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Item 2. Management’s Discussion and Analysis

2026-08-13 compared with 2026-07-09 · 104 added, 77 removed, 207 unchanged (47% of the section changed)

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

This Management’s Discussion and Analysis

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the following Management Discussion and Analysis of the Consolidated Financial Condition, Results of Operations, Stockholders’ Equity

and Cash Flow for the quarterly periods ended March 31, 2026 and 2025 gives effect to our acquisition of OXYS Corporation (“ OXYS ”)

and Cash Flow for the quarterly periods ended June 30, 2026 and 2025 gives effect to our acquisition of OXYS Corporation (“ OXYS ”)

on July 28, 2017.

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General Overview

IIOT-OXYS, Inc., a Nevada corporation (the “ Company ”),

and OXYS, were originally established for the purposes of designing, building, testing, and selling Edge Computing systems for the Industrial

Both companies were early-stage technology startups that are largely pre-revenue in their development phase.

(an entity immaterial to our operations) is also an early-stage technology development company.

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 early-stage technology startups that are largely

pre-revenue in their development phase.

HereLab (an entity immaterial to our operations) is also an early-stage

technology development company.

We develop hardware, software and algorithms that

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Results of Operations for the Three Months

Ended March 31, 2026 Compared to the Three Months Ended March 31, 2025 (Unaudited)

For the three months ended March 31, 2026, we

did not record any revenues and related cost of sales.

Our operating expenses totaled $63,589 which included professional fees of $56,224

for accounts, attorneys and consultants, and general and administrative expenses of $7,365.

We recorded net other expenses of $162,573

consisting of a loss of $97,220 due to change in fair market value of derivative liability;

loss on derivatives of $16,866;

interest expense

of $49,084 on promissory notes payable;

and $597 of refund received upon department of treasury.

We also recorded preferred stock dividend

of $167,511 on convertible preferred stocks.

As a result of the above, we recorded a net loss of $393,673 attributable to common stockholders

for the three months ended March 31, 2026.

For the three months ended March 31, 2025, we

did not record any revenues and related cost of sales.

Our operating expenses totaled $92,258 which included payroll costs of $50,000,

amortization of intangible assets of $12,205, and general and administrative expenses of $30,053.

We recorded net other expense of $64,953

consisting of gain of $15,764 due to change in fair market value of derivative liability;

loss on derivatives of $14,224;

interest expense

of $75,375 primarily due to recording of $62,800 as interest expense on issuance of Series D Convertible Preferred Stock;

and other income

of $8,882 received as employee retention credit from the Internal Revenue Service in February 2025.We also recorded preferred stock dividend

on convertible preferred stock of $23,102.

As a result of the above, we recorded a net loss of $180,313 attributable to common stockholders

for the three months ended March 31, 2025.

Ended June 30, 2026 Compared to the Three Months Ended June 30, 2025 (Unaudited)

For the three months ended June 30, 2026, we did

not record any revenues and related cost of sales.

Our operating expenses totaled $83,221 which included professional fees to consultants,

accountants and auditors totaling $74,728, and other general and administrative expenses relating to dues and subscriptions and state

filing fees totaling $8,493.

We recorded net other expense of $363,593 consisting of a loss of $198,868 due to change in fair market value

of derivative liability;

loss on derivatives on Series D Convertible Preferred Stock of $54,197;

and interest expense of $110,528 primarily

due to loss recorded on issuance of derivatives to interest expense on issuance of Series D Convertible Preferred Stock.

We also recorded

preferred stock dividend and default dividend due to non-payment of dividend on convertible preferred stock of $174,888.

As a result of

the above, we recorded a net loss of $621,702 attributable to common stockholders for the three months ended June 30, 2026.

For the three months ended June 30, 2025, we did

not record any revenues and related cost of sales.

Our operating expenses totaled $120,973 which included payroll costs of $50,000, amortization

of intangible assets of $12,341, professional fees of $70,280, and a credit balance of $11,648 in general and administrative expenses

which included a recovery recorded in the current period to reverse the previously recognized expense for stale payables that were determined

by management to be no longer payable.

We recorded net other income of $95,644 consisting of a gain of $212,547 due to change in fair

market value of derivative liability;

loss on derivatives on Series D Convertible Preferred Stock of $21,434;

interest expense of $108,916

primarily due to recording of $97,200 as interest expense on issuance of Series D Convertible Preferred Stock and $11,716 interest on

notes payable;

and received employee retention credit from the internal revenue service totaling $13,447 in May 2025, which we recorded

as other income.

We also recorded preferred stock dividend on convertible preferred stock of $25,082.

As a result of the above, we recorded

a net loss of $50,411 attributable to common stockholders for the three months ended June 30, 2025.

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.

No revenues were earned in Q1, 2026, as in prior

year quarter ending March 31, 2025.

We believe revenue growth for the rest of 2026 will be challenging given the difficulty in raising

additional capital to fuel sales and marketing efforts.

Potential future revenue growth depends on our ability to raise said capital and

the following factors:

of Operations for the Six Months Ended June 30, 2026 Compared to the Six Months Ended June 30, 2025 (Unaudited)

six months ended June 30, 2026, we did not earn any revenues and did not incur related cost of sales.

Our operating expenses were $146,812

which primarily included legal and professional fees paid to consultants, accountants and auditors totaling $130,954, and general and

administrative expenses of $15,858 which primarily included dues and subscriptions, transfer agent fees and corporate filing fees.

recorded net other expense of $526,164 consisting of a loss of $296,088 due to change in fair market value of derivative liability, loss

on derivatives of $71,062 on Series D Convertible Preferred Stock, and interest expense of $159,611 primarily due to loss recorded

on issuance of derivatives to interest expense on issuance of Series D Convertible Preferred Stock.

also recorded $342,399 as preferred stock dividend on convertible preferred stock for the six months ended June 30, 2026.

we incurred a net loss of $1,015,375 attributable to common stockholders for the six months ended June 30, 2026.

six months ended June 30, 2025, we did not earn any revenues and did not incur related cost of sales.

Our operating expenses were $213,231

which included payroll costs of $100,000, amortization of intangible assets of $24,546, legal and professional fees of $84,865, and general

and administrative expenses of $3,819.

We recorded net other income of $30,691 consisting of a gain of 228,311 due to change in fair market

value of derivative liability, loss on a derivative of $35,658 on Series C and D Convertible Preferred Stock, and interest expense of

$184,291 primarily due to recording of $160,800 as interest expense on issuance of Series D Convertible Preferred Stock and $23,304

interest on notes payable .

We also recorded $48,184 as preferred stock dividend on convertible preferred

stock for the six months ended June 30, 2025.

As a result, we incurred a net loss of $230,724 attributable to common stockholders for

the six months ended June 30, 2025.

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.

No revenues were earned in the quarter ended June

30, 2026, as in prior year quarter ending June 30, 2025.

We believe revenue growth for the rest of 2026 will be challenging given the

difficulty in raising additional capital to fuel sales and marketing efforts.

Potential future revenue growth depends on our ability to

raise said capital and the following factors:

Our DOT Bridge Monitoring Contract ended in December 2023 but we believe our Structural Health Monitoring (“ SHM ”) vertical is the foundation of our future revenue stream.

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Liquidity and Capital Resources for the

Three Months Ended March 31, 2026 Compared to the Three Months Ended March 31, 2025 (Unaudited)

At March 31, 2026, we reported a cash balance

of $6,838 as a result of net decrease of cash balance of $19,504 from $26,342 at December 31, 2025.

This decrease was primarily as a result

of net cash used in operating activities of $59,624, offset by net cash provided by sale of Series D convertible preferred stock of $43,000,

Six Months Ended June 30, 2026 Compared to the Six Months Ended June 30, 2025 (Unaudited)

At June 30, 2026, we reported a cash balance of

$8,651 as a result of a decrease of $17,691 from $26,342 cash balance at December 31, 2025.

This decrease was primarily as a result of

net cash provided by sale of Series D convertible preferred stock of $125,000, offset by cash used by operating activities of $137,211

and cash payment of $5,480 in offering costs.

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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

Operating Activities

Net cash flows used in

operating activities for the three months ended March 31, 2026 was $59,624, primarily attributed to the net loss of $226,162, common stock

issued for services of $100, amortization of debt discount on Series B and D convertible preferred stock of $8,600, loss due to change

in the fair value of derivative liability of $97,220, and net increase in operating assets and liabilities of $60,618.

The Company recorded

changes in operating assets and liabilities primarily attributable to decrease in accounts payable of $9,242, increase in accrued liabilities

of $12,854, and an increase in derivative liabilities of $57,006.

Net cash flows used in

operating activities for the three months ended March 31, 2025 was $56,532, primarily attributed to the net loss of $157,211, stock compensation

expense for services of $1,295, amortization of intangible assets of $12,205, gain due to change in fair value of derivative liability

of $15,764 of Series C and Series D Convertible Preferred Stock, and net increase in operating assets and liabilities of $90,943.

Company recorded changes in operating assets and liabilities primarily attributable to an increase in prepaid expenses and other current

assets of $15,000, decrease in accounts payable of $34,827, increase in accrued liabilities of $638,986, increase in derivative liabilities

of $69,825, increase in shares payable to related parties of $360, and increase in salaries payable to related parties of $31,599.

operating activities for the six months ended June 30, 2026 was $137,211, primarily attributed to the net loss of $672,976, initial loss

on derivatives of $54,197, stock compensation expense of $80, amortization of preferred stock discount on Series D convertible preferred

stock of $39,400, loss due to change in the fair value of derivative liability of $296,088, and net increase in operating assets and liabilities

The Company recorded changes in operating assets and liabilities primarily attributable to decrease in prepaid expenses and

other current assets of $13,648, decrease in accounts payable of $15,064, increase in accrued liabilities of $38,327, and increase in

derivative liabilities of $136,385.

Net cash flows used in operating activities for the six months ended June 30, 2025 was $131,801, primarily attributed to the net loss

of $182,540, initial loss on derivatives of $35,658, stock compensation expense of $2,529, amortization of intangible assets of $24,546,

amortization of preferred stock discounts on Series B & D convertible preferred stock of $33,000, gain on change in the fair value

of derivative liability of $228,311, and net decrease in operating assets and liabilities of $202,392.

The Company recorded changes in

operating assets and liabilities primarily attributable to decrease in prepaids and other current assets of $2,139, decrease in accounts

payable of $47,467, increase in accrued liabilities of $37,291, increase in derivative liabilities of $167,459, and increase in salaries

payable to related parties of $78,628.

Investing Activities

Net cash used in investing

activities for the three months ended March 31, 2026 and 2025 was $0.

activities for the six months ended June 30, 2026 and 2025 was $0.

Financing Activities

Net cash provided by

financing activities for the three months ended March 31, 2026, was $40,120, due to cash received from sale of Series D Convertible Preferred

Stock of $43,000, and cash payments of offering costs of $2,880.

cash provided by financing activities for the six months ended June 30, 2026 was $119,520 due to cash received of $125,000 from equity

financing of convertible preferred stock, net of cash payment of $5,480 in fees paid in connection with the capital raise.

Net cash provided by

financing activities for the three months ended March 31, 2025, was $50,800, due to cash received from sale of Series D Convertible Preferred

financing activities for the six months ended June 30, 2025, was $130,180, due to cash received from sale of Series D Convertible Preferred

Stock of $141,000, net of cash payments of offering costs of $10,820.

As a result of the above

activities, the Company recorded a decrease in cash of $19,504 for the three months ended March 31, 2026, respectively.

activities, the Company recorded a decrease in cash of $17,691 for the six months ended June 30, 2026, and an increase in cash of $17,454

for the six months ended June 30, 2025, respectively.

The accompanying condensed unaudited consolidated

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As shown in the accompanying financial

statements, the Company has suffered continuing operating losses, has a working capital deficit of $2,653,885, net loss from operations

for the three months ended March 31, 2026 of $226,162, net cash used in operating activities of $59,624, and has an accumulated deficit

of $13,043,185 as of March 31, 2026.

These factors, among others, raise substantial doubt about the Company’s ability to continue

as a going concern.

statements, the Company has suffered continuing operating losses, has a working capital deficit of $3,145,626, net loss incurred for the

six months ended June 30, 2026 of $1,015,375, net cash used in operating activities of $137,211, and has an accumulated deficit of $13,664,887

as of June 30, 2026.

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.

The accompanying condensed

unaudited 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.

The accompanying condensed unaudited 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.

Off-Balance Sheet Arrangements

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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-Q

Item 2. Management’s Discussion and Analysis