months ended March 31, 2018 and has an accumulated deficiency which raises substantial doubt about the Company’s ability to continue as a going concern.

Management believes the Company will continue to incur losses and negative cash flows from operating activities for the foreseeable future and will need additional equity or debt financing to sustain its operations until it can achieve profitability and positive cash flows, if ever. Management plans to seek additional debt and/or equity financing for the Company but cannot assure that such financing will be available on acceptable terms. At our current rate of expenditure, we anticipate being able to maintain current operations for five months; however, management is proposing to raise any necessary additional funds not provided by operations through loans or through additional sales of equity securities. There is no assurance that the Company will be successful in raising this additional capital or in achieving profitable operations.

The Company’s continuation as a going concern is dependent upon its ability to ultimately attain profitable operations, generate sufficient cash flow to meet its obligations, and obtain additional financing as may be required. Our auditors have included a going concern qualification in their auditors’ report dated April 16, 2019. Such a going concern qualification may make it more difficult for us to raise funds when needed. The outcome of this uncertainty cannot be assured.

The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. There can be no assurance that management will be successful in implementing its business plan or that the successful implementation of such business plan will actually improve the Company’s operating results.

Results of Operations for the Three Months Ended March 31, 2019 Compared to the Three Months ended March 31, 2018

For the three months ended March 31, 2019, we earned revenues of $42,837 and incurred related cost of sales of $12,169. We incurred professional fees of $488,806 and other general and administrative expenses of $38,232. We incurred other expenses of $283,668. As a result, we incurred a net loss of $780,038 for the three months ended March 31, 2019.

Comparatively, for the three months ended March 31, 2018, we earned revenues of $13,650 and incurred related cost of sales of $8,750. We incurred professional fees of $142,994 and other general and administrative expenses of $65,301. We incurred other expenses of $56,438. As a result, we incurred a net loss of $259,833 for the three months ended March 31, 2018.

During the current and prior period, the Company 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 growth for the quarter ended March 31, 2019 was more than 3x the comparable quarter ended March 31, 2018. This significant achievement is attributed to several factors: the continuing impact of an experienced leadership team; execution from our technology team, especially in the area of Artificial Intelligence & Machine Learning (AI & ML); execution of contracts secured; and focus on high potential growth markets (specifically Biotech, Pharma, and Medical Device Operations). Furthermore, this impressive YoY quarterly revenue growth is a confirmation of the rapid growth of the Industrial Internet of Things (IIoT) market, and our unique value proposition to serve said rapidly growing market. Market research shows the worldwide IIoT market in 2017 was $92 billion USD, and is projected to be $227 billion USD by 2021 (25% CAGR). ^[1] Our edge computing open-source hardware and proprietary ML algorithms employ our Minimally-Invasive Load Monitoring (MILM) technology to simply gather data and gain insights to monitor and scope power, move from preventive to predictive maintenance, and even optimize development and manufacturing processes. This unique value proposition has been embraced by our customers, including a Fortune 500 pharmaceutical manufacturer. It is important to note that this rapid YoY quarterly revenue came about despite some lag in securing the additional capital funding received this quarter, which totaled $155,000.

^[1] https://www.ptc.com/-/media/Files/PDFs/IoT/State-of-IIoT-Whitepaper.pdf

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We continue to be on track for 2019 YoY revenue growth that will meet or exceed that of 2018. This is due to the factors stated above that are now firmly in place: experienced leadership; savvy technological talent, operational execution excellence; and focus on new customers and expanded business with the current customer base. Combined with the continued rapid growth of the IIoT market and the anticipated continued infusion of expected additional capital funding, we are clearly poised for continued strong growth and performance in 2019.

Recently Issued Accounting Standards

Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying financial statements.

Off-Balance Sheet Arrangements

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

Emerging Growth Company

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Certain specified reduced reporting and other regulatory requirements that are available to public companies that are emerging growth companies. These provisions include:

1.

an exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002;

2.

an exemption from the adoption of new or revised financial accounting standards until they would apply to private companies;

3.

an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about our audit and our financial statements; and

4.

reduced disclosure about our executive compensation arrangements.

We have elected to take advantage of the exemption from the adoption of new or revised financial accounting standards until they would apply to private companies. As a result of this election, our financial statements may not be comparable to public companies required to adopt these new requirements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. 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, Clifford L. Emmons, who serves as our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Mr. Emmons, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, as of March 31, 2019. Based on his evaluation, Mr. Emmons concluded that our disclosure controls and procedures were not effective as of March 31, 2019.

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 March 31, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Uptick Capital LLC Issuance

On January 10, 2019, the Company entered into a Strategic Advisory Agreement (the “ Uptick Agreement ”) with Uptick Capital LLC (“ Uptick ”).

In consideration of receipt of the services from Uptick pursuant to the Uptick Agreement, during the three months ended March 31, 2019, the Company issued an aggregate of 507,323 shares of Common Stock to Uptick (the “ Uptick Shares ”).

Uptick delivered to the Company appropriate investment representations with respect to the Uptick Shares and consented to the imposition of restrictive legends upon the stock certificates representing the Uptick Shares. Uptick did not enter into the transaction with the Company as a result of or subsequent to any advertisement, article, notice, or other communication published in any newspaper, magazine, or similar media or broadcast on television or radio, or presented at any seminar or meeting. Uptick was also afforded the opportunity to ask questions of management and to receive answers concerning the terms and conditions of the transaction. The Uptick Shares were issued without registration under the Securities Act of 1933, as amended, by reason of the exemption from registration afforded by the provisions of Section 4(a)(2) thereof, and Rule 506(b) promulgated thereunder, as a transaction by an issuer not involving any public offering. No selling commissions were paid in connection with the issuance of the Uptick Shares.

Cambridge Medspace, LLC 5% Senior Secured Convertible Note

On January 22, 2019, the Company entered into a Securities Purchase Agreement with Cambridge MedSpace, LLC, a Massachusetts limited liability company (the “ Lender ”), for the purchase of a 5% Secured Convertible Note in the principal amount of $55,000 (the “ Note ”). In addition to the issuance of the Note, the Company issued to the Lender 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 the Note (the “ Warrants ”).

The Lender delivered to the Company appropriate investment representations with respect to the Note and Warrants and consented to the imposition of restrictive legends upon the Note, the Warrant, and the shares underlying the exercise of the Warrants (the “ Conversion Shares ”). The Lender did not enter into the transaction with the Company as a result of or subsequent to any advertisement, article, notice, or other communication published in any newspaper, magazine, or similar media or broadcast on television or radio, or presented at any seminar or meeting. The Lender was also afforded the opportunity to ask questions of management and to receive answers concerning the terms and conditions of the transaction. The Note and the Warrants were issued without registration under the Securities Act of 1933, as amended, by reason of the exemption from registration afforded by the provisions of Section 4(a)(2) thereof, and Rule 506(b) promulgated thereunder, as a transaction by an issuer not involving any public offering. No selling commissions were paid in connection with the issuance of the Note and the Warrants.

Item 6. Exhibits

SEC Ref. No.	Title of Document
31.1	Rule 13a-14(a) Certification by Principal Executive and Financial Officer
32.1	Section 1350 Certification of Principal Executive and Financial Officer
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

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

	IIOT-OXYS, Inc.


Date: May 15, 2019	By	/s/ Clifford L. Emmons
		Clifford L. Emmons, Chief Executive Officer and Interim Chief Financial Officer
		(Principal Executive Officer and Principal
		Financial Officer)