What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-04-13 compared with 2022-04-14 · 110 added, 110 removed, 197 unchanged (53% of the section changed)

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from New Jersey to Nevada.

On December 14, 2017, we entered into a Share

Exchange Agreement (the “ HereLab SEA ”) with HereLab, Inc., a Delaware corporation (“ HereLab ”), and

HereLab’s two shareholders pursuant to which we would acquire all the issued and outstanding shares of HereLab in exchange for the

issuance of 1,650,000 shares of our Common Stock, on a pro rata basis, to HereLab’s two shareholders.

The closing of the transaction

occurred on January 11, 2018 and HereLab became our wholly-owned subsidiary.

At the present time, we have two, wholly-owned

subsidiaries which are OXYS Corporation and HereLab, Inc., through which our operations are conducted.

subsidiaries which are OXYS Corporation and HereLab, Inc.

(an entity immaterial to our operations), through which our operations are conducted.

General Overview

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From these insights, the customer can act to improve their process, product or structure.

Results of Operations for the Year Ended

December 31, 2022 compared to the year ended December 31, 2021

For the year ended December 31, 2022, we earned

revenues of $88,904 and incurred related cost of sales of $10,499.

Our operating expenses were $733,071 which included professional fees

of $268,837, payroll costs of $373,774, amortization of intangible assets of $49,500, and general and administrative expenses of $40,960.

We recorded net other expenses of $369,560 consisting of recording loss on derivatives of $200,519, interest expense of $377,138 offset

by gain on change in fair market value of derivative liability of $190,462 and interest income on note receivable of $17,634.

recorded $52,654 as preferred stock dividend on convertible preferred stock for the year ended December 31, 2022.

As a result, we incurred

a net loss of $1,076,881 for the year ended December 31, 2022.

Comparatively, for the year ended December 31,

2021, we earned revenues of $11,280 and incurred related cost of sales of $2,040.

Our Operating expenses were $889,141 which included

professional fees of $508,153, payroll costs of $301,707, amortization of intangible assets of $49,771, and general and administrative

expenses of $29,510.

We recorded net other expenses of $161,333, consisting of interest expense of $430,999 on notes payable due to amortization

of debt discount and interest payable on notes payable, offset by gain on change in the fair market value of derivative liability of $102,966,

gain on extinguishment of debt of $120,000, other income of $46,700 consisting of forgiveness of PPP Loan of $36,700 and EIDL advance

of $10,000, We also recorded $22,320 as preferred stock dividend on convertible preferred stock for the year ended December 31, 2021.

As a result, we incurred a net loss of $1,063,554 for the year ended December 31, 2021.

During the current and prior period, we did not

record an income tax benefit due to the uncertainty associated with the Company’s ability to utilize the deferred tax assets.

Year over Year (YoY) revenue increased significantly

in 2022 over 2021, by 7.9X (688% increase).

This YoY growth was anticipated by our leadership team in our 2021 Annual Report on Form 10-K,

and we’re pleased to deliver this growth for our shareholders.

We had a strong finish to 2022, with fourth quarter revenue exceeding

that in the third quarter, also as promised.

It marked three consecutive quarters of quarter-over-quarter revenue growth.

While our Quarterly

Report on Form 10-Q for the period ended September 30, 2022 disclosed risks of ongoing concerns (and those concerns still exist), there

are several factors that led to this strong growth in 2022 which are as follows:

- Our DOT Bridge Monitoring contract:

We were awarded a six-figure sub-contract from a major northeast state's

DOT for bridge monitoring, in addition to the extension that was given on the previous contract.

This enabled us to deliver consistent

revenue beginning in the second quarter, continuing through the remainder of the year, and will continue through June of 2023.

this substantiates the strength of our Structural Health Monitoring (SHM) solutions and bolsters our ability to gain new business in this

vertical with both current and new customers.

- Our continued focus on our Smart Manufacturing vertical enabled us to secure a CNC Proof of Concept (POC)

contract in December 2022.

The POC successfully kicked off in January 2023.

- Our partnership with the Canadian Indoor Air Quality Sensor and IIoT Platform company, Aretas Sensor Networks,

with whom we entered into an NDA in the first quarter, progressed well through the year.

In addition to the initial collaborative agreement

signed in the first quarter, we signed an algorithm development contract in the second quarter and recorded revenue from that contract

in the third quarter.

We also signed a co-marketing and co-selling agreement with Aretas in the third quarter and began selling in the

fourth quarter of 2022.

- We secured and retained key talent.

The full time Machine Learning Engineer, hired in the first quarter,

expanded our focus on the Artificial Intelligence (AI) and Machine Learning (ML) aspects of our business.

Our CEO, Cliff Emmons, and COO,

Karen McNemar, both renewed their employment contracts in June, ensuring stable experienced leadership focused on long-term growth.

These accomplishments are proof that our successful

pilots in our key industry verticals have resulted in new business and will continue to do so in 2023 and beyond.

Also, the strength of

the Aingura IIoT, S.G.

collaboration agreement has bolstered financial stability, added talent breadth and depth, and provides complimentary

industry segment experience.

Furthermore, liquidity of our stock has attracted funding that gives us access to additional capital.

capital will enable the funding of business development, staff augmentation, and inorganic growth opportunities.

It is anticipated that 2023 YoY revenue growth

will meet or exceed that of 2022.

This is due to these aforementioned reasons:

the strength of the Aingura IIoT, S.G.

collaboration,

successful pilots in all three of our key target industries, use cases and marketing collateral from the pilots’ data and algorithms,

experienced leadership, savvy technological talent, and operational execution excellence.

Our continued focus on high potential growth

markets, has yielded numerous prospects for future growth.

Furthermore, the strength of our target markets continues, the global smart

manufacturing (also known as Industry 4.0) was $97.6 B USD in 2022 and will reach $228.3 B USD by 2027 (CAGR 18.5%);

worldwide Structural Health Monitoring (SHM) industry was $2.0 billion USD in 2021 and will reach $4.0 billion USD by 2027 (CAGR of 14.6%).

Through our collaborations with Aretas Sensor Networks, we have access to a third market, Indoor Air Quality Monitors, which was

estimated at $3.7 billion USD in 2020 and projected to reach $6.4 billion USD in 2027, growing at 8.2% CAGR.

3 We believe our

strengths in these markets will yield breakthroughs in additional new contracts with current customers, as well as new customers in all

targeted industry segments.

By combining the resulting organic growth with strong strategic partnerships, we believe these revenue goals

are achievable.

_________________

1 https://www.marketsandmarkets.com/Enquiry_Before_BuyingNew.asp?id=105448439&utm_source=SE-NA&utm_medium=Email

2 https://www.marketsandmarkets.com/Market-Reports/structural-health-monitoring-market-101431220.html

3 https://www.reportlinker.com/p05957040/Global-Indoor-Air-Quality-Monitors-Industry.html

Liquidity and Capital Resources for the

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This decrease was primarily as a result

of net cash used in operating activities of $628,103, cash received from convertible notes payable of $521,850 and cash received from

the sale of Series B Preferred Stock of $50,000.

Our working capital deficit at December 31, 2021 was $1,108,787, as compared to a working

capital deficit of $2,665,436 at December 31, 2020, respectively.

of net cash used in operating activities of $657,009, cash paid for note receivable of $200,000, and cash received from convertible notes

payable of $545,924 and cash received from the sale of Series B Preferred Stock of $297,600.

Our working capital deficit at December 31,

2022 was $1,606,828, as compared to a working capital deficit of $1,108,786 at December 31, 2021, respectively.

For the year ended December 31, 2022, we incurred

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Net cash flows used in operating activities was $628,103 for the year ended December 31, 2021.

For the year ended December 31, 2022, cash used

in investing activities was $200,000 payment towards a note receivable.

For the year ended December 31, 2022, net cash

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flows provided by financing activities were $571,850, consisting of cash received from the issuance of Convertible Notes payable of $470,850

cash proceeds from sale of Series B Preferred Stock of $130,000, cash payments on notes payable of $100,000, and cash received from the

PPP of $36,700.

and cash proceeds from sale of Series B Preferred Stock of $101,000, respectively.

The accompanying consolidated financial statements

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a going concern.

Results of Operations for the Year Ended

December 31, 2021 compared to the year ended December 31, 2020

For the year ended December 31, 2021, we earned

revenues of $11,280 and incurred related cost of sales of $2,040.

We incurred professional fees of $508,153, payroll costs of $301,707,

and other general and administrative expenses of $79,282.

We recorded net other expenses of $161,333, net of other income of $269,666,

primarily due to gain on change in the fair market value of derivative liability of $102,966, gain on extinguishment of debt of $120,000,

other income of $46,7000 consisting of forgiveness of PPP Loan of $36,700 and EIDL advance of $10,000, offset by interest expense of $430,999

on notes payable due to amortization of debt discount and interest payable on notes payable.

We also recorded $22,320 as preferred stock

dividend on convertible preferred stock for the year ended December 31, 2021.

As a result, we incurred a net loss of $1,063,554 for the

year ended December 31, 2021.

Comparatively, for the year ended December 31,

2020, we earned revenues of $36,771 and incurred related cost of sales of $15,044.

We incurred professional fees of $802,135, payroll

costs of $137,220, and other general and administrative expenses of $109,016.

We incurred other expenses of $1,208,467, net of other income

of $5,000, primarily due to the loss on change in the fair market value of derivative liability of $220,325, interest expense of $737,541

on notes payable due to amortization of debt discount and interest payable on notes payable, loss on the derivatives and loss on extinguishment

of debt for the year ended December 31, 2020.

We also recorded $1,663 as preferred stock dividend on convertible preferred stock for the

year ended December 31, 2020.

As a result, we incurred a net loss of $2,236,774 for the year ended December 31, 2020.

During the current and prior period, we did not

record an income tax benefit due to the uncertainty associated with the Company’s ability to utilize the deferred tax assets.

Year over Year (YoY) revenue was less in 2021

This was due to several reasons, including:

the negative business impacts of the Coronavirus pandemic and longer than anticipated

customer acquisition times.

These two factors led to cash flow issues, which in turn led to additional and aging accounts payable.

Quarterly Report on Form 10-Q for the period ended September 30, 2021 disclosed risks of ongoing concerns, and those concerns still exist.

Despite cash flow issues, cost cutting and capital infusions allowed us to weather a difficult year in 2021.

Despite these headwinds,

our achievements in 2021 were significant:

The successful pilot for our Fortune 500 Pharma customer allowed our strategic partner, Aingura

IIoT, S.G., to win an initial contract with ArcelorMittal, which manufactures steel in 17 countries.

That contract resulted in subcontracts

for AI and Machine Learning services for our company and recorded as revenue in our third and fourth quarters.

Our successful full year

of structural health monitoring and analysis on several bridges for a New England state’s DOT pilot resulted in new business for

our partner, Aingura IIoT, S.G.

and anticipated future business for our company.

Aingura won a Phase 1 contract for a Spanish Railway

Bridge Monitoring project, and Oxys won a commitment from our current customer, the New England state’s DOT, to extend our bridge

monitoring contract in 2022.

These accomplishments are proof that our successful pilots in our key industry verticals have resulted in

new business and will continue to do so in 2022 and beyond.

Also, the strength of the Aingura IIoT, S.G.

collaboration agreement has bolstered

financial stability, added talent breadth and depth, and provides complimentary industry segment experience.

Furthermore, liquidity of

our stock has attracted funding that gives us access to additional capital.

This capital will enable the funding of business development,

staff augmentation, and inorganic growth opportunities.

It is anticipated that 2022 YoY revenue growth

will meet or exceed that of 2021.

This is due to these aforementioned reasons:

the strength of the Aingura IIoT, S.G.

collaboration, two

successful pilots in our key target industries, use cases and marketing collateral from the pilots’ data and algorithms, experienced

leadership, savvy technological talent, and operational execution excellence.

Our continued focus on high potential growth markets (specifically

Biotech, Pharma, and Medical Device Operations), have yielded numerous prospects for future growth.

Furthermore, the strength of our target

market, Industry 4.0, continues:

Market research shows the worldwide Industry 4.0 market in 2021 was $64.9 billion and is projected to

be $165.5 billion by 2026 (20.6% CAGR).

We believe our strengths in these markets will yield breakthroughs in new contracts with current

customers, as well as new customers in all targeted industry segments.

By combining the resulting organic growth with inorganic growth,

we believe these revenue goals are achievable.

Recently Issued Accounting Standards

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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

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.

Effective January 1, 2022, we early adopted ASU

2020-06, “ Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts

in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own

Equity” using the modified retrospective method of adoption.

ASU 2020-06 simplifies the accounting for convertible instruments by

removing certain separation models in Subtopic 470- 20, Debt—Debt with Conversion and Other Options , for convertible

Under ASU 2020-06, the embedded conversion features no longer are separated from the host contract for convertible instruments

with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do

not result in substantial premiums accounted for as paid-in capital.

Consequently, a convertible debt instrument will be accounted for

as a single liability measured at its amortized cost as long as no other features require bifurcation and recognition as derivatives.

By removing those separation models, the interest rate of convertible debt instruments typically will be closer to the coupon interest

rate when applying the guidance in Topic 835, Interest.

We now account for our Convertible Notes as single liabilities measured at amortized

Other accounting standards that have been issued

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condition, revenues or expenses, results of operations, liquidity capital expenditures or capital resources.

Emerging Growth Company

We are an “emerging growth company,”

as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.

Certain specified reduced reporting and other regulatory

requirements that are available to public companies that are emerging growth companies.

These provisions include:

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

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

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

reduced disclosure about our executive compensation arrangements.

We have elected to take advantage of the exemption

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

As a result of this election,

our financial statements may not be comparable to public companies required to adopt these new requirements.

Quantitative And Qualitative Disclosures About Market Risk

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis