IIOT-OXYS, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contain certain forward-looking statements. Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events; are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements. Basis of Presentation The accompanying consolidated 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. The financial information presented below and the following Management Discussion and Analysis of the Company for the periods ended December 31, 2024 and 2023 gives effect to our acquisition of OXYS Corporation (“ OXYS ”) on July 28, 2017 and HereLab, Inc. In accordance with the accounting reporting requirements for the recapitalization related to the “reverse merger” of OXYS, the consolidated financial statements for OXYS have been adjusted to reflect the change in the shares outstanding and the par value of the common stock of OXYS. Additionally, all intercompany transactions between the Company and its subsidiaries have been eliminated. Forward-Looking Statements Statements in this management’s discussion and analysis of financial condition and results of operations contain certain forward-looking statements. To the extent that such statements are not recitations of historical fact, such statements constitute forward-looking statements which, by definition involve risks and uncertainties. Where in any forward-looking statements, if we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result or be achieved or accomplished. Factors that may cause differences between actual results and those contemplated by forward-looking statements are not limited to the following: · geo-political events, government responses to such events and the related impact on the economy both nationally and internationally; · general market and economic conditions; · our ability to maintain and grow our business with our current customers; · our ability to meet the volume and service requirements of our customers; · industry consolidation, including acquisitions by us or our competitors; · capacity utilization and the efficiency of manufacturing operations; · success in developing new products; · timing of our new product introductions; · new product introductions by competitors; · the ability of competitors to more fully leverage low-cost geographies for manufacturing or distribution; · product pricing, including the impact of currency exchange rates; · effectiveness of sales and marketing resources and strategies; · adequate manufacturing capacity and supply of components and materials; · strategic relationships with our suppliers; · product quality and performance; · protection of our products and brand by effective use of intellectual property laws; · the financial strength of our competitors; · the outcome of any future litigation or commercial dispute; · barriers to entry imposed by competitors with significant market power in new markets; · government actions throughout the world; and · our ability to service secured debt when due. 10 You should not rely on forward-looking statements in this document. This management discussion contains forward looking statements that involve risks and uncertainties. We use words such as “anticipates,” “believes,” “plans,” “expects,” “future,” “intends,” and similar expressions to identify these forward-looking statements. Prospective investors should not place undue reliance on these statements, which apply only as of the date of this document. Our actual results could differ materially from those anticipated in these forward-looking statements. Critical Accounting Policies The following discussions are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. These financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingencies. We continually evaluate the accounting policies and estimates used to prepare financial statements. We base our estimates on historical experiences and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management. Historical Background We were incorporated in the State of New Jersey on October 1, 2003 under the name of Creative Beauty Supply of New Jersey Corporation and subsequently changed our name to Gotham Capital Holdings, Inc. on May 18, 2015. We commenced operations in the beauty supply industry as of January 1, 2004. On November 30, 2007, our Board of Directors approved a plan to dispose of our wholesale and retail beauty supply business. From January 1, 2009 until July 28, 2017, we had no operations and were a shell company. On March 16, 2017, our Board of Directors adopted resolutions, which were approved by shareholders holding a majority of our outstanding shares, to change our name to “IIOT-OXYS, Inc.”, to authorize a change of domicile from New Jersey to Nevada, to authorize a 2017 Stock Awards Plan, and to approve the Securities Exchange Agreement (the “ OXYS SEA ”) between the Company and OXYS Corporation (“ OXYS ”), a Nevada corporation incorporated on August 4, 2016. Under the terms of the OXYS SEA we acquired 100% of the issued voting shares of OXYS in exchange for 34,687,244 shares of our Common Stock. We also cancelled 1,500,000 outstanding shares of our Common Stock and changed our management to Mr. DiBiase who also served in the management of OXYS. Also, one of our principal shareholders entered into a consulting agreement with OXYS to provide consulting services during the transition. The OXYS SEA was effective on July 28, 2017, and our name was changed to “IIOT-OXYS, Inc.” at that time. Effective October 26, 2017, our domicile was changed from New Jersey to Nevada. At the present time, we have two wholly owned subsidiaries which are OXYS Corporation and HereLab, Inc. (an entity immaterial to our operations), through which our operations are conducted. 11 General Overview IIOT-OXYS, Inc., a Nevada corporation (the “ Company ”), and OXYS, were originally established for the purposes of designing, building, testing, and selling Edge Computing systems for the Industrial Internet. Both companies were, and presently are, early-stage technology startups that are largely pre-revenue in their development phase. HereLab is also an early-stage technology development company. We received our first revenues in the last quarter of 2017, continued to realize revenues until 2020 when the pandemic hit, and we realized nominal revenues through 2021 to the present. We develop hardware, software and algorithms that monitor, measure and predict conditions for energy, structural, agricultural and medical applications. We use domain-specific Artificial Intelligence to solve industrial and environmental challenges. Our engineered solutions focus on common sense approaches to machine learning, algorithm development and hardware and software products. We use off the shelf components, with reconfigurable hardware architecture that adapts to a wide range of customer needs and applications. We use open-source software tools, while still creating proprietary content for customers, thereby reducing software development time and cost. The software works with the hardware to collect data from the equipment or structure that is being monitored. We focus on developing insights. We develop algorithms that help our customers create insights from vast data streams. The data collected is analyzed and reports are created for the customer. From these insights, the customer can act to improve their process, product or structure. Results of Operations for the Year Ended December 31, 2024 compared to the year ended December 31, 2023 For the year ended December 31, 2024, we earned revenues of $2,500 and recorded related cost of sales of $2,125. Our operating expenses were $428,274, which included payroll costs of $200,000, amortization of intangible assets of $49,636, legal and professional fees of $147,991, and general and administrative expenses of $30,647. We recorded net other expense of $251,836 consisting of loss of $111,523 due to change in fair market value of derivative liability, gain on a derivative of $16,353 on Series C Convertible Preferred Stock, Forgiveness of EIDL loan of $34,228, and interest expense of $190,894. We also recorded $84,920 as preferred stock dividend on convertible preferred stock for the year ended December 31, 2024. As a result, we incurred a net loss of $764,655 for the year ended December 31 30, 2024. For the year ended December 31, 2023, we earned revenues of $114,666 and incurred related cost of sales of $76,645. Our operating expenses were $731,420 which included professional fees of $172,704, payroll costs of $244,083, amortization of intangible assets of $49,500, bad debts of $214,103 and other general and administrative expenses of $51,029. We recorded net other expenses of $374,530 consisting of a loss of $185,973 due to debt extinguishment on notes payable due to change in conversion price, interest income on note receivable of $25,969, offset by interest expense of $210,426 and loss on change in fair market value of derivative liability of $4,100. We also recorded $68,531 as preferred stock dividend on convertible preferred stock for the year ended December 31, 2023. As a result, we incurred a net loss of $1,136,460 for the year ended December 31, 2023. During the current and prior year, we did not record an income tax benefit due to the uncertainty associated with the Company’s ability to utilize the deferred tax assets. Revenues earned in 2024 were substantially less than for the same period in 2023. We expect revenue to moderate in 2025, as our ability to raise funding to fuel sales & marketing efforts has been limited. Potential future revenue growth is possible, pending adequate funding for sales and marketing efforts. 12 We continue to face significant headwinds, and we have not been able to raise material funds for ongoing operations through our existing financing agreements due to market conditions. Our CEO and COO have not received any compensation since mid-April 2023 (their salaries have accrued), and the lack of funds has severely limited sales and marketing efforts. Our management recently secured funding from our lead investor to pay ongoing expenses and the leadership team is considering its options for both the short and long term. Given the current challenges in raising adequate funds, management is continuing to pursue options including vetting suitable companies to merge with or acquire us. We believe we’ve created real value from our business development in these industries, which have potential for success, due to the strength of their size and growth. The global smart manufacturing (also known as Industry 4.0) was $233.3 billion in 2024 and will reach $479 billion by 2029 (CAGR 15.5%), 1 and the worldwide SHM industry is $2.5 billion in 2024 and will reach $4.1 billion by 2029 (CAGR of 10.4%). 2 Given the valuable real-world data we have collected, our Artificial Intelligence (“ AI ”) Machine Learning algorithms we have developed, compelling use cases and marketing collateral developed from our data and algorithms, combined with our experienced leadership, savvy technological talent, and prudent operational execution, we believe our assets have potential continued annual revenue growth, that will be attractive to prospective partners interested in an acquisition or merger. Liquidity and Capital Resources for the Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023 As of December 31, 2024, we reported a cash balance of $23,593 as a result of an increase of $22,949 from the $644 cash balance at December 31, 2023. This increase in cash was primarily as a result of net cash used in operating activities of $46,391 and net cash provided by financing activities of $69,340. Operating Activities Net cash flows used in operating activities for the year ended December 31, 2024 was $46,391, primarily attributed to the net loss of $764,655, amortization of intangible assets of $49,636, loss on change in the fair market value of derivative liabilities of $111,523, and net increase in operating assets and liabilities of $557,106. The Company recorded changes in operating assets and liabilities primarily attributable to a decrease in accounts receivable of $5,460, decrease in prepaid expenses and other current assets of $167, increase in accounts payable of $118,276, increase in accrued liabilities of $159,776, increase in derivative liabilities of $111,612, increase in shares payable to related parties of $3,413, and increase in salaries payable to related parties of $158,402. Net cash flows used in operating activities for the year ended December 31, 2023 was $146,564, primarily attributed to the net loss of $1,136,460, stock compensation expense of $4,665, bad debts of $214,103, amortization of debt discount on notes payable and preferred stock of $12,400, amortization of intangible assets of $49,500, loss on change in the fair market value of derivatives of $4,100, and loss on extinguishment of notes payable of $186,294. The Company recorded changes in operating assets and liabilities of $518,835 primarily attributable to decrease in accounts receivable of $4,663 due to collections from customers, decrease in prepaid expenses and other current assets of $5,467, increase in accounts payable of $86,145 due to negotiating longer payment terms, increase in accrued liabilities of $248,368 due to non-payment of additional interest accrued on notes payable, increase in derivative liabilities due to the change in the fair value of derivative liabilities of $65,779, decrease in unearned interest of $5,151, increase in shares payable to related parties of $601, and increase in salaries payable to related parties of $117,063. Investing Activities Net cash used in investing activities for the years ended December 31, 2024 and 2023 was $0. 1 https://www.marketsandmarkets.com/Market-Reports/smart-manufacturing-market-105448439.html 2 https://www.marketsandmarkets.com/Market-Reports/structural-health-monitoring-market-101431220.html 13 Financing Activities Net cash provided by financing activities for the year ended December 31, 2024 was $69,340 due to cash received of $75,600 from equity financing of convertible preferred stock, net of cash payment of $6,260 in commissions and legal fees paid in connection with the capital raise. Net cash provided by financing activities for the year ended December 31, 2023 was $113,872 primarily due to sale of our common stock of $51,872 net of costs incurred in capital raise, and sale of Series B convertible preferred stock of $62,000. As a result of the above activities, the Company recorded an increase in cash of $22,949 for the year ended December 31, 2024, and a decrease in cash of $32,692 for the same comparable period ended December 31, 2023, respectively. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company has suffered continuing operating losses, has a working capital deficit of $2,477,428, used cash flows in operating activities of $46,391, and has an accumulated deficit of $11,208,252 as of December 31, 2024. These factors, among others, raise 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. Recently Issued Accounting Standards Other accounting standards that have been issued or proposed by FASB and do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying financial statements. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity capital expenditures or capital resources. Item 7A. Quantitative And Qualitative Disclosures About Market Risk. As a Smaller Reporting Company, we are not required to furnish information under this Item 7A. Item 8. Financial Statements. The financial statements and supplementary data required by this item are included following the signature page of this Annual Report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures. None. 14