IIOT-OXYS, Inc. 10-K

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, 2020. 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, 2020. 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, 2020 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, 2020, based on criteria described in Internal Control – Integrated Framework (2013) issued by COSO. 29 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 2019 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. If we are unable to increase our workforce, we may never be able to implement the remediation plan proposed above. 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, 2020, 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 59 Karen McNemar Chief Operating Officer 51 Chandran Seshagiri Interim Chief Technology Officer 45 Directors : Clifford L. Emmons Director 59 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. 30 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. Chandran Seshagiri: Mr. Seshagiri has served as our Interim Chief Technology Officer since April 1, 2021. During the last five years, Mr. Seshagiri was the Lead Research Scientist for Cephalogics, LLC as well as Director of Scientific Affairs for NeoSync, Inc. (acquired in 2019). Mr. Seshagiri has also been a Scientific Advisor and Technical consultant to Invisio Medical, Inc. In addition to these roles, Mr. Seshagiri has consulted for other medical device companies on technology strategy, algorithm development and evaluation, and clinical study planning. 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. 31 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 We are unaware of any person who, at any time during the fiscal year ended December 31, 2020, 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. 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. 32 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, 2020 and 2019. Summary Compensation Table Name and principal position Year Salary ($) Stock Awards ($) Total ($) Clifford Emmons (1) 2020 21,677 (2) 14,300 (3) 35,977 2019 180,000 (4) 228,871 (5) 408,871 Antony Coufal (6) 2020 23,687 (7) 9,300 (8) 32,987 2019 112,500 (9) 134,630 (10) 247,130 Karen McNemar (11) 2020 52,547 (12) 8,560 (13) 61,107 2019 153,000 (14) 180,180 (15) 333,180 (1) Mr. Emmons was appointed as our CEO, President, and interim CFO on June 4, 2018. (2) As of December 31, 2020, Mr. Emmons was owed $115,907 in accrued and unpaid consulting fees and $17,001 in reimbursable expenses. (3) On June 4, 2020, 1,000,000 shares of Common Stock previously granted to Mr. Emmons vested. (4) 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. (5) On June 4, 2019, 560,000 shares of Common Stock previously granted to Mr. Emmons vested. (6) Mr. Coufal was appointed as our CTO on April 23, 2018. (7) As of December 31, 2020, Mr. Coufal was owed $117,917 in accrued and unpaid consulting fees and $8,226 in reimbursable expenses. (8) On April 23, 2020, 600,000 shares of Common Stock previously granted to Mr. Coufal vested. (9) 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. (10) On April 23, 2019, 300,000 shares of Common Stock previously granted to Mr. Coufal vested. (11) Ms. McNemar was appointed as our COO effective as of September 20, 2018. (12) As of December 31, 2020, Ms. McNemar was owed $120,814 in accrued and unpaid consulting fees and $18,000 in reimbursable expenses. (13) On October 1, 2020, 800,000 shares of Common Stock previously granted to Ms. McNemar vested. (14) 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. (15) On October 1, 2019, 409,000 shares of Common Stock previously granted to Ms. McNemar vested. Emmons Consulting Agreement On March 11, 2019, the Company’s Board of Directors (with Mr. Emmons abstaining) approved the Consulting Agreement dated effective June 4, 2018 with Clifford Emmons, the Company’s Chief Executive Officer, Interim Chief Financial Officer, and director (the “ Emmons Agreement ”). The term of the Emmons Agreement is for three years beginning as of the effective date, unless terminated earlier pursuant to the agreement and is automatically renewable for one-year terms upon the consent of the parties. The services to be provided by Mr. Emmons pursuant to the Emmons Agreement are those customary for the positions in which he is serving. Mr. Emmons shall receive a monthly fee of $15,000 which accrues unless converted into shares of Common Stock of the Company at a conversion rate specified in the Emmons Agreement. Until the Company closes a minimum $500,000 capital raise, the monthly fee accrues and, upon the closing of such a capital raise, $5,000 of the monthly fee will be paid to Mr. Emmons in cash and the remainder will continue to accrue. Upon the closing of a capital raise of at least $2,000,000, the entire monthly fee will be paid to Mr. Emmons in cash and all accrued and unpaid monthly fees will be paid by the Company within one year of the closing of such a capital raise. 33 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. 34 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. 35 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. 36 Share Exchange Agreements As of November 9, 2020, we entered into a Share Exchange Agreements (the “ Exchange Agreements ”) with Mr. Emmons, Vidhyadhar Mitta, our director, and Ms. McNemar pursuant to which: · we agreed to sell Mr. Emmons 7,800 shares of Series A Preferred Stock (as defined below) in exchange for 780,000 unissued, vested shares of our Common Stock; · we agreed to sell Mr. Mitta 12,000 shares of Series A Preferred in exchange for 1,000,000 unissued, awarded shares of our Common Stock and $168 in accrued and unpaid interest pursuant to a note issued to Mr. Mitta; and · we agreed to sell Ms. McNemar 6,045 shares of Series A Preferred Stock in exchange for 604,500 unissued, vested shares of our Common Stock. Equity Awards The following table sets forth information concerning as of the year ended December 31, 2020 for our named executive officers. Outstanding Equity Awards at Fiscal Year-End Stock awards Name Number of shares or units of stock that have not vested (#) Market value of shares of units of stock that have not vested ($) 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 1,500,000 450,000 (1) 1,500,000 450,000 Antony Coufal 900,000 270,000 (1) 900,000 270,000 Karen McNemar 1,200,000 360,000 (1) 1,200,000 360,000 (1) The fair market value was deemed $0.30 per share. Compensation of Directors The following table sets forth information concerning the compensation awarded to, earned by, or paid to the following directors for all services rendered in all capacities to our company and its subsidiaries for the year ended December 31, 2020. Except for Mr. Emmons (whose compensation is disclosed above), this table includes any person who served as a director at any time during fiscal 2019. 37 Except as described below, we have not entered into any employment or compensation agreements or arrangements with Mr. Mitta for his services as a director of our company. Director Compensation Name Fees earned or paid in cash ($) Stock Awards ($) Total ($) Vidhyadhar Mitta 0 8,600 (1) 8,600 (1) On November 9, 2020, our Board of Directors (with Mr. Mitta abstaining) approved the award of 1,000,000 shares of our Common Stock to Mr. Mitta for services rendered to the Company in his capacity as a director since his appointment. 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 as of March 15, 2021. In calculating any percentage in the following table of common stock beneficially owned by one or more persons named therein, the following table assumes 178,361,108 shares of common stock outstanding. Unless otherwise further indicated in the following table, the footnotes thereto and/or elsewhere in this report, the persons and entities named in the following table have sole voting and sole investment power with respect to the shares set forth opposite the shareholder’s name, subject to community property laws, where applicable. Unless as otherwise indicated in the following table and/or the footnotes thereto, the address of our named executive officers and directors in the following tables is: 705 Cambridge Street, Cambridge, MA 02141. Name and Address of Beneficial Owner Amount and Nature of Beneficial Ownership (1) Percent of Class (1) Named Executive Officers and Directors Clifford Emmons 83,031,849 (2) 31.86% Antony Coufal 7,198,144 (3) 3.90% Karen McNemar 6,646,130 (4) 3.59% Vidhyadhar Mitta 179,179,105 (5) 50.36% Executive Officers, Named Executive Officers, and Directors as a Group (4 Persons) 275,155,228 61.13% 5% Beneficial Holders (Not Named Above) Sergey Gogin 3080 W 1 st Apt 601 Brooklyn, NY 11224 62,781,573 (6) 26.17% Cambridge MedSpace LLC 705 Cambridge Street Cambridge, MA 02141 76,160,417 (7) 29.92% *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 March 15, 2021. 38 (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 76,123,750 shares issuable upon the conversion of a note issued to Cambridge MedSpace LLC. Includes 5,311,432 shares of Common Stock issuable upon the conversion of $123,119 in accrued and unpaid consulting fees. Lastly, includes 780,000 shares issuable upon the conversion of shares of Series A Preferred Stock owned by Mr. Emmons. (3) Includes 5,398,144 shares of Common Stock issuable upon the conversion of $125,129 in accrued and unpaid salary and 900,000 shares of Common Stock issuable upon the vesting of an award on April 23, 2021. (4) Includes 6,041,630 shares of Common Stock issuable upon the conversion of $140,045 in accrued and unpaid salary. Lastly, includes 604,500 shares issuable upon the conversion of shares of Series A Preferred Stock owned by Ms. McNemar. (5) Includes 1,562,500 shares issuable upon the exercise of warrants. Also includes 174,679,762 shares issuable upon the conversion of a note issued to Mr. Mitta. Lastly, includes 1,200,000 shares issuable upon the conversion of shares of Series A Preferred Stock owned by Mr. Mitta. (6) Includes 54,984,600 shares issuable upon the conversion of a note issued to Mr. Gogin and 384,615 shares issuable upon the exercise of warrants. Also includes 6,004,200 shares issuable upon the conversion of a note issued to YVSGRAMORAH LLC, an entity controlled by Mr. Gogin and 125,000 warrants issuable upon the exercise of warrants issued to YVSGRAMORAH LLC. (7) 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 75,427,500 shares issuable upon the conversion of a note issued to Cambridge MedSpace LLC. The following table sets forth information known to us regarding the beneficial ownership of our Series A Supervoting Preferred Stock as of March 15, 2021. Title of Class Name and address of beneficial owner Amount and nature of beneficial ownership Percent of Class Series A Supervoting Preferred Stock Vidhyadhar Mitta 12,000 46.43% Clifford L. Emmons 7,800 30.18% Karen McNemar 6,045 23.39% The following table sets forth information known to us regarding the beneficial ownership of our Series B Convertible Preferred Stock as of March 15, 2021. Title of Class Name and address of beneficial owner (1) Amount and nature of beneficial ownership Percent of Class Series B Convertible Preferred Stock GHS Investments, LLC 155 100% 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. 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. 39 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 $0.0008. 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 $0.0008. Director Independence We are not currently subject to listing requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the board of directors be “independent” and, as a result, we are not at this time required to have our Board of Directors comprised of a majority of “independent directors.” Although we have not have adopted the independence standards any national securities exchange to determine the independence of directors, the NYSE MKT LLC provides that a person will be considered an independent director if he or she is not an officer of the company and is, in the view of our board of directors, free of any relationship that would interfere with the exercise of independent judgment. Under this standard, our board of directors has determined that Mr. Mitta would meet this standard, and therefore, would be considered to be independent. 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, 2020 were $32,500 and $31,520 for the period ended December 31, 2019. 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, 2020 and 2019. 40 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, 2020 and 2019. 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, 2020 and 2019. 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, 2020 and 2019 Statements of Operations for the years ended December 31, 2020 and 2019 Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2020 and 2019 Statements of Cash Flows for the years ended December 31, 2020 and 2019 Notes to Financial Statements 41 Exhibits The following exhibits are included with this Annual 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 3.6 Certificate of Amendment to Articles of Incorporation filed with the Nevada Secretary of State effective January 18, 2021 8-K 000-50773 3.1 1/19/21 3.7 Certificate of Designation for Series B Convertible Preferred Stock 8-K 000-50773 3.1 11/24/20 3.8 Certificate of Designation filed with the Nevada Secretary of State on July 2, 2020 8-K 000-50773 3.1 11/13/20 3.9 Certificate of Designation filed with the Nevada Secretary of State on November 9, 2020 8-K 000-50773 3.2 11/13/20 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 42 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 10-K 000-50773 10.31 6/23/20 10.32 Warrant Agreement with Vidhyadhar Mitta dated October 16, 2019 10-K 000-50773 10.32 6/23/20 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 10.38 Equity Financing Agreement between IIOT-OXYS, Inc. and GHS Investments LLC dated as of July 29, 2020 8-K 000-50773 99.1 8/3/20 10.39 Registration Rights Agreement between IIOT-OXYS, Inc. and GHS Investments LLC dated as of July 29, 2020 8-K 000-50773 99.2 8/3/20 10.40 $100,000 Convertible Promissory Note dated July 29, 2020 issued to GHS Investments LLC 8-K 000-50773 99.3 8/3/20 10.41 $75,000 Convertible Promissory Note dated July 29, 2020 issued to GHS Investments LLC 8-K 000-50773 99.4 8/3/20 10.42 Collaboration Agreement effective March 18, 2020 with Aingura IIoT, S.L. 10-Q 000-50773 10.1 8/19/20 43 10.43 Finder’s Fee Agreement with J.H. Darbie & Co., Inc. dated May 18, 2020 10-Q 000-50773 10.1 9/14/20 10.44 Common Stock Purchase Warrant dated May 20, 2020 10-Q 000-50773 10.2 9/14/20 10.45* Debt Forgiveness Agreement with Clifford L. Emmons effective as of December 31, 2019 10-Q 000-50773 10.3 9/14/20 10.46* Debt Forgiveness Agreement with Karen McNemar effective as of December 31, 2019 10-Q 000-50773 10.4 9/14/20 10.47* Debt Forgiveness Agreement with Antony Coufal effective as of December 31, 2019 10-Q 000-50773 10.5 9/14/20 10.48* Amendment to Consulting Agreement with Clifford L. Emmons dated June 12, 2020 10-Q 000-50773 10.6 9/14/20 10.49* Amendment to Consulting Agreement with Karen McNemar dated June 12, 2020 10-Q 000-50773 10.7 9/14/20 10.50* Amendment to Consulting Agreement with Antony Coufal dated June 12, 2020 10-Q 000-50773 10.8 9/14/20 10.51 Amendment No. 1 to the 5% Secured Promissory Note with Cambridge MedSpace, LLC 10-Q 000-50773 10.9 9/14/20 10.52 Securities Purchase Agreement dated November 16, 2020 with GHS Investments, LLC S-1 333-252887 10.52 2/9/21 10.53 Settlement and Mutual Release Agreement dated July 29, 2020 10-Q 000-50773 10.1 11/16/20 10.54 Amendment No. 1 to Senior Secured Convertible Promissory Note with Catalytic Capital LLC 10-Q 000-50773 10.2 11/16/20 10.54 Amendment No. 1 to Senior Secured Convertible Promissory Note with YVSGRAMORAH LLC 10-Q 000-50773 10.3 11/16/20 10.55* Exchange Agreement Dated November 9, 2020 with Clifford L. Emmons S-1 333-252887 10.55 2/9/21 10.56* Exchange Agreement Dated November 9, 2020 with Vidhyadhar Mitta S-1 333-252887 10.56 2/9/21 10.57* Exchange Agreement Dated November 9, 2020 with Karen McNemar S-1 333-252887 10.57 2/9/21 14.1 Code of Ethics 10-K 000-50773 14.1 4/17/18 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-1 333-252887 23.1 2/9/21 23.2 Consent of Attorney S-1 333-252887 23.2 2/9/21 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 44 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: April 6, 2021 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 April 6, 2021 Clifford L. Emmons /s/ Vidhyadhar Mitta Director April 6, 2021 Vidhyadhar Mitta 45 INDEX TO FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm F-2 Balance Sheets at December 31, 2020 and 2019 F-3 Statements of Operations for the years ended December 31, 2020 and 2019 F-4 Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2020 and 2019 F-5 Statements of Cash Flows for the years ended December 31, 2020 and 2019 F-6 Notes to Financial Statements F-7 F- 1 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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, 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. Haynie & Company Salt Lake City, Utah April 6, 2021 We have served as the Company’s auditor since 2018. F- 2 IIOT-OXYS, Inc. and Subsidiaries Consolidated Balance Sheets December 31, 2020 December 31, 2019 ASSETS Current Assets Cash and Cash Equivalents $ 103,074 $ 24,212 Accounts Receivable, Net – 28,004 Prepaid Expenses 2,427 3,710 Total Current Assets 105,501 55,926 Intangible Assets, Net 347,856 397,492 Total Assets $ 453,357 $ 453,418 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities Accounts Payable $ 169,914 $ 164,562 Accrued Liabilities 147,490 54,497 Deferred Revenue 46,425 – Notes Payable, Current Portion 953,219 – Shares Payable to Related Parties 730,836 1,102,645 Salaries Payable to Related Parties 407,271 343,227 Derivative Liability 315,782 – Total Current Liabilities 2,770,937 1,664,931 Notes Payable – 706,508 PPP Liability 36,700 – Due to Stockholders 1,000 1,000 Total Liabilities 2,808,637 2,372,439 Commitments and Contingencies (Note 4) Series B Convertible Preferred Stock, 600 Shares Designated, $0.001 Par Value, $1,200 Stated Value; 155 Shares and 0 Shares Issued and Outstanding at December 31, 2020 and 2019, Respectively. Liquidation Preference $186,000 as of December 31, 2020. 186,000 – Stockholders' Equity (Deficit) Preferred Stock Series A, $0.001 Par Value, 10,000,000 Shares authorized; 25,845 Shares and 0 Shares Issued and Outstanding at December 31, 2020 and 2019, Respectively 26 – Common Stock $0.001 Par Value, 190,000,000 shares Authorized; 145,110,130 Shares and 43,313,547 Shares Issued and Outstanding at December 31, 2020 and 2019, Respectively 145,111 43,314 Additional Paid in Capital 4,794,261 3,077,972 Accumulated Deficit (7,480,678 ) (5,040,307 ) Total Stockholders' Equity (Deficit) (2,541,280 ) (1,919,021 ) Total Liabilities and Stockholders' Equity (Deficit) $ 453,357 $ 453,418 The accompanying notes are an integral part of these consolidated financial statements. F- 3 IIOT-OXYS, Inc. and Subsidiaries Consolidated Statements of Operations For The Years Ended December 31, 2020 2019 Revenues $ 36,771 $ 147,151 Cost of Sales 15,044 38,960 Gross Profit 21,727 108,191 Operating Expenses Demo Parts – 570 Bank Service Charges 5,478 3,467 Office Expenses 12,940 34,650 Organization Costs 36,030 19,997 Insurance – 17,268 Payroll Expense 137,220 – Professional 802,135 1,807,286 Travel – 32,687 Patent License Fee 4,932 6,363 Amortization of Intangible Assets 49,636 49,500 Total Operating Expenses 1,048,371 1,971,787 Other Income (Expense) Gain on Forgiveness of Salaries Payable to Related Parties – 370,725 Gain (Loss) on Change in FMV of Derivative Liability (220,325 ) – Loss on Derivative (239,396 ) – Loss on Extinguishment of Debt (16,205 ) (221,232 ) Interest Expense (737,541 ) (173,183 ) Other Income 5,000 – Total Other Income (Expense) (1,208,467 ) (23,690 ) Net Loss Before Income Taxes (2,235,111 ) (1,887,287 ) Provision for Income Tax – – Net Loss $ (2,235,111 ) $ (1,887,287 ) Convertible Preferred Stock Dividend (1,663 ) – Net Loss Attributable to Common Stockholders $ (2,236,774 ) $ (1,887,287 ) Net Loss Per Share Attributable to Common Stockholders - Basic and Diluted $ (0.02 ) $ (0.04 ) Weighted Average Shares Outstanding Attributable to Common Stockholders - Basic and Diluted 110,119,684 42,334,210 The accompanying notes are an integral part of these consolidated financial statements. F- 4 IIOT-OXYS, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity (Deficit) For the Years Ended December 31, 2020 and 2019 Preferred Stock Common Stock Additional Paid-In Accumulated Total Stockholders' Equity Shares Amount Shares Amount Capital Deficit (Deficit) Balance - December 31, 2018 – $ – 40,633,327 $ 40,634 $ 2,572,751 $ (3,153,020 ) $ (539,635 ) 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 ) Preferred Stock Issued in Exchange of Shares Exchange 25,845 26 – – 424,092 – 424,118 Common Stock Issued for Conversion of Convertible Note Payable – – 51,950,000 51,950 10,686 – 62,636 Common Stock issued for Conversion of Detachable Warrants – – 40,802,082 40,802 (40,802 ) – – Relief of Derivative Liabilities – – – – 235,393 – 235,393 Warrants Issued for Default of Convertible Note Payables – – – – 163,433 – 163,433 Changes in FMV of Warrants Related to Convertible Note Payables – – – – 203,597 (203,597 ) – Beneficial Conversion Feature Discount on Note Payable – – – – 26,833 – 26,833 Common Stock Issued for Extinguishment of Debt – – 6,760,000 6,760 9,991 – 16,751 Common Stock Issued to Officers for Services – – 2,284,500 2,285 683,066 – 685,351 Net Loss – – – – – (2,236,774 ) (2,236,774 ) Balance - December 31, 2020 25,845 $ 26 145,110,129 $ 145,111 $ 4,794,261 $ (7,480,678 ) $ (2,541,280 ) The accompanying notes are an integral part of these consolidated financial statements. F- 5 IIOT-OXYS, Inc. and Subsidiaries Consolidated Statements of Cash Flows For The Years Ended December 31, 2020 2019 Cash Flows From Operating Activities Net Loss $ (2,236,774 ) $ (1,887,287 ) Adjustments to Reconcile Net Loss to Net Cash (Used) By Operating Activities Loss on Extinguishment of Debt 16,205 221,232 Loss on Issuance of Default Warrants 163,433 – Loss due to Change in Fair Market Value of Derivative Liability 220,325 – Loss on Derivative Liability 239,396 – Preferred Stock Issued for Services 8,794 – Penalty and Fees Incurred due to Default Increase in Notes Payable 162,976 – Stock Based Compensation Expense – 354,360 Amortization of Discount on Notes Payable 106,388 93,886 Amortization of Intangible Assets 49,636 49,500 Amortization of Series B Preferred Stock to redemption 186,000 – Forgiveness of Salaries Payable to Related Parties – (370,725 ) Changes in Operating Assets and Liabilities (Increase) Decrease in: Accounts Receivable 28,004 4,996 Inventory – 317 Prepaid Expense 1,283 742 Increase (Decrease) in: Accounts Payable 5,352 18,274 Accrued Liabilities 92,483 54,497 Deferred Revenue 46,425 – Shares Payable to Related Parties 728,892 652,916 Salaries Payable to Related Parties 64,044 482,278 Net Cash Used by Operating Activities (117,138 ) (325,014 ) Cash Flows From Financing Activities Cash Received from Convertible Note Payable 129,300 310,000 Cash Payments of Notes Payable (100,000 ) – Proceeds from sale of Series B Preferred Stock 130,000 – Proceeds from PPP Loan 36,700 – Net Cash Provided By Financing Activities 196,000 310,000 Net Decrease in Cash and Cash Equivalents 78,862 (15,014 ) Cash and Cash Equivalents - Beginning of Period 24,212 39,226 Cash and Cash Equivalents - End of Period $ 103,074 $ 24,212 Supplement Disclosures of Cash Flow Information Interest Paid During the Period $ – $ 53,367 Income Taxes Paid During the Period $ – $ – Supplemental Disclosures of Non-Cash Investing and Financing Activities Discount on Notes Payable $ 26,833 $ 153,541 Conversion of Convertible Notes Payable and Derivative Liabilities $ 288,029 $ – Warrant Anti-Dilution Issuance $ 203,597 $ – Discount on Series B Preferred Stock $ 186,000 $ – The accompanying notes are an integral part of these consolidated financial statements. F- 6 IIOT-OXYS, Inc. and Subsidiaries Notes to Consolidated Financial Statements December 31, 2020 and 2019 NOTE 1 - NATURE OF OPERATIONS, BASIS OF PRESENTATION AND GOING CONCERN Unless otherwise indicated, any reference to “the Company”, “our company”, “we”, “us”, or “our” refers to IIOT-OXYS, Inc., a Nevada corporation, and as applicable to its wholly-owned subsidiaries, OXYS Corporation, a Nevada corporation, and HereLab, Inc., a Delaware corporation. IIOT-OXYS, Inc., a Nevada corporation (the “Company”) was originally established for the purpose of designing, building, testing, and selling Edge Computing Systems for the Industrial Internet. The Company is currently devoting substantially all its efforts in identifying, developing and marketing engineered products, software and services for applications in the Industrial Internet which involves collecting and processing data collected from a wide variety of industrial systems and machines. We were incorporated in the state of New Jersey on October 1, 2003 under the name of Creative Beauty Supply Corporation and commenced operations as of January 1, 2004. On November 30, 2007, our Board of Directors approved a plan to dispose of our wholesale and retail beauty supply business. On May 18, 2015, we changed our name to Gotham Capital Holdings. From January 1, 2009 until July 28, 2017, we had no operations. On March 16, 2017, our Board of Directors approved to change our name to “IIOT-OXYS, Inc.” and authorized a change of domicile from New Jersey to Nevada. Impact of COVID-19 During the year ended December 31, 2020, the effects of a new coronavirus (“COVID-19”) and related actions to attempt to control its spread began to impact our business. The impact of COVID-19 on our operating results for the year ended December 31, 2020 was limited, in all material respects, due to the government mandated numerous measures, including closures of businesses, limitations on movements of individuals and goods, and the imposition of other restrictive measures, in its efforts to mitigate the spread of COVID-19 within the country. On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. Governments around the world have mandated, and continue to introduce, orders to slow the transmission of the virus, including but not limited to shelter-in-place orders, quarantines, significant restrictions on travel, as well as work restrictions that prohibit many employees from going to work. Uncertainty with respect to the economic effects of the pandemic has introduced significant volatility in the financial markets. Basis of Presentation The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company. The financial statements and accompanying notes are the representations of the Company’s management, who is responsible for their integrity and objectivity. In the opinion of the Company’s management, the financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. Principles of Consolidation The consolidated financial statements for the years ended December 31, 2020 and 2019, respectively, include the accounts of Company, and its wholly-owned subsidiaries OXYS Corporation and HereLab, Inc. All significant intercompany balances and transactions have been eliminated. F- 7 Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of accounts payable, accrued liabilities and payable to related party. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has suffered continuing operating losses, used cash flows in operating activities of $117,138 and has an accumulated deficit of $7,480,678 as of December 31, 2020. These factors, among others, raise a substantial doubt about the Company’s ability to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations. The accompanying financial statements do not include any adjustments to reflect the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Management believes that the Company will be able to achieve a satisfactory level of liquidity to meet the Company’s obligations for the next 12 months by generating cash through additional borrowings and/or sale of equity securities, as needed. However, there can be no assurance that the Company will be able to generate sufficient liquidity to maintain its operations. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following summary of significant accounting policies of the Company is presented to assist in the understanding of the Company’s financial statements. These accounting policies conform to GAAP in all material respects and have been consistently applied in preparing the accompanying financial statements. Cash and Cash Equivalents The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. The Company reported a cash balance of $103,074 and $24,212 as of December 31, 2020 and 2019, respectively. Accounts Receivable and Allowance for Doubtful Accounts Trade accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts. The Company determines the allowance for doubtful accounts by identifying potential troubled accounts and by using historical experience and future expectations applied to an aging of accounts. Trade accounts receivable are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are recorded as income when received. There was no allowance for doubtful accounts as of December 31, 2020 and December 31, 2019, respectively. Long-Lived Assets The Company regularly reviews the carrying value and estimated lives of its long-lived assets to determine whether indicators of impairment may exist that warrant adjustments to the carrying value or estimated useful lives. The determinants used for this evaluation include management’s estimate of the asset’s ability to generate positive income from operations and positive cash flow in future periods as well as the strategic significance of the assets to the Company’s business objectives. Definite-lived intangible assets are amortized on a straight-line basis over the estimated periods benefited and are reviewed when appropriate for possible impairment. F- 8 Basic and Diluted Earnings (Loss) Per Common Share The Company computes earnings (loss) per share in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”), ASC 260, “ Earnings per Share” . ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible note and preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. Revenue Recognition The Company’s revenue is derived primarily from providing services under contractual agreements. The Company recognizes revenue in accordance with ASC Topic No. 606, Revenue from Contracts with Customers (“ASC 606”) which was adopted on January 1, 2018. According to ASC 606, the Company recognizes revenue based on the following criteria: · Identification of a contract or contracts, with a customer. · Identification of the performance obligations in the contract. · Determination of contract price. · Allocation of transaction price to the performance obligation. · Recognition of revenue when, or as, performance obligation is satisfied. The Company used a practical expedient available under ASC 606-10-65-1(f)4 that permits it to consider the aggregate effect of all contract modifications that occurred before the beginning of the earliest period presented when identifying satisfied and unsatisfied performance obligations, transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations. The Company has elected to treat shipping and handling activities as cost of sales. Additionally, the Company has elected to record revenue net of sales and other similar taxes. Concentration of Credit Risk Financial instruments that potentially expose the Company to concentrations of risk consist primarily of cash and cash equivalents which are generally not collateralized. The Company’s policy is to place its cash and cash equivalents with high quality financial institutions, in order to limit the amount of credit exposure. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (FDIC), up to $250,000. At December 31, 2020 and December 31, 2019, the Company had no amounts in excess of the FDIC insurance limit. Fair Value of Financial Instruments and Fair Value Measurements ASC 820, “ Fair Value Measurements and Disclosures”, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value: F- 9 Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. The Company’s consolidated financial instruments consist principally of cash, prepaid expenses, accounts payable, accrued liabilities, notes payable and related parties payable. The Company believes that the recorded values of all the financial instruments approximate their current fair values because of their nature and respective maturity dates or durations. Income Taxes The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “ Income Taxes” . The asset and liability method provide that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. The Company follows the provisions of ASC 740-10, “ Accounting for Uncertain Income Tax Positions .” When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Convertible Debt and Convertible Preferred Stock When the Company issues convertible debt or convertible preferred stock, it first evaluates the balance sheet classification of the convertible instrument in its entirety to determine whether the instrument should be classified as a liability under ASC 480, Distinguishing Liabilities from Equity , and second whether the conversion feature should be accounted for separately from the host instrument. A conversion feature of a convertible debt instrument or certain convertible preferred stock would be separated from the convertible instrument and classified as a derivative liability if the conversion feature, were it a standalone instrument, meets the definition of an “embedded derivative” in ASC 815, Derivatives and Hedging . Generally, characteristics that require derivative treatment include, among others, when the conversion feature is not indexed to the Company’s equity, as defined in ASC 815-40, or when it must be settled either in cash or by issuing stock that is readily convertible to cash. When a conversion feature meets the definition of an embedded derivative, it would be separated from the host instrument and classified as a derivative liability carried on the consolidated balance sheet at fair value, with any changes in its fair value recognized currently in the consolidated statements of operations. F- 10 If a conversion feature does not meet the conditions to be separated and accounted for as an embedded derivative liability, the Company then determines whether the conversion feature is “beneficial”. A conversion feature would be considered beneficial if the conversion feature is “in the money” when the host instrument is issued or, under certain circumstances, later. If convertible debt contains a beneficial conversion feature (“BCF”), the amount of the amount of the proceeds allocated to the BCF reduces the balance of the convertible debt, creating a discount which is amortized over the debt’s term to interest expense in the consolidated statements of operations. When a convertible preferred stock contains a BCF, after allocating the proceeds to the BCF, the resulting discount is either amortized over the period beginning when the convertible preferred stock is issued up to the earliest date the conversion feature may be exercised, or if the convertible preferred stock is immediately exercisable, the discount is fully amortized at the date of issuance. The amortization is recorded similar to a dividend. Convertible debt is accounted for under the ASC 470-20, Debt – Debt with Conversion and Other Options. Recent Accounting Pronouncements In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) ASU No. 2019-12, Income Taxes (Topic 740) , Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements. In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share calculation in certain areas. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2023, although early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance on its financial statements. Other accounting standards that have been issued or proposed by FASB and do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures. NOTE 3 - INTANGIBLE ASSETS The Company’s intangible assets comprise of intellectual property revolving around their field tests, sensor integrations, and board designs. Intangible assets, net of amortization at December 31, 2020 and 2019 amounted to $347,856 and $397,492, respectively. December 31,2020 December 31,2019 Intangible Assets $ 495,000 $ 495,000 Accumulated amortization (147,144 ) (97,508 ) Intangible Assets, net $ 347,856 $ 397,492 At December 31, 2020 and 2019, respectively, the Company determined that none of its intangible assets were impaired. Amortizable intangible assets are amortized using the straight-line method over their estimated useful lives of ten years. Amortization expense of finite-lived intangibles was $49,636 and $49,500 for the years ended December 31, 2020 and 2019, respectively. F- 11 The following table summarizes the Company’s estimated future amortization expense of intangible assets with finite lives as of December 31, 2020: Amortization expense 2021 $ 49,500 2022 49,500 2023 49,500 2024 49,500 Thereafter 149,856 Total $ 347,856 NOTE 4 - COMMITMENTS AND CONTINGENCIES In prior years, the Company entered into consulting agreements with one director, three executive officers, and one engineer of the Company, which include commitments to issue shares of the Company’s common stock from the Company’s Stock Incentive Plans. 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 in full, and therefore, remain a liability. According to the remaining three agreements, 1,319,000 shares vested in 2019, 2,400,000 shares vested in 2020, and 3,600,000 shares of common stock will vest in 2021. In the event that the agreement is terminated by either party pursuant to the terms of the agreement, all unvested shares which have been earned shall vest on a pro-rata basis as of the effective date of the termination of the agreement and all unearned, unvested shares shall be terminated. The value of the shares was assigned at fair market value on the effective date of the agreement and the pro-rata number of shares earned was calculated and amortized at the end of each reporting period. The Company has accrued $730,836 and $1,102,645 in shares payable in conjunction with these agreements as of December 31, 2020 and 2019, respectively. A summary of these agreements is as follows. On March 11, 2019, the Company’s Board of Directors approved the Consulting Agreement dated effective June 4, 2018 with its CEO. The term of the agreement is for three years beginning as of the effective date, unless terminated earlier pursuant to the agreement and is automatically renewable for one-year terms upon the consent of the parties. The services to be provided by the CEO pursuant to the agreement are those customary for the position in which the CEO is serving. As of the effective date, the Company shall issue to the CEO an aggregate of 3,060,000 shares of the Company’s common stock which vest as follows: 1. 560,000 shares on the first-year anniversary of the effective date; 2. 1,000,000 shares on the second-year anniversary of the effective date; and 3. 1,500,000 shares on the third-year anniversary of the effective date. The shares are issued under the 2019 Stock Incentive Plan. Vesting of the shares is subject to acceleration of vesting upon the occurrence of certain events such as a Change of Control (as defined in the agreement) or the listing of the Company’s common stock on a senior exchange. As of December 31, 2020 and 2019, 0 shares and 560,000 shares had vested, respectively, but were not yet issued. As part of the Consulting Agreement dated June 4, 2018 the CEO shall also 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. F- 12 On June 11, 2020, the Company entered into a Debt Forgiveness Agreement with the CEO, pursuant to which the CEO forgave $185,000 of accrued and unpaid consulting fees owed to him pursuant to his consulting agreement with the Company. On June 12, 2020, the Company entered into an amendment effective January 1, 2020 to the Consulting Agreement with the CEO. The amendment stated that from January 1, 2020 until April 23, 2020, the Consultant shall be paid an hourly wage of $12.75 per hour for services performed. From April 24, 2020 onward, the Consultant shall be paid an hourly wage of $48.08 an hour for services performed. Fees may accrue at the discretion of management. At any time, the Consultant shall have the right to convert any accrued and unpaid fees into shares of Common Stock of the Company. The conversion price shall equal 90% multiplied by the market price (representing a discount rate of 10%). As of December 31, 2020 and 2019, the Company recorded $138,602 and $117,001 is in salaries payable to related parties due and payable to the CEO, respectively. On March 11, 2019, the Company’s Board of Directors approved the Consulting Agreement dated effective October 1, 2018 with its COO. The term of the agreement is for three years beginning as of the effective date, unless terminated earlier pursuant to the agreement and is automatically renewable for one-year terms upon the consent of the parties. The services to be provided by the COO pursuant to the agreement are those customary for the position in which the COO is serving. As of the effective date, the Company shall issue to the COO an aggregate of 2,409,000 shares of the Company’s common stock which vest as follows: 1. 409,000 shares on the first-year anniversary of the effective date; 2. 800,000 shares on the second-year anniversary of the effective date; and 3. 1,200,000 shares on the third-year anniversary of the effective date. The shares are issued under the 2017 Stock Incentive Plan. Vesting of the shares is subject to acceleration of vesting upon the occurrence of certain events such as a Change of Control (as defined in the agreement) or the listing of the Company’s common stock on a senior exchange. As of December 31, 2020 and 2019, 0 shares and 409,000 shares, respectively, had vested, but were not yet issued. As part of the Consulting Agreement dated October 1, 2018 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. On June 11, 2020, the Company entered into a Debt Forgiveness Agreement with the COO, pursuant to which the COO forgave $103,250 of accrued and unpaid consulting fees owed to her pursuant to her consulting agreement with the Company. On June 12, 2020, the Company entered into an amendment effective January 1, 2020 to the Consulting Agreement with the COO. The amendment stated that from January 1, 2020 until April 23, 2020, the Consultant shall be paid an hourly wage of $12.75 per hour for services performed. From April 24, 2020 onward, the Consultant shall be paid an hourly wage of $48.08 an hour for services performed. Fees may accrue at the discretion of management. At any time, the Consultant shall have the right to convert any accrued and unpaid fees into shares of Common Stock of the Company. The conversion price shall equal 90% multiplied by the market price (representing a discount rate of 10%). As of December 31, 2020 and 2019, the Company recorded $139,078 and $118,000 is in salaries payable to related parties due and payable to the COO, respectively. On March 11, 2019, the Company’s Board of Directors approved the Amended and Restated Consulting Agreement dated effective April 23, 2018 with its CTO. The term of the agreement is for three years beginning as of the effective date, unless terminated earlier pursuant to the agreement and is automatically renewable for one-year terms upon the consent of the parties. The services to be provided by the CTO pursuant to the agreement are those customary for the position in which the CTO is serving. As of the effective date, the Company shall issue to the CTO an aggregate of 1,800,000 shares of the Company’s common stock which vest as follows: 1. 300,000 shares on the first-year anniversary of the effective date; 2. 600,000 shares on the second-year anniversary of the effective date; and 3. 900,000 shares on the third-year anniversary of the effective date. As of December 31, 2020 and 2019, 0 shares and 300,000 shares had vested, respectively, but were not yet issued. F- 13 As part of the Amended and Restated Consulting Agreement dated effective April 23, 2018 the CTO shall receive a monthly fee of $9,375 which accrues unless converted into shares of common stock of the Company at a conversion rate specified in the agreement. Until the Company closes a minimum $500,000 capital raise, the monthly fee accrues and, upon the closing of such a capital raise, $3,125 of the monthly fee will be paid to the CTO in cash and the remainder will continue to accrue. Upon the closing of a capital raise of at least $2,000,000, the entire monthly fee will be paid to the CTO in cash and all accrued and unpaid monthly fees will be paid by the Company within one year of the closing of such a capital raise. On June 11, 2020, the Company entered into a Debt Forgiveness Agreement with the CTO pursuant to which the CTO forgave $82,475 of accrued and unpaid consulting fees owed to him pursuant to his consulting agreement with the Company. On June 12, 2020, the Company entered into an amendment effective January 1, 2020 to the Consulting Agreement with the CTO. The amendment stated that from January 1, 2020 until April 23, 2020, the Consultant shall be paid an hourly wage of $12.75 per hour for services performed. From April 24, 2020 onward, the Consultant shall be paid an hourly wage of $48.08 an hour for services performed. Fees may accrue at the discretion of management. At any time, the Consultant shall have the right to convert any accrued and unpaid fees into shares of Common Stock of the Company. The conversion price shall equal 90% multiplied by the market price (representing a discount rate of 10%). As of December 31, 2020 and 2019, the Company recorded $129,590 and $108,226 in salaries payable to related parties due and payable to the CTO, respectively. NOTE 5 - CONVERTIBLE NOTES PAYABLE The following table summarizes the outstanding balance of convertible notes payable, interest and conversion rates as of December 31, 2020 and December 31, 2019, respectively. December 31, 2020 December 31, 2019 A . Convertible note payable to an investor with interest at 12% per annum, convertible at any time into shares of common stock at $0.10 per share. Interest is payable quarterly with the balance of principal and interest due on maturity on March 1, 2021. The note is secured by substantially all the assets of the Company. $ 600,000 $ 500,000 B . Convertible note payable to an investor with interest at 5% per annum, convertible at any time into shares of common stock at $0.00084 per share. Interest is payable annually with the balance of principal and interest due on maturity on March 1, 2021. The note is secured by substantially all the assets of the Company. 55,000 55,000 C . Convertible note payable to an investor with interest at 12% per annum. $10,000 of the principal is currently convertible into shares of common stock at $0.01 per share, with remaining principal and interest convertible into shares of common stock at $0.10 per share. Interest is payable quarterly with the balance of principal and interest due on maturity on March 1, 2021. The note is secured by substantially all the assets of the Company. 60,000 50,000 D . Convertible note payable to an investor with interest at 12% per annum. $10,000 of the principal is currently convertible into shares of common stock at $0.01 per share, with remaining principal and interest convertible into shares of common stock at $0.10 per share. Interest is payable quarterly with the balance of principal and interest due on maturity on March 1, 2021. The note is secured by substantially all the assets of the Company. 50,000 50,000 E. Convertible note payable to a related party with interest at 12% per annum, convertible at any time into shares of common stock at $0.00084 per share. Interest is payable quarterly with the balance of principal and interest due on maturity on August 2, 2021. The note is secured by substantially all the assets of the Company. 125,000 125,000 F- 14 F . Convertible note payable to an investor with interest at 10% per annum, convertible after 180 days from issuance into shares of common stock at $0.20 per share, or 60% of the lowest market price in the preceding 25 days upon an event of default. Principal and interest due on maturity on March 6, 2020. – 35,000 G . Convertible note payable to an investor with interest at 10% per annum, convertible at any time into shares of common stock at $0.01 per share. Principal and interest due on maturity on April 29, 2021. 100,000 – H. Convertible note payable to an investor with interest at 10% per annum, convertible at any time into shares of common stock at $0.0099 per share. Note was issued as payment for future fees to be incurred under the related Equity Financing Agreement. Principal and interest due on maturity on April 29, 2021. 75,000 – 1,065,000 815,000 Less unamortized discount (111,781 ) (108,492 ) Net balance 953,219 706,508 Less current portion (953,219 ) (706,508 ) $ – $ – A. January 18, 2018 Convertible Note and Warrants On January 18, 2018, the Board of Directors of the Company approved a non-public offering of up to $1,000,000 aggregate principal amount of its 12% Senior Secured Convertible Notes. The notes are convertible, in whole or in part, into shares of the Company’s common stock, at any time at a rate of $0.65 per share with fractions rounded up to the nearest whole share, unless paid in cash at the Company’s election. The notes bear interest at a rate of 12% per annum and interest payments will be made on a quarterly basis. The notes matured on January 15, 2020. The notes are governed by a Securities Purchase Agreement and are secured by all the assets of the Company pursuant to a Security and Pledge Agreement. In addition to the issuance of the notes in the offering, the Company’s Board of Directors approved, as part of the offering, the issuance of warrants to purchase one share of the Company’s common stock for 50% of the number of shares of common stock issuable upon conversion of each note. Each warrant is immediately exercisable at $0.75 per share, contains certain anti-dilution down-round features and expires on January 15, 2023. If the Company ever defaults on the loan, the warrants to be issued will increase from 50% of the number of shares of common stock issuable upon conversion to 100%. On 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. F- 15 On March 7, 2019, the Board of Directors of the Company approved Amendment No. 1 to the 12% Senior Secured Convertible Promissory Note and the Warrant Agreement, each issued January 22, 2018, respectively, to the note holder. The amendments (i) extend the maturity date of the note to March 1, 2021 and extend the term of the warrants to March 6, 2024, (ii) lower the conversion price of the note and the exercise price of the warrants to $0.20 and $0.30, respectively, and (iii) add an adjustment to the conversion and exercise price of the note and warrants, respectively, in the event the Company does not achieve certain milestones during calendar 2019. The fair value of the warrants is $25,162 determined using the Black-Scholes valuation model with the following assumptions: expected term of 2.5 years; risk free interest rate of 2.6%; and volatility of 127%. The effective conversion rate resulted in a discount of $23,956 and is amortized to interest expense using the effective interest method over the term of the note. The Company recognized a loss on extinguishment of debt of $221,232 related to the decrease in conversion price. On January 1, 2020, the Company failed to achieve certain milestones during calendar 2019 and, as such, the conversion/exercise prices of the note and warrants were adjusted to $0.10 and $0.15, respectively. This resulted in an adjustment to retained earnings of $201 based on the change in fair value. Effective January 15, 2020, the Company went into technical default of the note agreement as a result of not making the December 31, 2019 interest payment within the required period. As a result, the principal was increased by 20%, or $100,000, and the Company was required to issue an additional 384,615 warrants at the then effective exercise price of $0.15 per share. The fair value of the warrants was $44,297, determined using the Black-Scholes valuation model with the following assumptions: expected term of 4.14 years; risk free interest rate of 1.6%; and volatility of 243%. Due to the default, this value was immediately expensed. As of March 31, 2020, the exercise price of the warrants was further adjusted to $0.00084 as a result of the down-round features being triggered. This resulted in an adjustment to retained earnings of $71 based on the change in fair value. As of December 31, 2020, the Company has accrued interest related to this note of $85,824. The Company amortized the discount to interest expense $12,060 and $9,918 for the years ended December 31, 2020 and 2019, respectively. The Company recorded interest expense of $70,701 and $15,123 for the years ended December 31, 2020 and 2019, respectively. The unpaid principal balance of the note is $600,000 as of December 31, 2020, which includes the default penalty noted above, and the remaining unamortized discount is $1,978. The conversion shares totaled 6,858,244 shares of common stock, upon conversion of the total principal and accrued interest of $685,824, as of December 31, 2020. On January 8, 2021, the noteholder agreed to extend the maturity date of the Senior Secured Convertible Promissory Note to March 1, 2022 in exchange for the reduction of the conversion price to $0.01 per share, and all prior Events of Default (as defined in the Notes) including penalties, were waived, and all future Events of Default (as defined in the Notes) pertaining to the future payment of interest were waived through maturity (Note 11). B. January 2019 Convertible Note and Warrants 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. As of March 31, 2020, the exercise price of the warrants was adjusted to $0.00084 as a result of the down-round features being triggered. This resulted in an adjustment to retained earnings of $7 based on the change in fair value. F- 16 The unpaid principal balance of the note and accrued interest is $55,000 and $5,342, respectively, as of December 31, 2020, and the remaining unamortized discount is $0. The Company recorded interest expense of $2,758 and $2,584 for the years ended December 31, 2020 and 2019, respectively. The Company amortized the discount to interest expense $194 and $2,845 for the year ended December 31, 2020 and 2019, respectively. This note and accrued interest is due to a related party. On June 12, 2020, this note was amended to extend the maturity date to March 1, 2021, and all events of default were waived. The conversion shares totaled 75,426,918 shares of common stock upon the conversion of the total principal and accrued interest of $60,342 as of December 31, 2020. On February 4, 2021, the Secured Convertible Promissory Noteholder – B, converted the principal balance of the Secured Convertible Promissory Note of $50,000 into 5,000,000 shares of common stock of the Company (Note 11). C and D. March 2019 Convertible Note and Warrants 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. The proceeds received upon issuing the notes and warrants were allocated to each instrument on a relative fair value basis. The initial fair value of the warrants was $12,646 determined using the Black-Scholes valuation model with the following assumptions: expected term of 2.5 years; risk free interest rate of 2.5%; and volatility of 127%. The effective conversion rate resulted in a discount of $11,226 and is amortized to interest expense using the effective interest method over the term of the notes. On January 1, 2020, the Company failed to achieve certain milestones during calendar 2019 and, as such, the conversion/exercise prices of the note and warrants were adjusted to $0.10 and $0.15, respectively. This resulted in an adjustment to retained earnings of $131 based on the change in fair value. Effective January 15, 2020, the Company went into technical default of the note agreement as a result of not making the December 31, 2019 interest payment within the required period. As a result, the principal was increased by 20%, or $20,000, in aggregate, and the Company was required to issue an additional 250,000 warrants at the then effective exercise price of $0.15 per share. The fair value of the warrants was $28,793, determined using the Black-Scholes valuation model with the following assumptions: expected term of 4.14 years; risk free interest rate of 1.6%; and volatility of 243%. Due to the default, this value was immediately expensed. F- 17 As of March 31, 2020, the exercise price of the warrants was further adjusted to $0.00084 as a result of the down-round features being triggered. This resulted in an adjustment to retained earnings of $46 based on the change in fair value. On September 21, 2020, these notes were amended to reduce the conversion price of an aggregate of $20,000 of the total outstanding principal value of $120,000 from $0.10 to $0.01 per share. The remaining aggregate principal of $100,000 remains convertible at $0.10 per share. This modification to the notes was considered substantial (i. e. the change in fair value of the conversion feature was greater than 10% of the carrying value of the debt). As a result, the modification was accounted for as an extinguishment of debt, resulting in the recognition of an extinguishment loss of $18,360 for the year ended December 31, 2020. On October 15, 2020, one of the two investors converted $10,000 of the principal note amount into 1,000,000 shares of common stock. As of December 31, 2020, the unpaid principal balance of the notes is $110,000, which includes the default penalty noted above, accrued interest is $14,632 and the balance of the unamortized discount is $0. The Company recorded interest expense of $9,828 and $4,096 for the years ended December 31, 2020 and 2019, respectively. The Company amortized discount to interest expense of $2,037 and $9,188 for the years ended December 31, 2020 and 2019, respectively. The conversion shares totaled 2,149,015 shares of common stock upon conversion of the total principal and accrued interest of $124,632 as of December 31, 2020. On January 22, 2018, the Company issued Convertible Promissory Notes and Warrants in the principal amounts of $50,000 to a Convertible Promissory Noteholder – C, and $50,000 to a Convertible Promissory Noteholder - D, respectively, amending to reduce the conversion price for all principal and accrued interest to $0.01 per share. In exchange for the reduction of the conversion price, both the Convertible Promissory Noteholders agreed to amend the maturity dates to March 1, 2022, and all prior Events of Default (as defined in the Notes) including penalties, were waived, and all future Events of Default (as defined in the Notes) pertaining to the future payment of interest were waived through maturity (Note 11). On February 3, 2021, the Convertible Promissory Noteholder – C, converted the principal balance of its convertible promissory note of $40,000 and accrued interest of $6,510 into 4,650,978 shares of common stock of the Company (Note 11). E. August 2019 Convertible Note and Warrants 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. Effective January 30, 2020, the Company went into technical default of the note agreement as a result of not making the December 31, 2019 interest payment within the required period. As a result, the Company was required to issue an additional 781,250 warrants at the then effective exercise price of $0.12 per share. The fair value of the warrants was $90,342, determined using the Black-Scholes valuation model with the following assumptions: expected term of 4.76 years; risk free interest rate of 1.6%; and volatility of 233%. Due to the default, this value was immediately expensed. F- 18 As of March 31, 2020, the exercise price of the warrants was adjusted to $0.00084 as a result of the down-round features being triggered. This resulted in an adjustment to retained earnings of $70 based on the change in fair value. As of December 31, 2020, the unpaid principal balance of the notes was $125,000, the accrued interest is $18,690 and the balance of the unamortized discount is $34,104. The Company recorded interest expense of $15,041 and $3,740 for the years ended December 31, 2020 and 2019, respectively. The Company amortized the debt discount to interest expense of $52,539 and $18,295 for the years ended December 31, 2020 and 2019, respectively. This note is payable to a related party. The conversion shares totaled 171,059,638 shares of common stock upon conversion of the total principal and accrued interest of $143,690 as of December 31, 2020. F. August 29, 2019 Convertible Note and Warrants On August 29, 2019, the Company entered into a Securities Purchase Agreement with an investor for the purchase of a Convertible Promissory Note in the principal amount of up to $105,000. The Note is not convertible within 180 days of receipt of funds for the first closing and is then convertible, in whole or in part, into shares of the Company’s Common Stock at a rate of $0.20 per share. Upon an “Event of Default,” as defined in the note, the conversion price becomes the “Variable Conversion Price” which is defined in the note as “60% multiplied by the Marked Price.” “Market Price” is defined in the note as “the lowest one (1) Trading Price (as defined in the note) for the common stock during the twenty-five (25) Trading Day period ending on the last complete Trading Day prior to the Conversion Date.” The note bears interest at a rate of 10% per annum with principal and accrued and unpaid interest payable six months from the receipt of funds for each tranche under the note. Subscription funds of $30,000 were received by the Company from the investor on September 6, 2019 for which the Company paid a purchase price of $35,000. In addition to the notes, the Company issued to the investor an aggregate of 175,000 warrants. The warrants are considered equity instruments based on the Company’s adoption of ASU 2017-11. The proceeds received upon issuing the notes and warrants were allocated to each instrument on a relative fair value basis. The initial fair value of the warrants was $15,868 determined using the Black-Scholes valuation model with the following assumptions: expected term of 2.5 years; risk free interest rate of 1.4%; and volatility of 132%. The effective conversion rate resulted in a discount of $10,378 and is amortized to interest expense using the effective interest method over the term of the notes. As of March 31, 2020, the exercise price of the warrants was adjusted to $0.00084 and the number of warrants was increased to 41,666,667 as a result of the down-round features being triggered. This resulted in an adjustment to retained earnings of $203,002 based on the change in fair value. During the three months ended March 31, 2020, the note went into default upon passing its maturity date. As a result, a default penalty of $26,250 was recorded and added to the principal balance. In addition, the conversion price became the “Variable Conversion Price” as defined above. This note became convertible into a variable number of shares of common stock for which there is no floor to the number of shares that might be required to be issued. Based on the requirements of ASC 815, Derivatives and Hedging, the conversion feature represents an embedded derivative that is required to be bifurcated and accounted for as a separate derivative liability. The derivative liability is originally recorded at its estimated fair value and is required to be revalued at each conversion event and reporting period. Changes in the derivative liability fair value are reported in operating results each reporting period. The Company valued the conversion feature on the date of default resulting in initial liability of $159,888, which was immediately expensed as loss on derivative. At each conversion date, the Company recalculated the value of the derivative liability associated with the convertible note recording a gain (loss) in connection with the change in fair market value. In addition, the pro-rata portion of the derivative liability as compared to the portion of the convertible note converted was reclassed to additional paid-in capital. For the year ended December 31, 2020, the Company recorded a loss of $114,051 related to the change of fair value of the derivative liability to additional paid-in capital. Upon issuance and at each conversion, reporting period date, and extinguishment date, the Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion prices ranging from $0.0008 to $0.0073, the closing stock price of the Company's common stock on the date of valuation ranging from $0.0022 to $0.021, an expected dividend yield of 0%, expected volatility ranging from 459% to 574%, risk-free interest rates ranging from 0.11% to 0.39%, and an expected term of 0.25 years. F- 19 On May 20, 2020, the second closing of the Convertible Promissory Note occurred pursuant to which the Company paid a purchase price of $35,000 and received gross proceeds of $29,300. In addition to the issuance of the note, the Company issued to the holder warrants to purchase one share of the Company’s Common Stock for 100% of the number of shares of Common Stock issuable upon conversion of the funds received in the second closing. Each warrant is immediately exercisable at $0.20 per share, unless adjusted, and expires on May 20, 2025. On July 29, 2020, the Company entered into a Settlement and Mutual Release Agreement with the lender pursuant to which the Company paid $100,000 to the lender in exchange for the full extinguishment of the remaining principal amount and all accrued and unpaid interest and penalties associated with the Convertible Promissory Note dated August 29, 2019 issued to the lender (approximately $62,000). All remaining unexercised warrants to purchase the Company’s Common Stock issued to the lender were also extinguished pursuant to the Settlement Agreement. Upon receipt of the Settlement Amount by the lender, the lender agreed to release all reserved shares of the Company’s Common Stock. The Settlement Agreement also provides for a full mutual release of the parties. The settlement payment was allocated to the extinguished debt and warrants based on their relative fair values. The difference in the settlement amount allocated to the debt components, including the related derivative liability, and the actual value of the debt components of $2,155 was recorded as a gain on extinguishment for the year ended December 31, 2020. The settlement amount allocated to the warrants of $1,609 was recorded as a reduction to additional paid-in capital. In addition, the remaining unamortized discount was fully amortized to interest expense upon the settlement. The Company recorded amortization of debt to interest expense of $39,572 and $25,484 for the years ended December 31, 2020 and 2019, leaving an unamortized debt balance of $0 and $5,577 at December 31, 2020 and 2019, respectively. The Company recorded interest expense of $742 and $1,112 for the years ended December 31, 2020 and 2019, respectively. G and H. July 20 20 Equity Financing Arrangement On July 29, 2020, the Company entered an Equity Financing Agreement and Registration Rights Agreement with an investor, pursuant to which the investor agreed to purchase up to $5,000,000 in shares of the Company’s Common Stock, from time to time over the course of 36 months after effectiveness of a registration statement on Form S-1 of the underlying shares of Common Stock. In connection with entering into the Equity Financing Agreement, on July 29, 2020, the Company issued to the investor a Convertible Promissory Note in the principal amount of $100,000 (the “$100k Note”). The $100k Note matures on April 29, 2021 upon which time all accrued and unpaid interest will be due and payable. Interest accrues on the $100k Note at 10% per annum based on a 360-day year. The $100k Note is convertible at any time, upon the election of the investor, into shares of the Company’s Common Stock at $0.01 per share. The $100k Note is subject to various “Events of Default,” which are disclosed in the $100k Note. Upon the occurrence of an uncured “Event of Default,” the $100k Note will become immediately due and payable and will be subject to penalties and adjustments to the conversion price (the lesser of: (a) $0.01 or (b) 70% multiplied by the Market Price (as defined in the $100k Note) (representing a discount rate of 30%). Upon the issuance of the $100k Note, the Company has agreed to reserve one times the number of shares of Common Stock into which the $100k Note is convertible and, 101 days from the issuance of the $100k Note, the Company will reserve two-and-a-half times the number of shares of Common Stock into which the $100k Note is convertible. Within three Trading Days (as defined in the $100k Note) of the sale by the investor of all of the Common Stock issued upon the conversion of the $100k Note, the Company is required to issue to investor a number of shares of Common Stock priced at the lowest traded price for the relevant Trading Day, which represents the difference between $130,000 and the net proceeds to the investor from the sale of aggregate Common Stock issued upon the conversion of the $100k Note. Also, in connection with entering into the Equity Financing Agreement, on July 29, 2020, the Company issued to the investor a Convertible Promissory Note in the principal amount of $75,000 (the “$75k Note”). No proceeds were received for this note as it was issued to offset future transaction costs related to any future issuances of equity under the agreement. As a result, the amount has been capitalized as deferred offering costs in the accompanying balance sheet and will be offset against any future proceeds received under the agreement. The $75k Note matures on April 29, 2021 upon which time all accrued and unpaid interest will be due and payable. Interest accrues on the $75k Note at 10% per annum based on a 360-day year. The $75k Note is convertible at any time, upon the election of the investor, into shares of the Company’s Common Stock at $0.0099 per share. The $75k Note is subject to various “Events of Default,” which are disclosed in the $75k Note. Upon the occurrence of an uncured “Event of Default,” the $75k Note will become immediately due and payable (multiplied by 130% of the unpaid principal and accrued and unpaid interest) and will be subject to penalties and adjustments to the conversion price (the lesser of: (a) $0.01 or (b) 70% multiplied by the Market Price (as defined in the $75k Note) (representing a discount rate of 30%). Upon the issuance of the $75k Note, the Company has agreed to reserve one times the number of shares of Common Stock into which the $75k Note is convertible and, 101 days from the issuance of the $75k Note, the Company will reserve two-and-a-half times the number of shares of Common Stock into which the $75k Note is convertible. F- 20 As of December 31, 2020, the unpaid principal balance of these notes is $175,000, and the accrued interest is $5,226. The Company recorded interest expense of $5,226 for the year ended December 31, 2020. The conversion shares totaled 18,100,623 shares of common stock upon conversion of the total principal and accrued interest of $180,226 as of December 31, 2020. On February 1, 2021, the Convertible Promissory Noteholder – G, converted its principal balance of a convertible promissory note of $66,833 and accrued interest of $5,177, into 7,200,000 shares of common stock of the Company (Note 11). NOTE 6 - EARNINGS (LOSS) PER SHARE The following table sets forth the computation of basic and diluted net loss per share of common stock for the three and nine months ended December 31, 2020 and 2019: Year ended December 31, 2020 2019 Net loss attributable to common stockholders (basic) $ (2,236,774 ) $ (1,887,287 ) Shares used to compute net loss per common share, basic and diluted 110,119,684 42,334,210 Net loss per share attributable to common stockholders, basic and diluted $ (0.02 ) $ (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 years ended December 31, 2020 and 2019, respectively, because their inclusion would be anti-dilutive: As of December 31, 2020 2019 Warrants to purchase common stock 2,868,397 1,627,532 Potentially issuable shares related to convertible notes payable 273,594,437 4,787,447 Potentially issuable vested shares to directors and officers 2,400,000 1,269,000 Potentially issuable unvested shares to officers 3,600,000 6,000,000 Total anti-dilutive common stock equivalents 282,462,834 13,683,979 NOTE 7 - PAYCHECK PROTECTION PROGRAM LOAN The Company applied for and received funding from the Payroll Protection Program (the “ PPP Loan ”) in the amount of $36,700. under the Coronavirus Aid, Relief and Economic Security Act (the “ CARES Act ”). The PPP Loan matures on April 23, 2022 and bears interest at a rate of 1.0% per annum. Monthly amortized principal and interest payments are deferred for six months after the date of disbursement ( subject to further deferral pursuant to the terms of the Paycheck Protection Flexibility Act of 2020). The Promissory Note contains events of default and other provisions customary for a loan of this type. The Paycheck Protection Program provides that the use of PPP Loan amount shall be limited to certain qualifying expenses and may be partially or wholly forgiven in accordance with the requirements set forth in the CARES Act. F- 21 NOTE 8 - RELATED PARTIES At December 31, 2020 and 2019, the amount due to two stockholders was $1,000 relating to depositing funds for opening bank accounts for the Company. 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, 2019. The Company leases its current office facility on a month-to-month basis at a monthly rent of $250 starting January 1, 2020. For the year ended December 31, 2020 and 2019, rent expense earned by the stockholder amounted to $3,000 and $24,000, respectively. The Company has recorded $18,000 and $15,000 of rent payable to the stockholder in accounts payable as of December 31, 2020 and 2019, respectively. The Company recorded professional fees paid to officers and a director amounting to $7,182 and $0 for the year ended December 31, 2020 and 2019, respectively. The Company awarded shares payable to officers and a director valued at $728,892 and $726,900 for the years ended December 31, 2020 and 2019, respectively, pursuant to the terms of an exchange agreement (Note 4). The officers and a director converted shares payable valued at $685,350 into 2,284,500 shares of common stock, and shares payable valued at $415,350 into 15,845 shares of Series A Supervoting Convertible Preferred Stock during the year ended December 31, 2020. No shares payable compensation was converted into shares of common stock or preferred stock during the year ended December 31, 2019. NOTE 9 - 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. The Company had 145,110,129 shares and 43,313,547 shares of common stock, and 25,845 shares and 0 shares of preferred stock, issued and outstanding as of December 31, 2020 and 2019, 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 December 14, 2017 (the “Effective Date”), the Board of Directors of the Company approved the 2017 Stock Inventive Plan (the “2017 Plan”). Awards may be made under the 2017 Plan for up to 4,500,000 shares of common stock of the Company. All of the Company’s employees, officers and directors, as well as consultants and advisors to the Company are eligible to be granted awards under the 2017 Plan. No awards can be granted under the 2017 Plan after the expiration of 10 years from the Effective Date but awards previously granted may extend beyond that date. Awards may consist of both incentive and non-statutory options, restricted stock units, stock appreciation rights, and restricted stock awards. On March 11, 2019 (the “Effective Date”) the Board of Directors of the Company approved the 2019 Stock Incentive Plan (the “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. F- 22 Shares earned and issued related to the consulting agreements are issued under the 2017 Stock Incentive Plan and the 2019 Stock Incentive Plan (Note 4). Vesting of the shares is subject to acceleration of vesting upon the occurrence of certain events such as a Change of Control (as defined in the agreement) or the listing of the Company’s common stock on a senior exchange. A summary of the status of the Company’s non-vested shares as December 31, 2020 and 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 ) – Balance at December 31, 2019 6,000,000 $ 0.30 Awarded – – Vested (2,400,000 ) $ 0.30 Forfeited – – Balance at December 31, 2020 3,600,000 $ 0.30 On March 6, 2020, 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 the year ended December 31, 2020, the holder of the note had converted $35,000 of principal, $1,636 of interest, plus fees of $16,000 into 50,950,000 shares of Common Stock amounting to $52,636. Furthermore, the holder of the note exercised $35,000 worth of warrants and $726 worth of fees into 40,802,082 shares of common stock. On March 6, 2019, the Company executed a Convertible Promissory Note of $50,000 payable to an investor, with interest at 12% per annum, and maturing on March 1, 2021. On October 5, 2020, the investor converted $10,000 of the principal of the Convertible Promissory Note into 1,000,000 shares of common stock at $0.01 per share, with remaining principal and interest convertible into shares of common stock at $0.10 per share. Preferred Stock Series A Supervoting Convertible Preferred Stock On July 2, 2020, the Board of Directors of the Corporation had authorized issuance of 15,600 shares of preferred stock, $0.001 par value per share, designated as Series A Supervoting Preferred Stock. Dividends: Initially, there will be no dividends due or payable on the Series A Supervoting Preferred Stock. Any future terms with respect to dividends shall be determined by the Board consistent with the Corporation’s Articles of Incorporation. Liquidation and Redemption Rights: Upon the occurrence of a Liquidation Event (as defined below), the holders of Series A Supervoting Preferred Stock are entitled to receive net assets on a pro-rata basis. Each holder of Series A Supervoting Preferred Stock is entitled to receive ratably any dividends declared by the Board, if any, out of funds legally available for the payment of dividends. Liquidation Event means (i) the liquidation, dissolution or winding-up, whether voluntary or involuntary, of the corporation, (ii) the purchase or redemption by the corporation of the shares of any class of stock or the merger or consolidation of the corporation with or into any other corporation or corporations, or (iii) the sale, license or lease of all or substantially all, or any material part of, the Corporation’s assets. F- 23 Conversion: Each holder of Series A Supervoting Preferred Stock may voluntarily convert its shares into shares of common stock of the Corporation at a rate of 1:100 (as may be adjusted for any combinations or splits with respect to such shares). Rank: All shares of the Series A Supervoting Preferred Stock shall rank senior to the Corporation’s (A) common stock, par value $0.001 per share, and any other class or series of capital stock of the Corporation hereafter created. Voting Rights: A. If at least one share of Series A Super Voting Preferred Stock is issued and outstanding, then the total aggregate issued shares of Series A Super Voting Preferred Stock at any given time, regardless of their number, shall have voting rights equal to 20 times the sum of: i) the total number of shares of Common stock which are issued and outstanding at the time of voting, plus ii) the total number of shares of all Series of Preferred stocks which are issued and outstanding at the time of voting. B. Each individual share of Series A Super Voting Preferred Stock shall have the voting rights equal to: [twenty times the sum of: {all shares of Common stock issued and outstanding at the time of voting + all shares of Series A and any newly designated Preferred stock issued and outstanding at the time of voting}] Divided by: [the number of shares of Series A Super Voting Preferred Stock issued and outstanding at the time of voting] With respect to all matters upon which stockholders are entitled to vote or to which stockholders are entitled to give consent , the holders of the outstanding shares of Series A Super Voting Preferred Stock shall vote together with the holders of Common Stock without regard to class, except as to those matters on which separate class voting is required by applicable law or the Articles of Incorporation or Bylaws. On November 9, 2020, the Company awarded a director for services rendered, 1,000,000 shares of common stock valued at its fair value on the date of issuance of $8,600 and concurrently, exchanged the common stock for Series A Supervoting Convertible Preferred Stock, and accrued interest of $168 relating to the outstanding convertible note which was convertible into common stock, was converted into Series A Supervoting Convertible Preferred Stock. The Company issued 12,000 shares of Series A Supervoting Convertible Preferred Stock in exchange of $8,768 of services rendered and accrued interest for the year ended December 31, 2020. On December 31, 2020, the officers and a director converted $685,350 of their vested shares payable compensation costs into 2,284,500 shares of the Company’s common stock and $415,350 of their unrecognized compensation costs into 13,845 shares of the Company’s Series A Convertible Preferred Stock. As a result, total unrecognized compensation costs related to the non-vested share-based compensation arrangements awarded to employees were $730,836 and $1,102,645 as of December 31, 2020 and 2019, respectively. That cost is expected to be recognized over a weighted-average period of 0.5 years and 1.4 years as of December 31, 2020 and December 31, 2019, respectively. The total fair value of shares compensation recognized during the year ended December 31, 2020 and 2019, was $728,892 and $685,416, respectively. Series B Convertible Preferred Stock Equity Financing On November 16, 2020, the Board of Directors of the Corporation had authorized issuance of up to 600 shares of preferred stock, $0.001 par value per share, designated as Series B Convertible Preferred Stock. Each share of Preferred Stock shall have a par value of $0.001 per share and a stated value of $1,200, subject to increase set forth in the Certificate of Designation. Dividends: Each share of Series B Convertible Preferred Stock shall be entitled to receive, and the Corporation shall pay, cumulative dividends of 12% per annum, payable quarterly, beginning on the Original Issuance Date and ending on the date that such share of Series B Convertible Preferred Share has been converted or redeemed (the “Dividend End Date”). Dividends may be paid in cash or in shares of Series B Convertible Preferred Stock. From and after the initial Closing Date, in addition to the payment of dividends pursuant to Section 2(a), each Holder shall be entitled to receive, and the Corporation shall pay, dividends on shares of Series B Convertible Preferred Stock equal to (on an as-if-converted-to-Common-Stock basis) and in the same form as dividends actually paid on shares of the common stock when, as and if such dividends are paid on shares of the common stock. The Corporation shall pay no dividends on shares of the common stock unless it simultaneously complies with the previous sentence. F- 24 Voting Rights: The Series B Convertible Preferred Stock will vote together with the common stock on an as converted basis subject to the Beneficial Ownership Limitations (not in excess of 4.99% conversion limitation). However, as long as any shares of Series B Convertible Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of the Series B Convertible Preferred Stock directly and/or indirectly (a) alter or change adversely the powers, preferences or rights given to the Series b Convertible Preferred Stock or alter or amend this Certificate of Designation, (b) authorize or create any class of stock ranking as to redemption or distribution of assets upon a Liquidation (as defined in Section 5) senior to, or otherwise pari passu with, the Series b Convertible Preferred Stock or, authorize or create any class of stock ranking as to dividends senior to, or otherwise pari passu with, the Series b Convertible Preferred Stock, (c) amend its Articles of Incorporation or other charter documents in any manner that adversely affects any rights of the Holders, (d) increase the number of authorized shares of Series B Convertible Preferred Stock, or (e) enter into any agreement with respect to any of the foregoing. Liquidation: Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to the Stated Value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereon under this Certificate of Designation, for each share of Series B Convertible Preferred Stock before any distribution or payment shall be made to the holders of any Junior Securities, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Holders shall be ratably distributed among the Holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. Conversion: Each share of Series B Convertible Preferred Stock shall be convertible, at any time and from time to time from and after the Original Issue Date at the option of the Holder thereof, into that number of shares of common stock (subject to the limitations) determined by dividing the Stated Value of such share of Series B Convertible Preferred Stock by the Conversion Price. The Conversion Price for the Series b Convertible Preferred Stock shall be the amount equal to the lowest traded price for the Company’s common stock for the fifteen (15) Trading Days immediately preceding the date of such conversion. All such foregoing determinations will be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction that proportionately decreases or increases the common stock during such measuring period. Following an event of default, the Conversion price shall equal the lower of : (a) the then applicable Conversion Price; or (b) a price per share equaling 80% of the lowest traded price for the Company’s common stock during the ten (10) trading days preceding the relevant Conversion. Redemption: The Series B Convertible Preferred Stock may be redeemed by payment of the stated value thereof, with the following premiums based on the time of the redemption. · 115% of the stated value if the redemption takes place within 90 days of issuance; · 120% of the stated value if the redemption takes place after 90 days and within 120 days of issuance · 125% of the stated value if the redemption takes place after 120 days and within 180 days of issuance; and · each share of Preferred Stock is redeemed one year from the day of issuance On November 19, 2020, pursuant to the terms of a Securities Purchase Agreement dated November 16, 2020 (the “SPA”), the Company entered into a new preferred equity financing agreement with GHS Investments, LLC (“GHS”) in the amount of up to $600,000. The SPA provides for GHS’s purchase, from time to time, of up to 600 shares of the newly-designated Series B Convertible Preferred Stock. The initial closing under the SPA consisted of 45 shares of Series B Convertible Preferred Stock, stated value $1,200 per share, issued to GHS for an initial purchase price of $45,000, or $1,000 per share. At the Company’s option, and subject to the terms of the SPA and the Certificate of Designation for the Series B Convertible Preferred Stock (the “COD”), additional closings in the amount of 40 shares of Series B Convertible Preferred Stock for a total purchase price of $40,000 may take place at a rate of up to once every 30 days. In connection with the initial closing in the amount of 45 shares of Series B Convertible Preferred Stock, the Company issued an additional 25 shares of Series B Convertible Preferred Stock to GHS as a service fee. F- 25 The Company’s ability to conduct additional closings under the SPA is subject to certain conditions, including the following: · The Company’s continued compliance with all covenants and agreements under the SPA and the COD, with no uncured defaults under the Company’s agreements with GHS; · The continued quotation of the Company’s common stock on the over-the-counter market or another trading market or exchange; · The average daily dollar trading volume for the Company’s common stock for the 30 trading days preceding each additional closing must be at least $10,000 per day; and · The closing market price for the Company’s common stock must be at least $0.01 for each of the 30 trading days preceding each additional closing. No additional closings may take place after the two-year anniversary of the SPA, or once the entire $600,000 amount has been funded. If the average daily dollar trading volume for the Company’s common stock for the 30 trading days preceding a particular additional closing is at least $50,000 per day, the Company may, at its option, increase the amount of that additional closing to 75 shares of Series B Convertible Preferred Stock ($75,000). The Series B Convertible Preferred Stock is classified as temporary equity, as it is convertible upon issuance at an amount equal to the lowest traded price for the Company’s common stock for the fifteen trading days immediately preceding the date of conversion. Based on the requirements of ASC 815, Derivatives and Hedging , the conversion feature represents an embedded derivative that is required to be bifurcated and accounted for as a separate derivative liability. The derivative liability is originally recorded at its estimated fair value and is required to be revalued at each conversion event and reporting period. Changes in the derivative liability fair value are reported in operating results each reporting period. On November 19, 2020 (the date of receipt of cash proceeds of $45,000 issuance), the Company valued the conversion feature of the derivative and recorded an initial derivative liability of $103,267, $58,267 as day one loss on the derivative, $39,000 as interest expense, and $39,000 as Series B Convertible Preferred Stock mezzanine liability, and $84,000 as amortization. At December 31, 2020, the Company recalculated the value of the derivative liability associated with the convertible note recording a loss of $39,266 in connection with the change in fair market value of the derivative liability. In addition, the Company recorded $900 as sales commission to complete this financing and $1,160 as preferred stock dividend payable to GHS as of December 31, 2020. On November 19, 2020 and at December 31, 2020, the Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0067 to $0.0051, the closing stock price of the Company's common stock on the date of valuation ranging from $0.0083 to $0.0087, an expected dividend yield of 0%, expected volatility ranging from 430.28% to 440.99%, risk-free interest rates ranging from 0.39% to 0.38%, and an expected term of 1.50 to 1.38 years. On December 16, 2020, pursuant to the terms of the SPA, GHS purchased an additional 85 shares of Series B Convertible Preferred Stock for gross proceeds of $85,000. The Company paid $1,700 in selling commissions to complete this financing. On December 16, 2020 (the date of receipt of cash proceeds of $85,000 issuance), the Company valued the conversion feature of the derivative and recorded an initial derivative liability of $106,241, $1,700 as interest expense, $102,000 as Series B Convertible Preferred Stock a mezzanine liability, and $102,000 as amortization. At December 31, 2020, the Company recalculated the value of the derivative liability associated with the convertible note recording a loss of $67,008 in connection with the change in fair market value of the derivative liability. In addition, the Company recorded $503 as preferred stock dividend payable to GHS as of December 31, 2020. On December 16, 2020 and at December 31, 2020, the Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0060 to $0.0051, the closing stock price of the Company's common stock on the date of valuation ranging from $0.0063 to $0.0087, an expected dividend yield of 0%, expected volatility ranging from 431.65% to 437.59%, risk-free interest rates ranging from 0.39% to 0.38%, and an expected term of 1.50 to 1.46 years. F- 26 As a result of receipt of cash proceeds relating to Series B Convertible Preferred Stock, the Company recorded derivative liability of $315,782 and Series B Convertible Preferred Stock liability of $186,000 at December 31, 2020. Warrants A summary of the status of the Company’s warrants as of December 31, 2020 and 2019 and changes during the three months then ended, is presented below: Shares Under Warrants Weighted Average Exercise Price Weighted Average Remaining Contractual Life 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 Issued 43,082,532 $ 0.00 4.1 Years Exercised (41,666,667 ) $ 0.00 Expired/Forfeited (175,000 ) $ 0.20 Outstanding at December 31, 2020 2,868,397 $ 0.00 3.4 Years NOTE 10 - INCOME TAXES Income tax expense for the year ended December 31, 2020 and 2019 is summarized as follows. December 31, 2020 December 31, 2019 Deferred: Federal $ (469,723 ) $ (396,457 ) State (108,484 ) (91,563 ) Change in valuation allowance 578,206 488,020 Income tax expense (benefit) $ – $ – The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rate to the income taxes reflected in the Statement of Operations: December 31, 2020 December 31, 2019 Tax at statutory tax rate 21.00% 21.00% State taxes 4.85% 4.85% Other permanent items – – Valuation allowance -25.85% -25.85% Income tax expense – – F- 27 The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities at December 31, 2020 and 2019 are as follows: December 31, 2020 December 31, 2019 Deferred tax assets: Net operating loss carry forward $ 1,287,319 $ 911,541 Total gross deferred tax assets 1,287,319 911,541 Less: valuation allowance (1,287,319 ) (911,541 ) Net deferred tax assets $ – $ – Deferred income taxes are provided for the tax effects of transactions reported in the financial statements and consist of deferred taxes related primarily to differences between the bases of certain assets and liabilities for financial and tax reporting. The deferred taxes represent the future tax return consequences of those differences, which will either be deductible or taxable when the assets and liabilities are recovered or settled. On December 22, 2017, the 2017 Tax Cuts and Jobs Act (the “Tax Reform Act”) was enacted into law and the new legislation contains several key tax provisions that impact the Company, including a reduction of the corporate income tax rate to 21% effective for tax years beginning after December 31, 2017 and the Transition Tax, among others. The staff of the US Securities and Exchange Commission (SEC) has recognized the complexity of reflecting the impacts of the Tax Reform Act, and issued guidance in Staff Accounting Bulletin 118 (“SAB 118”) in December 2017, which clarifies accounting for income taxes under ASC 740 if information is not yet available or complete and provides for up to a one-year period in which to complete the required analyses and accounting (the measurement period). Adjustments to incomplete and unknown amounts will be recorded and disclosed prospectively during the measurement period. The Company has completed the required analysis and accounting for substantially all the effects. Except for the reduction of the income tax rate from 34% to 21%, there were no material impact on the Company’s financial statements. At December 31, 2020 and 2019, the Company had accumulated net operating losses of approximately $7,481,000 and $5,040,000, respectively, for U.S. federal and Massachusetts income tax purposes available to offset future taxable incomes. The net operating losses generated in tax years prior to December 31, 2017, can be carry forward for twenty years, whereas the net operating losses generated after December 31, 2017 can be carry forward indefinitely. Management determined that it was unlikely that the Company’s deferred tax assets would be realized and have provided for a full valuation allowance associated with the net deferred tax assets. At December 31, 2020 and 2019, the Company’s deferred income tax assets and valuation allowance were $1,287,319 and $911,541, respectively. In the ordinary course of business, the Company’s income tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessment by these taxing authorities. Accordingly, the Company believes that it is more likely than not that it will realize the benefits of tax positions it has taken in its tax returns or for the amount of any tax benefit that exceeds the cumulative probability threshold in accordance with FASB ASC 740. Differences between the estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material adverse effect on the Company’s financial position. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits. As of December 31, 2020, tax years 2019, 2018, and 2017 remain open for examination by the Internal Revenue Service and the Massachusetts Division of Revenue. The Company has received no notice of audit from the Internal Revenue Service or the Massachusetts Division of Revenue for any of the open tax years. F- 28 NOTE 11 - SUBSEQUENT EVENTS On January 19, 2021, pursuant to the authorization and approval previously provided by the stockholders, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of Nevada to increase its authorized shares of common stock, $0.001 par value per share, from 190,000,000 shares to 1,000,000,000 shares, which filing became effective on January 18, 2021. On January 22, 2018, the Company issued Senior Secured Convertible Promissory Notes in the principal amounts of $500,000 to Convertible Promissory Note holder - A, $50,000 to a Convertible Promissory Noteholder – C, and $50,000 to a Convertible Promissory Note holder - D, respectively, amending to reduce the conversion price for all principal and accrued interest to $0.01 per share. In exchange for the reduction of the conversion price, each of the three Convertible Promissory Note holders agreed to amend the maturity dates to March 1, 2022, and all prior Events of Default (as defined in the Notes) including penalties, were waived, and all future Events of Default (as defined in the Notes) pertaining to the future payment of interest were waived through maturity (Note 5). On February 1, 2021, a Convertible Promissory Noteholder – G, converted a principal balance of its convertible promissory note of $66,833 and accrued interest of $5,177, into 7,200,000 shares of common stock of the Company (Note 5). On February 3, 2021, a Convertible Promissory Noteholder – C, converted the principal balance of its convertible promissory note of $40,000 and accrued interest of $6,510 into 4,650,978 shares of common stock of the Company (Note 5). On February 4, 2021, a Convertible Promissory Noteholder – B, converted the principal balance of its convertible promissory note of $50,000 into 5,000,000 shares of common stock of the Company (Note 5). On February 24, 2021, the Company entered into a Common Stock Purchase Agreement with an investor pursuant to which the investor agreed to purchase up to $5,000,000 of the Company’s registered Common Stock at $0.015 per share. Pursuant to the Agreement, purchases may be made by the Company during the Commitment Period (as defined in the Agreement) through the submission of a purchase notice to the investor no sooner than ten business days after the preceding closing. No purchase notice can be made in an amount less than $10,000 or greater than $500,000 or greater than two times the average of the daily trading dollar volume for the Company’s Common Stock during the ten business days preceding the purchase date. Each purchase notice is limited to the investor beneficially owning no more than 4.99% of the total outstanding Common Stock of the Company at any given time. There are certain conditions precedent to each purchase including, among others, an effective registration statement in place and the VWAP of the closing price of the Company’s Common Stock greater than $0.0175 for the Company's Common Stock during the five business days prior to the closing. On February 26, 2021 and March 16, 2021, the investor purchased 8,000,000 shares and 8,400,000 shares of common stock for a cash consideration of $120,000 and $126,000, respectively. F- 29