UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended March 31, 2021 |
Or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from _______________________to___________________________ |
Commission File Number: 000-50773
IIOT-OXYS, Inc.
(Exact name of registrant as specified in its charter)
| Nevada | 56-2415252 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 705 Cambridge Street, Cambridge, MA | 02141 |
| (Address of principal executive offices) | (Zip Code) |
(401) 307-3092
(Registrant’s telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Not applicable | Not applicable | Not applicable |
Indicate by check mark whether the registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports).
Yes x No ☐
Indicate by check mark whether the registrant has been subject to such filing requirements for the past 90 days.
Yes x No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes x No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| Non-accelerated filer | ☐ | Smaller reporting company | x | |
| Emerging growth company | x |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
The number of shares outstanding of the registrant’s common stock on May 17, 2021, was 188,104,396.
Introductory Comment
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.
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IIOT-OXYS, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
IIOT-OXYS, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
| For The Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenues | $ | – | $ | 15,600 | ||||
| Cost of sales | – | 8,634 | ||||||
| Gross Profit | – | 6,966 | ||||||
| Operating Expenses | ||||||||
| Bank service charges | 75 | 1,422 | ||||||
| Office expenses | 2,081 | 973 | ||||||
| Organization Costs | 5,291 | 11,147 | ||||||
| Payroll expense | 41,681 | – | ||||||
| Professional fees | 211,155 | 187,121 | ||||||
| Patent license fees | – | 1,644 | ||||||
| Amortization of intangible assets | 12,477 | 12,341 | ||||||
| Total Operating Expenses | 272,760 | 214,648 | ||||||
| Other Income (Expense) | ||||||||
| Gain (loss) on change in FMV of derivative liability | 84,700 | (63,908 | ) | |||||
| Gain on extinguishment of debt | 120,000 | – | ||||||
| Interest expense | (121,447 | ) | (518,289 | ) | ||||
| Other Income | – | 409 | ||||||
| Total Other Income (Expense) | 83,253 | (581,788 | ) | |||||
| Net Loss Before Income Taxes | (189,507 | ) | (789,470 | ) | ||||
| Provision for income tax | – | – | ||||||
| Net Loss | $ | (189,507 | ) | $ | (789,470 | ) | ||
| Convertible Preferred Stock Dividend | (5,504 | ) | – | |||||
| Net Loss Attributable to Common Stockholders | $ | (195,011 | ) | $ | (789,470 | ) | ||
| Net Loss Per Share Attributable to Common Stockholders - Basic and Diluted | $ | (0.00 | ) | $ | (0.02 | ) | ||
| Weighted Average Shares Outstanding Attributable to Common Stockholders - Basic and Diluted | 160,406,294 | 45,245,515 | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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IIOT-OXYS, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity (Deficit)
For the Three Months Ended March 31, 2021 and 2020
(Unaudited)
| Preferred Stock | Common Stock | Additional Paid-In | Accumulated | Total Stockholders' Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance - December 31, 2019 | – | $ | – | 43,313,547 | $ | 43,314 | $ | 3,077,972 | $ | (5,040,307 | ) | $ | (1,919,021 | ) | ||||||||||||||
| Common stock issued for conversion of convertible note payables | – | – | 23,750,000 | 23,750 | 3,938 | – | 27,688 | |||||||||||||||||||||
| Relief of derivative liabilities | – | – | – | – | 77,386 | – | 77,386 | |||||||||||||||||||||
| 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 | ) | – | ||||||||||||||||||||
| Net loss | – | – | – | – | – | (789,470 | ) | (789,470 | ) | |||||||||||||||||||
| Balance - March 31, 2020 | – | $ | – | 67,063,547 | $ | 67,064 | $ | 3,526,326 | $ | (6,033,374 | ) | $ | (2,439,984 | ) | ||||||||||||||
| Balance - December 31, 2020 | 25,845 | $ | 26 | 145,110,129 | $ | 145,111 | $ | 4,794,261 | $ | (7,480,678 | ) | $ | (2,541,280 | ) | ||||||||||||||
| Common stock issued for conversion of convertible note payables | – | – | 16,850,978 | 16,851 | 151,669 | – | 168,520 | |||||||||||||||||||||
| Common stock sold for cash | – | – | 16,400,000 | 16,400 | 229,600 | – | 246,000 | |||||||||||||||||||||
| Beneficial conversion feature discount on notes payable | – | – | – | – | 360,000 | – | 360,000 | |||||||||||||||||||||
| Commission paid for raising capital | – | – | – | – | (4,920 | ) | – | (4,920 | ) | |||||||||||||||||||
| Net Loss | – | – | – | – | – | (195,011 | ) | (195,011 | ) | |||||||||||||||||||
| Balance - March 31, 2021 | 25,845 | $ | 26 | 178,361,107 | $ | 178,362 | $ | 5,530,610 | $ | (7,675,689 | ) | $ | (1,966,691 | ) | ||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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IIOT-OXYS, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| For The Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net loss | $ | (195,011 | ) | $ | (789,470 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities | ||||||||
| Gain on extinguishment of debt | (120,000 | ) | – | |||||
| Loss on issuance of default warrants | – | 163,433 | ||||||
| Increase in principal due to penalty provision | – | 146,250 | ||||||
| Increase in principal due to fees | – | 9,000 | ||||||
| Amortization of discount on notes payable | 108,408 | 24,022 | ||||||
| Amortization of intangible assets | 12,477 | 12,341 | ||||||
| Changes in Operating Assets and Liabilities | ||||||||
| (Increase) Decrease in: | ||||||||
| Accounts receivable | – | 12,404 | ||||||
| Prepaid expense | (4,379 | ) | (371 | ) | ||||
| Increase (Decrease) in: | ||||||||
| Accounts payable | (40,360 | ) | (18,834 | ) | ||||
| Accrued liabilities | 2,841 | (4,308 | ) | |||||
| Derivative liability | (84,700 | ) | 223,796 | |||||
| Deferred revenue | – | 46,425 | ||||||
| Shares payable to related parties | 179,236 | 181,227 | ||||||
| Salaries payable to related parties | 15,947 | 3,978 | ||||||
| Net Cash Provided by (Used in) Operating Activities | (125,541 | ) | 9,893 | |||||
| Cash Flows From Financing Activities | ||||||||
| Proceeds from sale of common stock | 246,000 | – | ||||||
| Payment for offering costs | (4,920 | ) | – | |||||
| Net Cash Provided By Financing Activities | 241,080 | – | ||||||
| Net increase in cash and cash equivalents | 115,539 | 9,893 | ||||||
| Cash and Cash Equivalents - Beginning of Period | 103,074 | 24,212 | ||||||
| Cash and Cash Equivalents - End of Period | $ | 218,613 | $ | 34,105 | ||||
| Supplement Disclosures of Cash Flow Information | ||||||||
| Interest paid during the period | $ | – | $ | 24,295 | ||||
| Income taxes paid during the period | $ | – | $ | – | ||||
| Supplemental Disclosures of Non-Cash Investing and Financing Activities | ||||||||
| Conversion of convertible notes payable and derivative liabilities | $ | 168,520 | $ | 105,074 | ||||
| Warrant anti-dilution issuance | $ | – | $ | 203,597 | ||||
| Beneficial conversion feature discount on notes payable | $ |
360,000 |
$ | – | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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IIOT-OXYS, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2021 and 2020
(Unaudited)
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 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 a name change to “IIOT-OXYS, Inc.” and authorized a change of domicile from New Jersey to Nevada.
Impact of COVID-19
During the period ended March 31, 2021, 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 quarter ended March 31, 2021 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.
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Going Concern
The accompanying condensed consolidated 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 $125,541 and has an accumulated deficit of $7,675,689 as of March 31, 2021. 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 condensed consolidated financial statements.
Interim Financial Statements
The accompanying unaudited condensed interim financial statements and related notes have been prepared in accordance with GAAP for interim financial information, and in accordance with the rules and regulations of the United States Securities and Exchange Commission with respect to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2020.
Principles of Consolidation
The condensed consolidated financial statements for the three months ended March 31, 2021 and 2020, 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.
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.
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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 $218,613 and $103,074 as of March 31, 2021 and December 31, 2020, 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 March 31, 2021 and December 31, 2020, 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.
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. |
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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 March 31, 2021 and December 31, 2020, 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:
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 and cash equivalents, 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.
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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.
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.
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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 March 31, 2021 and December 31, 2020 amounted to $335,379 and $347,856, respectively.
| March 31, 2021 | December 31, 2020 | |||||||
| Intangible Assets | $ | 495,000 | $ | 495,000 | ||||
| Accumulated amortization | (159,621 | ) | (147,144 | ) | ||||
| Intangible Assets, net | $ | 335,379 | $ | 347,856 | ||||
At March 31, 2021 and December 31, 2020, 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 $12,477 and $12,341 for the three months ended March 31, 2021 and 2020, respectively.
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 | $ | 37,295 | ||
| 2022 | 49,500 | |||
| 2023 | 49,500 | |||
| 2024 | 49,500 | |||
| 2025 | 49,500 | |||
| Thereafter | 100,084 | |||
| Total | $ | 335,379 | ||
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 shall vest in 2021. The shares vest annually on the anniversary date of the agreements.
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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 $910,072 and $730,836 in shares payable in conjunction with these agreements as of March 31, 2021 and December 31, 2020, 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 March 31, 2021 and December 31, 2020, 1,560,000 shares and 1,560,000 shares had vested, respectively.
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 March 31, 2021 and December 31, 2020, the Company recorded $138,130 and $138,602 in salaries payable to the CEO.
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. |
| 13 |
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 March 31, 2021 and December 31, 2020, 1,209,000 shares and 1,209,000 shares had vested respectively.
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 March 31, 2021 and December 31, 2020, the Company recorded $143,492 and $139,078 in salaries payable to the COO.
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 March 31, 2021 and December 31, 2020, 900,000 shares and 900,000 shares had vested, respectively.
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 March 31, 2021 and December 31, 2020, the Company recorded $141,596 and $129,590 in salaries payable to the CTO.
| 14 |
NOTE 5 - CONVERTIBLE NOTES PAYABLE
The following table summarizes the outstanding balance of convertible notes payable, interest and conversion rates as of March 31, 2021 and December 31, 2020, respectively.
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A. January 18, 2018 Convertible Note and Warrants (“Note A”)
On January 28, 2021, the noteholder of Note A 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 Note) including penalties of $100,000 were waived, and all future Events of Default (as defined in the Note) pertaining to the future payment of interest were waived through maturity. The Company recorded $100,000 as extinguishment of debt in its statements of operations for the three months ended March 31, 2021. The Company recorded $300,000 as the beneficial conversion feature discount on note payable of $500,000 on January 28, 2021. The Company amortized the discount to interest expense of $48,828 and $2,999 for the three months ended March 31, 2021 and 2020, respectively. The unamortized discount was $253,149 and $1,978 at March 31, 2021 and December 31, 2020, respectively. In addition, the Company recorded interest expense of $15,041 and $16,455 for the three months ended March 31, 2021 and 2020, respectively. Accrued interest payable on Note A was $100,865 and $85,824 as of March 31, 2021 and December 31, 2020, respectively.
On February 4, 2021, the noteholder A converted the principal balance of $50,000 of its convertible promissory note into 5,000,000 shares of common stock of the Company (Note 9). The principal balance payable on Note A amounted to $450,000 and $600,000 on March 31, 2021 and December 31, 2020, respectively.
B. January 2019 Convertible Note and Warrants (“Note B”)
The Company recorded interest expense of $678 and $686 on Note B for the three months ended March 31, 2021 and 2020, respectively. Accrued interest payable on Note B was $6,020 and $5,342 as of March 31, 2021 and December 31, 2020, respectively. The principal balance payable on Note B amounted to $55,000 and $55,000 on March 31, 2021 and December 31, 2020, respectively. The Note B matures on March 1, 2022.
C. March 2019 Convertible Note and Warrants (Note C”)
On January 28, 2021, the noteholder of Note C 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 Note) including penalties of $10,000 were waived, and all future Events of Default (as defined in the Note) pertaining to the future payment of interest were waived through maturity. The Company recorded $10,000 as extinguishment of debt in its statements of operations for the three months ended March 31, 2021. The Company recorded $30,000 as debt discount on note payable and amortized it to interest expense since the Note was converted into common stock of the Company immediately. The Company amortized the discount to interest expense of $30,000 and $704 for the three months ended March 31, 2021 and 2020, respectively. The unamortized discount was $0 and $0 at March 31, 2021 and December 31, 2020, respectively. In addition, the Company recorded interest expense of $460 and $1,645 for the three months ended March 31, 2021 and 2020, respectively. Accrued interest payable on Note C was $0 and $6,050 at March 31, 2021 and December 31, 2020, respectively.
On January 28, 2021, the noteholder of Note C converted the principal balance of $40,000 of its convertible promissory note and $6,510 of accrued interest, into 4,650,978 shares of common stock of the Company (Note 9). The principal balance payable on Note C amounted to $0 and $50,000 on March 31, 2021 and December 31, 2020, respectively.
D. March 2019 Convertible Note and Warrants (“Note D”)
On January 28, 2021, the noteholder of Note D 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 Note) including penalties of $10,000 were waived, and all future Events of Default (as defined in the Note) pertaining to the future payment of interest were waived through maturity. The Company recorded $10,000 as extinguishment of debt in its statements of operations for the three months ended March 31, 2021. The Company recorded $30,000 as the beneficial conversion feature discount on note payable of $50,000 on January 28, 2021. The Company amortized the discount to interest expense of $4,685 and $704 for the three months ended March 31, 2021 and 2020, respectively. The unamortized discount was $25,315 at March 31, 2021 and December 31, 2020, respectively. In addition, the Company recorded interest expense of $1,595 and $1,645 for the three months ended March 31, 2021 and 2020, respectively. Accrued interest payable on Note A was $10,177 and $8,582 as of March 31, 2021 and December 31, 2020, respectively. The principal balance payable on Note D amounted to $50,000 and $60,000 on March 31, 2021 and December 31, 2020, respectively.
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E. August 2019 Convertible Note and Warrants (“Note E”)
The Company amortized the debt discount on Note E to interest expense of $13,207 and $13,064 for the three months ended March 31, 2021 and 2020, respectively. The unamortized discount was $20,896 and $34,104 at March 31, 2021 and December 31, 2020, respectively. The Company recorded interest expense of $3,699 and $3,740 on Note E for the three months ended March 31, 2021 and 2020, respectively. Accrued interest payable on Note E was $22,389 and $18,690 as of March 31, 2021 and December 31, 2020, respectively. The principal balance payable on Note E amounted to $125,000 and $125,000 on March 31, 2021 and December 31, 2020, respectively. The maturity date of the Note E is August 2, 2021.
F. July 2020 Equity Financing Arrangement (“Note F”)
On February 1, 2021, the noteholder of Note F converted the principal balance of $66,833 of its convertible promissory note and $5,177 of accrued interest into 7,200,000 shares of common stock of the Company (Note 9). The Company recorded interest expense of $1,404 and $0 for the three months ended March 31, 2021 and 2020, respectively. Accrued interest payable on Note G was $0 and $2,986 as of March 31, 2021 and December 31, 2020, respectively. The principal balance payable on Note F amounted to $33,167 and $100,000 on March 31, 2021 and December 31, 2020, respectively. The noteholder of Note F agreed to extend the maturity date of the note from April 29, 2021 to October 29, 2021.
G . July 2020 Equity Financing Arrangement (“Note G”)
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 (“Note G”). 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 Company recorded interest expense of $1,849 and $0 for the three months ended March 31, 2021 and 2020, respectively. Accrued interest amounted to $4,089 and $2,240 at March 31, 2021 and December 31, 2020, respectively. The principal balance payable of Note G amounted to $75,000 at March 31, 2021 and December 31, 2020, respectively. The noteholder of Note G agreed to extend the maturity date of the note from April 29, 2021 to October 29, 2021.
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 months ended March 31, 2021 and 2020:
|
Three Months ended
March 31, |
||||||||
| 2021 | 2020 | |||||||
| Net loss attributable to common stockholders (basic) | $ | (195,011 | ) | $ | (789,470 | ) | ||
| Shares used to compute net loss per common share, basic and diluted | 160,406,294 | 45,245,415 | ||||||
| Net loss per share attributable to common stockholders, basic and diluted | $ | (0.00 | ) | $ | (0.02 | ) | ||
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.
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The following outstanding common stock equivalents have been excluded from diluted net loss per common share for the three months ended March 31, 2021 and 2020, respectively, because their inclusion would be anti-dilutive:
| As of March 31, | ||||||||
| 2021 | 2020 | |||||||
| Warrants to purchase common stock | 2,868,397 | 44,535,064 | ||||||
| Potentially issuable shares related to convertible notes payable | 323,988,444 | 43,338,312 | ||||||
| Potentially issuable vested shares to directors and officers | 3,300,000 | 1,869,000 | ||||||
| Potentially issuable unvested shares to officers | 2,700,000 | 5,400,000 | ||||||
| Total anti-dilutive common stock equivalents | 332,856,841 | 95,142,376 | ||||||
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.
NOTE 8 - RELATED PARTIES
At March 31, 2021 and December 31, 2020, respectively, the amount due to two stockholders was $1,000 relating to depositing funds for opening bank accounts for the Company.
The Company executed an operating lease to rent its current office facility from a stockholder on a month-to-month basis at a monthly rent of $250 starting January 1, 2020. The Company recorded rent expense of $750 for the three months ended March 31, 2021 and 2020, respectively. The Company has recorded $250 and $18,000 of rent payable to the stockholder in accounts payable as of March 31, 2021 and December 31, 2020, respectively.
The Company awarded shares payable to officers and a director valued at $179,236 and $181,227 for the three months ended March 31, 2021 and 2020, respectively, pursuant to the terms of an exchange agreement (Note 4). Shares payable as compensation to officers and a director amounted to $910,072 and $730,836 at March 31, 2021 and December 31, 2020, respectively. No shares payable compensation was converted into shares of common stock or preferred stock during the quarter ended March 31, 2021.
NOTE 9 - STOCKHOLDERS' EQUITY
On January 4, 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. The Company has authorized 10,000,000 shares of $0.001 par value preferred stock. The Company had 178,361,108 shares and 145,110,130 shares of common stock, and 25,845 shares and 25,845 shares of preferred stock, issued and outstanding as of March 31, 2021 and December 31, 2020, respectively.
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Common Stock
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 January 28, 2021, the noteholder of Note C converted the principal balance of $40,000 of its convertible promissory note and $6,510 of accrued interest, into 4,650,978 shares of common stock of the Company (Note 5).
On February 1, 2021, the noteholder of Note F converted the principal balance of $66,833 of its convertible promissory note and $5,177 of accrued interest into 7,200,000 shares of common stock of the Company (Note 5).
On February 4, 2021, the noteholder of Note A converted the principal balance of $50,000 of its convertible promissory note 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.
Stock Incentive Plans
On December 14, 2017, the Board of Directors of the Company approved the 2017 Stock Incentive 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 plan approval 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 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 plan approval but awards previously granted may extend beyond that date. Awards may consist of both incentive and non-statutory options, restricted stock units, stock appreciation rights, and restricted stock awards.
Shares earned and issued related to the consulting agreements 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.
| 19 |
A summary of the status of the Company’s non-vested shares as of March 31, 2021 and 2020, and changes during the three months period then ended, is presented below:
| Non-vested Shares of Common Stock | Weighted Average Fair Value | |||||||
| Balance at December 31, 2019 | 6,000,000 | $ | 0.30 | |||||
| Awarded | – | – | ||||||
| Vested | (600,000 | ) | $ | 0.30 | ||||
| Forfeited | – | – | ||||||
| Balance at March 31, 2020 | 5,400,0000 | $ | 0.30 | |||||
| Balance at December 31, 2020 | 3,600,000 | $ | 0.30 | |||||
| Awarded | – | – | ||||||
| Vested | (900,000 | ) | $ | 0.30 | ||||
| Forfeited | – | – | ||||||
| Balance at March 31, 2021 | 2,700,000 | $ | 0.30 | |||||
Preferred Stock
Series A Supervoting Convertible Preferred Stock
On July 2, 2020, the Board of Directors of the Company authorized the issuance of 15,600 shares of preferred stock, $0.001 par value per share, designated as Series A Supervoting Convertible 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 Company’s Articles of Incorporation.
Liquidation and Redemption Rights: Upon the occurrence of a Liquidation Event (as defined on the Certificate of Designation), 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 Company’s assets.
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 Company’s (A) common stock, par value $0.001 per share, and any other class or series of capital stock of the Company 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. |
| 20 |
| 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.
The Company did not issue any Series A Supervoting Convertible Preferred Stock during the three months ended March 31, 2021. The Company had 25,845 shares of Series A Supervoting Convertible Preferred Stock issued and outstanding at March 31, 2021 and December 31, 2020, respectively.
Series B Convertible Preferred Stock Equity Financing
On November 16, 2020, the Board of Directors of the Company authorized the 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 Company shall pay, cumulative dividends of 12% per annum, payable quarterly, beginning on the Original Issuance Date (as defined in the Certificate of Designation) 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 (as defined in the Certificate of Designation), in addition to the payment of dividends pursuant to Section 2(a), each Holder shall be entitled to receive, and the Company 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 Company shall pay no dividends on shares of the common stock unless it simultaneously complies with the previous sentence.
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 (as defined in the Certificate of Designation and not in excess of 4.99% conversion limitation). However, as long as any shares of Series B Convertible Preferred Stock are outstanding, the Company 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 of the Certificate of Designation) 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 (as defined in the Certificate of Designation), 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.
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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 (as defined in the Certificate of Designation) 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.
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. |
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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 March 31, 2021, the Company recalculated the value of the derivative liability associated with the convertible note recording a gain of $39,465 in connection with the change in fair market value of the derivative liability. In addition, the Company recorded $2,495 as preferred stock dividend for the three months ended March 31, 2021.
On November 19, 2020, at December 31, 2020 and March 31, 2021, the Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion exercise prices ranging from $0.0051 to $0.014, the closing stock price of the Company's common stock on the date of valuation ranging from $0.0083 to $0.0184, an expected dividend yield of 0%, expected volatility ranging from 337.26% to 440.99%, risk-free interest rates ranging from 0.38% to 0.39%, and an expected term of 1.13 years 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 March 31, 2021, the Company recalculated the value of the derivative liability associated with the convertible note recording a gain of $45,235 in connection with the change in fair market value of the derivative liability. In addition, the Company recorded $3,018 as preferred stock dividend for the three months ended March 31, 2021 payable to GHS.
On December 16, 2020, December 31, 2020 and March 31, 2021, 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 $0.014, the closing stock price of the Company's common stock on the date of valuation ranging from $0.0063 to $0.0184, an expected dividend yield of 0%, expected volatility ranging from 359.57% to 437.59%, risk-free interest rates ranging from 0.38% to 0.39% , and an expected term of 1.21 years to 1.50 years.
As a result of receipt of cash proceeds relating to Series B Convertible Preferred Stock, the Company recorded derivative liability of $231,082 and $315,782 at March 31, 2021 and December 31, 2020, respectively. In addition, preferred stock dividend payable was $7,166 and $1,653 at March 31, 2021 and December 31, 2020, respectively.
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Warrants
A summary of the status of the Company’s warrants as of March 31, 2021 and December 31, 2020, 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, 2019 | 1,627,532 | $ | 0.21 | 4.5 Years | ||||||
| Issued | 42,907,532 | $ | 0.01 | 4.4 Years | ||||||
| Exercised | – | – | ||||||||
| Expired/Forfeited | – | – | ||||||||
| Outstanding at March 31, 2020 | 44,535,064 | $ | 0.21 | 4.4 Years | ||||||
| Outstanding at December 31, 2020 | ||||||||||
| Issued | 2,868,397 | $ | 0.00 | 3.4 Years | ||||||
| Exercised | – | $ | 0.00 | |||||||
| Expired/Forfeited | – | $ | 0.20 | |||||||
| Outstanding at March 31, 2021 | 2,868,397 | $ | 0.00 | 3.2 Years | ||||||
NOTE 10 - SUBSEQUENT EVENTS
On April 1, 2021, the Company’s Chief Technology Officer resigned from his employment with the Company. In settlement of the Company’s total obligations with the officer upon separation, the Company issued 843,288 shares of its common stock valued at $252,986 as award shares payable pursuant to the Stock Incentive Plans for services performed. In addition, the Company paid $11,142 in reimbursable expenses ; $121,365 in accrued and unpaid consulting fees in cash, and $9,086 in gross wages less payroll tax deductions and withholdings required by law.
On April 14, 2021, an investor purchased 8,900,000 shares of the Company’s common stock pursuant to the Common Stock Purchase Agreement entered on February 24, 2021. Pursuant to the terms of the agreement, the investor agreed to purchase up to $5,000,000 of the Company’s registered Common Stock at $0.015 per share, subject to certain conditions. The Company received $133,500 of cash consideration upon the sale of common stock.
On April 15, 2021, the noteholder of Note A converted the principal balance of $75,000 of its convertible promissory note into 7,500,000 shares of common stock of the Company.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contain certain forward-looking statements. Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events; are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited to, those discussed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2020. 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 unaudited condensed consolidated financial information presented below and the following Management Discussion and Analysis of the Consolidated Financial Condition, Results of Operations, Stockholders’ Equity and Cash Flow for the quarterly periods ended March 31, 2021 and 2020 gives effect to our acquisition of OXYS Corporation (“OXYS”) on July 28, 2017. In accordance with the accounting reporting requirements for the recapitalization related to the “reverse merger” of OXYS, the financial statements for OXYS have been adjusted to reflect the change in the shares outstanding and the par value of the common stock of OXYS. Additionally, all intercompany transactions between the Company and OXYS have been eliminated.
Forward-Looking Statements
Statements in this management’s discussion and analysis of financial condition and results of operations contain certain forward-looking statements. To the extent that such statements are not recitations of historical fact, such statements constitute forward looking statements which, by definition involve risks and uncertainties. Where in any forward-looking statements, if we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result or be achieved or accomplished.
Factors that may cause differences between actual results and those contemplated by forward-looking statements include those discussed in “Risk Factors” and are not limited to the following:
| · | the unprecedented impact of COVID-19 pandemic on our business, customers, employees, subcontractors and supply chain, consultants, service providers, stockholders, investors and other stakeholders; | |
| · | 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; |
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| · | 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. |
You should not rely on forward-looking statements in this document. This management’s discussion contains forward looking statements that involve risks and uncertainties. We use words such as “anticipates,” “believes,” “plans,” “expects,” “future,” “intends,” and similar expressions to identify these forward-looking statements. Prospective investors should not place undue reliance on these statements, which apply only as of the date of this document. Our actual results could differ materially from those anticipated in these forward-looking statements.
Critical Accounting Policies
The following discussions are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. These financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingencies. We continually evaluate the accounting policies and estimates used to prepare the financial statements. We base our estimates on historical experiences and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management.
Trends and Uncertainties
On July 28, 2017, we closed the reverse acquisition transaction under the Securities Exchange Agreement dated March 16, 2017, as reported in our Current Report on Form 8-K filed with the Commission on August 3, 2017. Following the closing, our business has been that of OXYS, Inc. and HereLab, Inc., our wholly-owned subsidiaries. Our operations have varied significantly following the closing since, prior to that time, we were an inactive shell company.
Impact of COVID-19
During the year 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 three months ended March 31, 2021 limited our ability to obtain new business, 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.
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Historical Background
We were incorporated in the State of New Jersey on October 1, 2003 under the name of Creative Beauty Supply of New Jersey Corporation, and subsequently changed our name to Gotham Capital Holdings, Inc. on May 18, 2015. We commenced operations in the beauty supply industry as of January 1, 2004. On November 30, 2007, our Board of Directors approved a plan to dispose of our wholesale and retail beauty supply business. From January 1, 2009 until July 28, 2017, we had no operations and were a shell company.
On March 16, 2017, our Board of Directors adopted resolutions, which were approved by shareholders holding a majority of our outstanding shares, to change our name to “IIOT-OXYS, Inc.”, to authorize a change of domicile from New Jersey to Nevada, to authorize a 2017 Stock Awards Plan, and to approve the Securities Exchange Agreement (the “OXYS SEA”) between the Company and OXYS Corporation (“OXYS”), a Nevada corporation incorporated on August 4, 2016.
Under the terms of the OXYS SEA we acquired 100% of the issued voting shares of OXYS in exchange for 34,687,244 shares of our Common Stock. We also cancelled 1,500,000 outstanding shares of our Common Stock and changed our management to Mr. DiBiase who also served in management of OXYS. Also, one of our principal shareholders entered into a consulting agreement with OXYS to provide consulting services during the transition. The OXYS SEA was effective on July 28, 2017, and our name was changed to “IIOT-OXYS, Inc.” at that time. Effective October 26, 2017, our domicile was changed from New Jersey to Nevada.
On December 14, 2017, we entered into a Share Exchange Agreement (the “HereLab SEA”) with HereLab, Inc., a Delaware corporation (“HereLab”), and HereLab’s two shareholders pursuant to which we would acquire all the issued and outstanding shares of HereLab in exchange for the issuance of 1,650,000 shares of our Common Stock, on a pro rata basis, to HereLab’s two shareholders. The closing of the transaction occurred on January 11, 2018 and HereLab became our wholly-owned subsidiary.
A new management team was put into place in 2018, which constitutes our current management team. Furthermore, on April 1, 2021, we appointed Mr. Chandran Seshagiri as our new Interim Chief Technology Officer.
At the present time, we have two, wholly-owned subsidiaries which are OXYS Corporation and HereLab, Inc., through which our operations are conducted.
General Overview
IIOT-OXYS, Inc., a Nevada corporation (the “Company”), and OXYS, were originally established for the purposes of designing, building, testing, and selling Edge Computing systems for the Industrial Internet. Both companies were, and presently are, early-stage technology startups that are largely pre-revenue in their development phase. HereLab is also an early-stage technology development company. The Company received its first revenues in the last quarter of 2017, has continued to realize revenues in 2020, and didn’t realize revenue growth in 2021 once the pandemic hit.
We develop hardware, software and algorithms that monitor, measure and predict conditions for energy, structural, agricultural and medical applications. We use domain-specific Artificial Intelligence to solve industrial and environmental challenges. Our engineered solutions focus on common sense approaches to machine learning, algorithm development and hardware and software products.
Our customers have issues and they need improvements. We design a system of hardware and software, assemble, install, monitor data and apply our algorithms to help provide the customer insights.
We use off the shelf components, with reconfigurable hardware architecture that adapts to a wide range of customer needs and applications. We use open source software tools, while still creating proprietary content for customers, thereby reducing software development time and cost. The software works with the hardware to collect data from the equipment or structure that is being monitored.
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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 Three Months Ended March 31, 2021 compared to the Three Months Ended March 31, 2020
For the three months ended March 31, 2021, the Company did not earn any revenues. The Company incurred professional fees of $211,155, payroll costs of $41,681, interest expense of $121,477, amortization of intangible assets of $12,477, and other general and administrative expenses of $7,447. In addition, the Company recorded a gain of $84,700 due to the change in the fair market value of derivative liability, and $120,000 gain on the extinguishment of debt upon agreeing with the note holders to a reduction in the debt conversion price. The Company recorded an expense of $5,504 as convertible preferred stock dividend. As a result, the Company recorded a net loss of $195,011 for the three months ended March 31, 2021.
For the three months ended March 31, 2020, the Company earned revenues of $15,600 and incurred related cost of sales of $8,634. The Company incurred professional fees of $187,121, interest expense of $518,289, a loss on change in the fair market value of derivative liability of 63,908, and other general and administrative expenses of $27,527. The Company generated $409 in miscellaneous income. As a result, the Company incurred a net loss of $789,470 for the three months ended March 31, 2020.
Year over Year (YoY) revenue for the three months ended March 31, 2021 was less than in same period of 2020. This was due to longer than anticipated customer acquisition times. This factor resulted in a challenging quarter relative to generating revenue. Our Annual Report on Form 10-K for the year ended December 31, 2020 disclosed risks of ongoing concerns, and those concerns still exist.
A counterbalance to the revenue headwinds are the achievements we have made.
Year to Date, in 2021
| · | We have entered into NDAs with two New England Biotech companies. Our customer engagement process consists of several steps, the first being the execution of an NDA, which then allows us to quickly define a problem statement of interest to the client, which then leads to a definition of scope of work for the first contract. We expect these agreements to lead to new business in due time. | |
| · | We have entered into NDAs with two major New England Universities to pursue an NSF grant associated with our Structural Health Monitoring expertise. | |
| · | We have secured significant and supportive funding. | |
| · | We named a new CTO, emphasizing our focus on the Artificial Intelligence (AI) and Machine Learning (ML) aspects of our business. | |
| · | We have rebuilt our Advisory Board with two new members, one who will serve as a technical advisor and overall leader of the Advisory Board, and the second with a strong legal and business background. |
We believe the underlying strengths of the Company are still in place: an experienced leadership team; contributions of our CTO leading our technology team, an MIT PhD level Machine Learning Algorithm Engineer; and strong execution on contracts to date. Those completed contracts to date have produced two successful pilot programs: one on manufacturing operations for our Fortune 500 Pharma customer, and a pilot with a full year of data collection and analysis on our structural health monitoring program for a New England state’s DOT. Our continued focus on high potential growth markets (specifically Biotech, Pharma, and Medical Device Operations, as well as Structural Health Monitoring), have yielded numerous prospects for future growth. Furthermore, the strength of our target market, the Industrial Internet of Things (IIoT), continues: Market research shows the worldwide IIoT market in 2020 was $77.3 billion USD and is projected to be $110.6 billion USD by 2025 (7.4% CAGR).1
It is anticipated that revenue will be generated in the second half of 2021, yielding YoY revenue growth that will exceed that for the same period of 2020. This is due to the hard work of the past year that has resulted in two successful pilots, in two of our key target industry verticals. We now have data and algorithms to build strong use cases and marketing collateral that can be leveraged to extend contracts with current customers and win additional contracts with new customers in all targeted industry segments. Also, the strength of the Aingura IIoT, S.G. collaboration agreement has bolstered financial stability, added talent breadth and depth, and complimentary industry segment experience. Furthermore, the continued liquidity of our stock has attracted funding opportunities, and access to additional capital has and will enable funding of business development, staff augmentation, and inorganic growth opportunities. Combined with our underlying strengths: experienced leadership; savvy technological talent, and operational execution excellence; we believe these revenue goals are achievable.
__________
[1] https://www.marketsandmarkets.com/pdfdownloadNew.asp?id=129733727
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Liquidity and Capital Resources
At March 31, 2021, the Company had a cash balance of $218,613, which represents an increase of $115,539 from the $103,074 balance at December 31, 2020. This increase was primarily the result of cash provided by the sale of common stock, net of commissions, in the aggregate amount of $241,080 offset by net cash used by operating activities of $125,541 and due to acceleration in product development activities. The Company’s working capital at March 31, 2021 was a deficit of $2,078,370, as compared to a December 31, 2020 working capital deficit of $2,665,436.
The Company incurred a net loss of $195,011 and $789,470 for the three months ended March 31, 2021 and 2020, respectively.
The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has incurred losses from operations of $195,011 and $789,470 for the three months ended March 31, 2021 and 2020, respectively, and has an accumulated deficiency which raises substantial doubt about the Company’s ability to continue as a going concern.
Management believes the Company will continue to incur losses and negative cash flows from operating activities for the foreseeable future and will need additional equity or debt financing to sustain its operations until it can achieve profitability and positive cash flows. Management plans to seek additional debt and/or equity financing for the Company but cannot assure that such financing will be available on acceptable terms. At the Company’s current rate of expenditure, the Company anticipates that it not be able to maintain its current operations for the next twelve months; however, management is proposing to raise any necessary additional funds not provided by operations through loans or through additional sales of equity securities. There is no assurance that the Company will be successful in raising this additional capital or in achieving profitable operations.
The Company’s continuation as a going concern is dependent upon its ability to ultimately attain profitable operations, generate sufficient cash flow to meet its obligations, and obtain additional financing as may be required. Our auditors have included a going concern qualification in their auditors’ report dated April 6, 2021. Such a going concern qualification may make it more difficult for us to raise funds when needed. The outcome of this uncertainty cannot be assured.
The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. There can be no assurance that management will be successful in implementing its business plan or that the successful implementation of such business plan will actually improve the Company’s operating results.
Recently Issued Accounting Standards
Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying financial statements.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity capital expenditures or capital resources.
Emerging Growth Company
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Certain specified reduced reporting and other regulatory requirements that are available to public companies that are emerging growth companies. These provisions include:
| 1. | an exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002; |
| 2. | an exemption from the adoption of new or revised financial accounting standards until they would apply to private companies; |
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| 3. | an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about our audit and our financial statements; and |
| 4. | reduced disclosure about our executive compensation arrangements. |
We have elected to take advantage of the exemption from the adoption of new or revised financial accounting standards until they would apply to private companies. As a result of this election, our financial statements may not be comparable to public companies required to adopt these new requirements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, the Company has elected not to provide the disclosure required by this item.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
The Company has 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 the Company’s Chief Executive Officer, Clifford L. Emmons, who serves as our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Mr. Emmons, evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act. Based on his evaluation, Mr. Emmons concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2021.
Changes in Internal Control Over Financial Reporting
There has been no change in the Company’s internal control over financial reporting, as defined in Rules 13a-15(f) of the Exchange Act, during the Company’s quarter ended March 31, 2021, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Use of Proceeds
On February 11, 2021, our Registration Statement on Form S-1 (File No. 333-252-887) was declared effective by the U.S. Securities and Exchange Commission (the “SEC”) and the offering was commenced upon effectiveness and is still ongoing as all of the 44,500,000 (for gross proceeds of $667,500) offered shares have not been sold and the offering has not been terminated.
During the quarter ended March 31, 2021, we sold a total of 16,400,000 shares of Common Stock for gross proceeds of $246,000. We paid $4,920 in fees to J.H. Darbie & Co., Inc. and received net proceeds of $241,080. The net proceeds were used as follows: $141,596 pursuant to the Termination Agreement dated effective March 31, 2021 with Antony Coufal, and $99,484 toward working capital.
*Filed with this Report.
**Furnished with this Report.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| IIOT-OXYS, Inc. | ||
| Date: May 17, 2021 | By | /s/ Clifford L. Emmons |
| Clifford L. Emmons, Chief Executive Officer and Interim Chief Financial Officer | ||
| (Principal Executive Officer and Principal | ||
| Financial Officer) | ||
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Exhibit 10.1
AMENDMENT No. 2 TO 12% SENIOR SECURED CONVERTIBLE PROMISSORY NOTE
This Amendment No. 2 to the 12% Senior Secured Convertible Promissory Note (this “Amendment”) dated January 28, 2021 is by and between IIOT-OXYS, Inc., a Nevada corporation (the “Borrower”), on the one hand, and Sergey Gogin (the “Holder”), on the other hand. The Borrower and the Holder will be referred to individually as a “Party” and collectively as the “Parties.” Any capitalized terms not defined in this Amendment will have the meaning set forth in the 12% Senior Secured Convertible Promissory Note dated January 22, 2018, as amended, issued by the Borrower to the Holder (the “Note”), attached hereto as Exhibit A.
RECITALS
WHEREAS, on January 22, 2018, the Borrower issued to the Holder the Note in the principal amount of $500,000 (the “Principal Amount”);
WHEREAS, the Note is currently in default;
WHEREAS, the Note is convertible into shares of Common Stock of the Borrower at a rate of $0.10 per share (the “Conversion Price”);
WHEREAS, the Note matures on March 1, 2021 (the “Maturity Date”);
WHEREAS, the Parties wish to amend the Note to change the Conversion Price to $0.01 per share; and
WHEREAS, as consideration for lowering the Conversion Price, the Holder wishes to (i) extend the Maturity Date of the Note from March 1, 2021 to March 1, 2022; and (ii) waive all current “Events of Default” pertaining to the Note and all defaults of the Securities Purchase Agreement dated January 22, 2018 between the Borrower and the Holder (the “SPA”), the Security and Pledge Agreement dated January 22, 2018 between the Borrower and the Holder (the “Security Agreement”), and the Common Stock Purchase Warrant, as amended, issued January 22, 2018 by the Borrower to the Holder (the “Warrant”) (the Note, the SPA, the Security Agreement, and the Warrant, together, the “Transaction Documents”), and to waive all future “Events of Default” pertaining to the timeliness of all future interest payments under the Note and all future defaults in the Transaction Documents pertaining to the timeliness of the Borrower’s filings with the Securities and Exchange Commission (the “SEC”) until March 1, 2022.
THEREFORE, in consideration of the foregoing recitals, mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as set forth below.
AGREEMENT
1. Revised Conversion Price. Pursuant to Section 7(i) of the Note, Section 4(b) of the Note is hereby amended so that, as amended, Section 4(b) of the Note reads as follows:
(b) Conversion Price. The Conversion Price of the Common Stock into which the Principal Amount, or the then outstanding interest due thereon, of this Note is convertible shall be $0.01 per share (subject to adjustments as described herein). In the event the Company (i) makes a distribution or distributions on Common Shares payable in Common Shares or any Common Share Equivalents(which, for avoidance of doubt, shall not include any Common Shares issued by the Company upon conversion of, or payment of interest on, the Notes), (ii) subdivides outstanding Common Shares into a larger number of Common Shares, (iii) combines (including by way of a reverse split) outstanding Common Shares into a smaller number of Common Shares or (iv) issues, in the event of a reclassification of Common Shares, any Common Shares of the Company, then the Conversion Price shall be adjusted by multiplying the Conversion Price by a fraction of which the numerator shall be the number of Common Shares outstanding immediately before such event, and of which the denominator shall be the number of Common Shares outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of members entitled to receive such distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
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2. Extended Maturity Date. Pursuant to Section 7(i) of the Note, the definition of “Maturity Date,” as defined in the Note, is “March 1, 2022.”
3. Waiver of Prior Defaults. Upon entering into this Amendment, the Holder hereby waives all “Events of Default” pertaining to the Note, known or unknown to the Holder, by Borrower prior to the date hereof. The Holder also waives all defaults of the Transaction Documents, known or unknown to the Holder by Borrower prior to the date hereof.
4. Waiver of Future Defaults. Upon entering into this Amendment, the Holder hereby waives all future “Events of Default” pertaining to the timeliness of all future interest payments under the Note; however, all accrued and unpaid interest must be paid upon maturity of the Note. The Holder also waives all future defaults of the Transaction Documents pertaining the timeliness of the Borrower’s filings with the SEC until March 1, 2022.
5. No Other Changes. Except as amended hereby, the Transaction Documents will continue to be, and will remain, in full force and effect. Except as provided herein, this Amendment will not be deemed (i) to be a waiver of, or consent to, or a modification or amendment of, any other term or condition of the Note or (ii) to prejudice any right or rights which the Parties may now have or may have in the future under or in connection with the Note or any of the instruments or agreements referred to therein, as the same may be amended, restated, supplemented or otherwise modified from time to time.
6. Authority; Binding on Successors. The Parties represent that they each have the authority to enter into this Amendment. This Amendment will be binding on, and will inure to the benefit of, the Parties to it and their respective heirs, legal representatives, successors, and assigns.
7. Governing Law and Venue. This Amendment and the rights and duties of the Parties hereto will be construed and determined in accordance with the terms of the Note.
8. Incorporation by Reference. The terms of the Note, except as amended by this Amendment, are incorporated herein by reference and will form a part of this Amendment as if set forth herein in their entirety.
9. Counterparts; Facsimile Execution. This Amendment may be executed in any number of counterparts and all such counterparts taken together will be deemed to constitute one instrument. Delivery of an executed counterpart of this Amendment by facsimile or email will be equally as effective as delivery of a manually executed counterpart of this Amendment.
[Signature Page to Follow]
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IN WITNESS WHEREOF, each of the undersigned has executed this Amendment the respective day and year set forth below:
| BORROWER: | IIOT-OXYS, Inc. | |
| Date: January 28, 2021 | By | /s/ Clifford L. Emmons |
| Clifford L. Emmons, CEO | ||
| HOLDER: | ||
| Date: January 28, 2021 | By | /s/ Sergey Gogin |
| Sergey Gogin | ||
| 3 |
EXHIBIT A
12% Senior Secured Convertible Promissory Note dated January 22, 2018, as Amended
[See Attached]
| 4 |
Exhibit 10.2
AMENDMENT No. 2 TO 12% SENIOR SECURED CONVERTIBLE PROMISSORY NOTE
This Amendment No. 2 to the 12% Senior Secured Convertible Promissory Note (this “Amendment”) dated January 28, 2021 is by and between IIOT-OXYS, Inc., a Nevada corporation (the “Borrower”), on the one hand, and Catalytic Capital LLC (the “Holder”), on the other hand. The Borrower and the Holder will be referred to individually as a “Party” and collectively as the “Parties.” Any capitalized terms not defined in this Amendment will have the meaning set forth in the 12% Senior Secured Convertible Promissory Note dated March 6, 2019, as amended, issued by the Borrower to the Holder (the “Note”), attached hereto as Exhibit A.
RECITALS
WHEREAS, on March 6, 2019, the Borrower issued to the Holder the Note in the principal amount of $50,000 (the “Principal Amount”);
WHEREAS, the Note is currently in default;
WHEREAS, the Note is convertible into shares of Common Stock of the Borrower at a rate of $0.10 per share (the “Conversion Price”);
WHEREAS, the Note matures on March 20, 2021 (the “Maturity Date”);
WHEREAS, the Parties wish to amend the Note to change the Conversion Price to $0.01 per share; and
WHEREAS, as consideration for lowering the Conversion Price, the Holder wishes to (i) extend the Maturity Date of the Note from March 20, 2021 to March 1, 2022; and (ii) waive all current “Events of Default” pertaining to the Note and all defaults of the Securities Purchase Agreement dated March 6, 2019 between the Borrower and the Holder (the “SPA”), the Security and Pledge Agreement dated March 6, 2019 between the Borrower and the Holder (the “Security Agreement”), and the Common Stock Purchase Warrant issued March 6, 2019 by the Borrower to the Holder (the “Warrant”) (the Note, the SPA, the Security Agreement, and the Warrant, together, the “Transaction Documents”), and to waive all future “Events of Default” pertaining to the timeliness of all future interest payments under the Note and all future defaults in the Transaction Documents pertaining to the timeliness of the Borrower’s filings with the Securities and Exchange Commission (the “SEC”) until March 1, 2022.
THEREFORE, in consideration of the foregoing recitals, mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as set forth below.
AGREEMENT
1. Revised Conversion Price. Pursuant to Section 7(i) of the Note, Section 4(b) of the Note is hereby amended so that, as amended, Section 4(b) of the Note reads as follows:
(b) Conversion Price. The Conversion Price of the Common Stock into which the Principal Amount, or the then outstanding interest due thereon, of this Note is convertible shall be $0.01 per share (subject to adjustments as described herein). In the event the Company (i) makes a distribution or distributions on Common Shares payable in Common Shares or any Common Share Equivalents(which, for avoidance of doubt, shall not include any Common Shares issued by the Company upon conversion of, or payment of interest on, the Notes), (ii) subdivides outstanding Common Shares into a larger number of Common Shares, (iii) combines (including by way of a reverse split) outstanding Common Shares into a smaller number of Common Shares or (iv) issues, in the event of a reclassification of Common Shares, any Common Shares of the Company, then the Conversion Price shall be adjusted by multiplying the Conversion Price by a fraction of which the numerator shall be the number of Common Shares outstanding immediately before such event, and of which the denominator shall be the number of Common Shares outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of members entitled to receive such distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
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2. Extended Maturity Date. Pursuant to Section 7(i) of the Note, the definition of “Maturity Date,” as defined in the Note, is “March 1, 2022.”
3. Waiver of Prior Defaults. Upon entering into this Amendment, the Holder hereby waives all “Events of Default” pertaining to the Note, known or unknown to the Holder, by Borrower prior to the date hereof. The Holder also waives all defaults of the Transaction Documents, known or unknown to the Holder by Borrower prior to the date hereof.
4. Waiver of Future Defaults. Upon entering into this Amendment, the Holder hereby waives all future “Events of Default” pertaining to the timeliness of all future interest payments under the Note; however, all accrued and unpaid interest must be paid upon maturity of the Note. The Holder also waives all future defaults of the Transaction Documents pertaining the timeliness of the Borrower’s filings with the SEC until March 1, 2022.
5. No Other Changes. Except as amended hereby, the Transaction Documents will continue to be, and will remain, in full force and effect. Except as provided herein, this Amendment will not be deemed (i) to be a waiver of, or consent to, or a modification or amendment of, any other term or condition of the Note or (ii) to prejudice any right or rights which the Parties may now have or may have in the future under or in connection with the Note or any of the instruments or agreements referred to therein, as the same may be amended, restated, supplemented or otherwise modified from time to time.
6. Authority; Binding on Successors. The Parties represent that they each have the authority to enter into this Amendment. This Amendment will be binding on, and will inure to the benefit of, the Parties to it and their respective heirs, legal representatives, successors, and assigns.
7. Governing Law and Venue. This Amendment and the rights and duties of the Parties hereto will be construed and determined in accordance with the terms of the Note.
8. Incorporation by Reference. The terms of the Note, except as amended by this Amendment, are incorporated herein by reference and will form a part of this Amendment as if set forth herein in their entirety.
9. Counterparts; Facsimile Execution. This Amendment may be executed in any number of counterparts and all such counterparts taken together will be deemed to constitute one instrument. Delivery of an executed counterpart of this Amendment by facsimile or email will be equally as effective as delivery of a manually executed counterpart of this Amendment.
[Signature Page to Follow]
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IN WITNESS WHEREOF, each of the undersigned has executed this Amendment the respective day and year set forth below:
| BORROWER: | IIOT-OXYS, Inc. | |
| Date: January 28, 2021 | By | /s/ Clifford L. Emmons |
| Clifford L. Emmons, CEO | ||
| HOLDER: | CATALYTIC CAPITAL LLC | |
| Date: January 28, 2021 | By | /s/ Dmitriy Shapiro |
| Dmitriy Shapiro, Managing Member | ||
| 3 |
EXHIBIT A
12% Senior Secured Convertible Promissory Note dated March 6, 2019, as Amended
[See Attached]
| 4 |
Exhibit 10.3
AMENDMENT No. 2 TO 12% SENIOR SECURED CONVERTIBLE PROMISSORY NOTE
This Amendment No. 2 to the 12% Senior Secured Convertible Promissory Note (this “Amendment”) dated January 28, 2021 is by and between IIOT-OXYS, Inc., a Nevada corporation (the “Borrower”), on the one hand, and YVSGRAMORAH LLC (the “Holder”), on the other hand. The Borrower and the Holder will be referred to individually as a “Party” and collectively as the “Parties.” Any capitalized terms not defined in this Amendment will have the meaning set forth in the 12% Senior Secured Convertible Promissory Note dated March 6, 2019, as amended, issued by the Borrower to the Holder (the “Note”), attached hereto as Exhibit A.
RECITALS
WHEREAS, on March 6, 2019, the Borrower issued to the Holder the Note in the principal amount of $50,000 (the “Principal Amount”);
WHEREAS, the Note is currently in default;
WHEREAS, the Note is convertible into shares of Common Stock of the Borrower at a rate of $0.10 per share (the “Conversion Price”);
WHEREAS, the Note matures on March 20, 2021 (the “Maturity Date”);
WHEREAS, the Parties wish to amend the Note to change the Conversion Price to $0.01 per share; and
WHEREAS, as consideration for lowering the Conversion Price, the Holder wishes to (i) extend the Maturity Date of the Note from March 20, 2021 to March 1, 2022; and (ii) waive all current “Events of Default” pertaining to the Note and all defaults of the Securities Purchase Agreement dated March 6, 2019 between the Borrower and the Holder (the “SPA”), the Security and Pledge Agreement dated March 6, 2019 between the Borrower and the Holder (the “Security Agreement”), and the Common Stock Purchase Warrant issued March 6, 2019 by the Borrower to the Holder (the “Warrant”) (the Note, the SPA, the Security Agreement, and the Warrant, together, the “Transaction Documents”), and to waive all future “Events of Default” pertaining to the timeliness of all future interest payments under the Note and all future defaults in the Transaction Documents pertaining to the timeliness of the Borrower’s filings with the Securities and Exchange Commission (the “SEC”) until March 1, 2022.
THEREFORE, in consideration of the foregoing recitals, mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as set forth below.
AGREEMENT
1. Revised Conversion Price. Pursuant to Section 7(i) of the Note, Section 4(b) of the Note is hereby amended so that, as amended, Section 4(b) of the Note reads as follows:
(b) Conversion Price. The Conversion Price of the Common Stock into which the Principal Amount, or the then outstanding interest due thereon, of this Note is convertible shall be $0.01 per share (subject to adjustments as described herein). In the event the Company (i) makes a distribution or distributions on Common Shares payable in Common Shares or any Common Share Equivalents(which, for avoidance of doubt, shall not include any Common Shares issued by the Company upon conversion of, or payment of interest on, the Notes), (ii) subdivides outstanding Common Shares into a larger number of Common Shares, (iii) combines (including by way of a reverse split) outstanding Common Shares into a smaller number of Common Shares or (iv) issues, in the event of a reclassification of Common Shares, any Common Shares of the Company, then the Conversion Price shall be adjusted by multiplying the Conversion Price by a fraction of which the numerator shall be the number of Common Shares outstanding immediately before such event, and of which the denominator shall be the number of Common Shares outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of members entitled to receive such distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
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2. Extended Maturity Date. Pursuant to Section 7(i) of the Note, the definition of “Maturity Date,” as defined in the Note, is “March 1, 2022.”
3. Waiver of Prior Defaults. Upon entering into this Amendment, the Holder hereby waives all “Events of Default” pertaining to the Note, known or unknown to the Holder, by Borrower prior to the date hereof. The Holder also waives all defaults of the Transaction Documents, known or unknown to the Holder by Borrower prior to the date hereof.
4. Waiver of Future Defaults. Upon entering into this Amendment, the Holder hereby waives all future “Events of Default” pertaining to the timeliness of all future interest payments under the Note; however, all accrued and unpaid interest must be paid upon maturity of the Note. The Holder also waives all future defaults of the Transaction Documents pertaining the timeliness of the Borrower’s filings with the SEC until March 1, 2022.
5. No Other Changes. Except as amended hereby, the Transaction Documents will continue to be, and will remain, in full force and effect. Except as provided herein, this Amendment will not be deemed (i) to be a waiver of, or consent to, or a modification or amendment of, any other term or condition of the Note or (ii) to prejudice any right or rights which the Parties may now have or may have in the future under or in connection with the Note or any of the instruments or agreements referred to therein, as the same may be amended, restated, supplemented or otherwise modified from time to time.
6. Authority; Binding on Successors. The Parties represent that they each have the authority to enter into this Amendment. This Amendment will be binding on, and will inure to the benefit of, the Parties to it and their respective heirs, legal representatives, successors, and assigns.
7. Governing Law and Venue. This Amendment and the rights and duties of the Parties hereto will be construed and determined in accordance with the terms of the Note.
8. Incorporation by Reference. The terms of the Note, except as amended by this Amendment, are incorporated herein by reference and will form a part of this Amendment as if set forth herein in their entirety.
9. Counterparts; Facsimile Execution. This Amendment may be executed in any number of counterparts and all such counterparts taken together will be deemed to constitute one instrument. Delivery of an executed counterpart of this Amendment by facsimile or email will be equally as effective as delivery of a manually executed counterpart of this Amendment.
[Signature Page to Follow]
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IN WITNESS WHEREOF, each of the undersigned has executed this Amendment the respective day and year set forth below:
| BORROWER: | IIOT-OXYS, Inc. | |
| Date: January 28, 2021 | By | /s/ Clifford L. Emmons |
| Clifford L. Emmons, CEO | ||
| HOLDER: | YVSGRAMORAH LLC | |
| Date: January 28, 2021 | By | /s/ Sergey Gogin |
| Sergey Gogin, President | ||
| 3 |
EXHIBIT A
12% Senior Secured Convertible Promissory Note dated March 6, 2019, as Amended
[See Attached]
| 4 |
Exhibit 10.4
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement (the “Agreement”), dated as of February 24, 2021 (the “Execution Date”), is entered into by and between IIOT-OXYS, Inc., a Nevada corporation (the “Company”), and GHS Investments, LLC, a Nevada limited liability company (the “Investor”).
RECITALS
WHEREAS, upon the terms and subject to the conditions contained herein, the Investor agrees to purchase, and the Company agrees to sell, up to Five Million Dollars ($5,000,000) of common stock, par value $0.001 per share (the “Common Stock”), of the Company, the sales of which shall be registered under the Securities Act of 1933, as amended (the “Securities Act”) pursuant to an effective Registration Statement on Form S-1.
NOW THEREFORE, in consideration of the foregoing recital, which shall be considered an integral part of this Agreement, the covenants and agreements set forth hereafter, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Investor hereby agree as follows:
AGREEMENT
SECTION I
DEFINITIONS
For all purposes of and under this Agreement, the following terms shall have the respective meanings below, and such meanings shall be equally applicable to the singular and plural forms of such defined terms.
“Business Day” shall mean any day on which the Principal Market for the Purchased Shares is open for trading from the hours of 9:30 am until 4:00 pm Eastern Time.
“Closing” shall mean the Settlement Date or the date which the Company causes the delivery of the Purchased Shares to the Investor or its designees via DWAC against payment of the Investment Amount therefore to the Company by wire transfer of immediately available funds.
“Commitment Period” shall mean the period beginning on the Business Day immediately following the Execution Date and ending on the date which either (i) once Five Million Dollars ($5,000,000) of Common Stock are sold to the Investor, or (ii) twelve (12) months from the Execution Date.
“Event of Default” shall mean any of the following events: (i) the suspension of the Common Stock from trading on the Principal Market for a period of two (2) consecutive trading days; (ii) the delisting of the Common Stock from the Principal Market; (iii) the failure for any reason by the Company or its transfer agent to issue Purchased Shares within three (3) Business Days after the date on which the Investor is entitled to receive such Purchased Shares; (iv) the Company breaches any representation, warranty, covenant or other term or condition; (v) the Company files, threatens or is compelled into bankruptcy or insolvency; or (vi) if at any time the Common Stock is no longer DWAC Eligible.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the SEC thereunder, all as the same will then be in effect.
“Investment Amount” shall mean the total dollar amount to be sold by the Company at a Closing, with a minimum of not less than Ten Thousand Dollars ($10,000) a maximum not to exceed Five Hundred and Thousand Dollars ($500,000) or two (2) times the average of the daily trading dollar volume for the Company’s Common Stock during the ten (10) Business Days preceding the Purchase Date and limited to the Investor beneficially owning no more than 4.99% of the total outstanding Common Stock of the Company at any given time.
“Minimum Closing Price” shall mean the closing price of the Common Stock that is the average volume weighted average price (“VWAP”) greater than $0.0175 for the Company's Common Stock during the Valuation Period.
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“Principal Market” shall mean the New York Stock Exchange, the NYSE Amex, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the OTC Markets, whichever is the market on which the Common Stock is listed.
“Purchase Notice” shall mean the written notice sent to the Investor by the Company, which Purchase Notice shall state the total amount of Purchased Shares that the Company intends to sell to the Investor pursuant to the terms of this Agreement based on the formula set forth in Section 2.1 hereof.
“Purchased Shares” shall mean shares of Common Stock issued and sold pursuant to the terms of this Agreement.
“Registration Statement” means the Registration Statement on Form S-1 filed with the SEC registering the Purchased Shares issuable hereunder.
“SEC” shall mean the U.S. Securities and Exchange Commission.
“Settlement Date” shall mean the first Business Day after each Valuation Period.
“Valuation Period” shall mean the five (5) consecutive Business Days immediately preceding the Settlement Date.
SECTION II
PURCHASE AND SALE OF COMMON STOCK
2.1 PURCHASE AND SALE OF PURCHASED SHARES. Subject to the terms and conditions set forth herein, the Company shall sell to the Investor, and the Investor shall purchase from the Company, that number of Purchased Shares equal to the Investment Amount. The Investment Amount shall be calculated based on the total number of Purchased Shares set forth in the Purchase Notice delivered to Investor as more particularly set forth in Section 2.2 below, multiplied by $0.015.
2.2 DELIVERY OF PURCHASE NOTICE. Subject to the terms and conditions herein, the Company may deliver the Purchase Notice to the Investor during the Commitment Period setting forth the total number of Purchased Shares to be purchased by Investor, which Purchase Notice shall be in the form attached hereto as Exhibit A and incorporated herein by reference. During the Commitment Period, the Company shall submit a Purchase Notice no sooner than ten (10) Business Days after the preceding Closing. No Purchase Notice will be made in an amount less than Ten Thousand Dollars ($10,000) or greater than Five Hundred Thousand Dollars ($500,000) or greater than two (2) times the average of the daily trading dollar volume for the Company’s Common Stock during the ten (10) Business Days preceding the Purchase Date. Each Purchase Notice shall be limited to the Investor beneficially owning no more than 4.99% of the total outstanding Common Stock of the Company at any given time.
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2.3 CONDITIONS TO INVESTOR’S OBLIGATIONS. Notwithstanding anything to the contrary in this Agreement, the Investor shall not be obligated to purchase any Purchased Shares at the Closing unless each of the following conditions are satisfied:
| (i) | the Registration Statement shall remain effective and available for sale of the Purchased Shares at all times until the Closing; |
| (ii) | no injunction shall have been issued and remain in force, or action commenced by a governmental authority which has not been stayed or abandoned, prohibiting the purchase or the issuance of the Purchased Shares; |
| (iii) | the issuance of the Purchased Shares will not violate any requirements of the Principal Market; |
| (iv) | no Event of Default is existing; |
| (v) | the Minimum Purchase Price is maintained through the Valuation Period; and |
| (vi) | the Company has engaged a suitable placement agent at the Company’s cost. |
If any of the events described in clauses (i) through (iv) above occurs prior to the Closing, then the Investor shall have no obligation to purchase the Purchased Shares set forth in the Purchase Notice.
2.4 MECHANICS OF PURCHASE OF PURCHASED SHARES BY INVESTOR. The Closing of the purchase of the Purchased Shares set forth in the Purchase Notice shall occur on the date of the receipt by Investor or Investor’s custodian of the Purchased Shares (the “Purchase Notice Date”); it being understood that the Investor shall deliver the Purchase Notice to Investor on or prior to the Purchase Notice Date. The Purchase Notice Date shall be deemed delivered (i) on the day it is delivered to Investor on a Business Day prior to 9:30 am Eastern Time; (ii) if it is delivered on a day other than a Business Day or on a Business Day after 9:30 am Eastern Time, it shall be on the day that is the next subsequent Business Day. The Investor shall deliver the Investment Amount by wire transfer of immediately available funds to an account designated by the Company set forth in the Purchase Notice. In addition, on or prior to the Closing, each of the Company and Investor shall deliver to each other all documents, instruments and writings required to be delivered or reasonably requested by either of them pursuant to this Agreement in order to implement and effect the transactions contemplated herein.
2.5 LIMITATION ON AMOUNT OF OWNERSHIP. Notwithstanding anything to the contrary in this Agreement, in no event shall the Investor be entitled to purchase that number of Purchased Shares, which when added to the sum of the number of shares of Common Stock beneficially owned (as such term is defined under Section 13(d) and Rule 13d-3 of the Exchange Act), by the Investor, would exceed 4.99% of the number of shares of Common Stock outstanding on the date of the Purchase Notice Date, as determined in accordance with Rule 13d-1(j) of the Exchange Act.
SECTION III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR
By executing this Agreement, the Investor represents, warrants and agrees that:
3.1 POWER AND AUTHORITY. The undersigned has full power and authority to act on behalf of and bind the Investor to its obligations as set forth herein and making these representations, warranties and agreements.
3.2 EFFECTIVE REGISTRATION STATEMENT. The Purchased Shares are being offered pursuant to the Registration Statement and Investor is relying on the Registration Statement and all periodic filings made by the Company under the Exchange Act (“SEC Filings”), in determining whether to purchase the Purchased Shares.
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3.3 REVIEW OF SEC FILINGS. Investor has had full opportunity to read and review the Registration Statement, the documents incorporated therein by reference, and consult with an attorney regarding such Registration Statement.
3.4 ACCURACY OF REPRESENTATIONS. The information provided herein and these representations, warranties and agreements are accurate and complete, and shall remain so until the undersigned notifies the Company otherwise.
3.5 NO SHORT SALES. Neither Investor or its affiliates shall engage in any short sales or similar transactions following the date of execution of this Agreement until termination of the Commitment Period.
SECTION IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed on the Company’s SEC Filings, the Company represents and warrants to the Investor that:
4.1 ORGANIZATION AND QUALIFICATION. The Company is a corporation duly organized and validly existing in good standing under the laws of the State of Nevada and has the requisite corporate power and authorization to own its properties and to carry on its business as now being conducted. Both the Company and the companies it owns or controls (the “Subsidiaries”) are duly qualified to do business and are in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. As used in this Agreement, “Material Adverse Effect” means a change, event, circumstance, effect or state of facts that has had or is reasonably likely to have, a material adverse effect on the business, properties, assets, operations, results of operations, financial condition or prospects of the Company and its Subsidiaries, if any, taken as a whole, or on the transactions contemplated hereby or by the agreements and instruments to be entered into in connection herewith, or on the authority or ability of the Company to perform its obligations under the Agreement.
4.2 AUTHORIZATION; ENFORCEMENT; COMPLIANCE WITH OTHER INSTRUMENTS.
| (i) | The Company has the requisite corporate power and authority to enter into the Agreement and to issue the Purchased Shares in accordance with the terms hereof and thereof. |
| (ii) | The execution and delivery of the Agreement by the Company and the consummation by it of the transactions contemplated hereby and thereby, including without limitation the issuance of the Purchased Shares pursuant to this Agreement, have been duly and validly authorized by the Company’s Board of Directors and no further consent or authorization is required by the Company, its Board of Directors, or its shareholders. |
| (iii) | The Agreement has been duly and validly executed and delivered by the Company. |
| (iv) | The Agreement constitutes the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors’ rights and remedies. |
4.3 ISSUANCE OF SHARES. The Company has reserved the amount of Purchased Shares included in the Registration Statement for issuance pursuant to the Agreement, which have been duly authorized and reserved (subject to adjustment pursuant to the Company’s covenant set forth in Section 5.5 below) pursuant to this Agreement. Upon issuance in accordance with this Agreement, the Purchased Shares will be validly issued, fully paid for and non-assessable and free from all taxes, liens and charges with respect to the issuance thereof. In the event the Company cannot register a sufficient number of Purchased Shares for issuance pursuant to this Agreement, the Company will use its best efforts to authorize and reserve for issuance the number of Purchased Shares required for the Company to perform its obligations hereunder as soon as reasonably practicable.
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4.4 DILUTIVE EFFECT. The Company’s executive officers and directors have studied and fully understand the nature of the transactions contemplated by this Agreement and recognize that the issuance of the Purchased Shares will have a dilutive effect on the shareholders of the Company. The Board of Directors of the Company has concluded, in its good faith business judgment, and with full understanding of the implications, that such issuance is in the best interests of the Company. The Company specifically acknowledges that, subject to such limitations as are expressly set forth in the Agreement, its obligation to issue shares of Common Stock pursuant to this Agreement is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company.
SECTION V
COVENANTS OF THE COMPANY
5.1 BEST EFFORTS. The Company shall use all commercially reasonable efforts to timely satisfy each of the conditions set forth in this Agreement.
5.2 REPORTING STATUS. The Company shall file all reports required to be filed with the SEC pursuant to the Exchange Act, and the Company shall not terminate its status, or take an action or fail to take any action, which would terminate its status as a reporting company under the Exchange Act until this Agreement terminates pursuant to Section 8.
5.3 USE OF PROCEEDS. The Company will use the proceeds from the sale of the Purchased Shares for general corporate and working capital purposes and acquisitions or assets, businesses or operations or for other purposes that the Board of Directors, in good faith deem to be in the best interest of the Company.
5.4 FINANCIAL INFORMATION. During the Commitment Period, the Company agrees to make available to the Investor via EDGAR or other electronic means the following documents and information on the forms set forth: (i) its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and any Registration Statements or amendments filed pursuant to the Securities Act; (ii) copies of any notices and other information made available or given to the shareholders of the Company generally, contemporaneously with the making available or giving thereof to the shareholders; and (iii) within two (2) calendar days of filing or delivery thereof, copies of all documents filed with, and all correspondence sent to, the Principal Market, any securities exchange or market, or the Financial Industry Regulatory Association, unless such information is material nonpublic information.
5.5 RESERVATION OF PURCHASED SHARES. The Company shall take all action necessary to at all times have authorized and reserved the amount of Purchased Shares included in the Registration Statement for issuance pursuant to the Agreement. In the event that the Company determines that it does not have a sufficient number of authorized shares of Common Stock to reserve and keep available for issuance as described, the Company shall use all commercially reasonable efforts to increase the number of authorized shares of Common Stock by seeking shareholder approval for the authorization of such additional shares.
5.6 LISTING. The Company shall maintain the listing of all of the Purchased Shares on the Principal Market and each other national securities exchange and automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and shall maintain, such listing of all Purchased Shares issuable under the terms of the Agreement. Neither the Company nor any of its Subsidiaries shall take any action which would be reasonably expected to result in the delisting or suspension of the Common Stock on the Principal Market (excluding suspensions of not more than one (1) Business Day resulting from business announcements by the Company). The Company shall promptly provide to the Investor copies of any notices it receives from the Principal Market regarding the continued eligibility of the Common Stock for listing on such automated quotation system or securities exchange. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 5.6.
5.7 CORPORATE EXISTENCE. The Company shall use all commercially reasonable efforts to preserve and continue the corporate existence of the Company.
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5.8 NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION. The Company shall promptly notify the Investor upon the occurrence of any of the following events in respect of a Registration Statement or related prospectus in respect of an offering of the Purchased Shares: (i) receipt of any request for additional information by the SEC or any other federal or state governmental authority during the period of effectiveness of the Registration Statement for amendments or supplements to the Registration Statement or related prospectus; (ii) the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of any Registration Statement or the initiation of any proceedings for that purpose; (iii) receipt of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Purchased Shares for sale in any jurisdiction or the initiation or notice of any proceeding for such purpose; (iv) the happening of any event that makes any statement made in such Registration Statement or related prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the Registration Statement, related prospectus or documents so that, in the case of a Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the related prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (v) the Company’s reasonable determination that a post-effective amendment or supplement to the Registration Statement would be appropriate, and the Company shall promptly make available to Investor any such supplement or amendment to the related prospectus.
5.9 TRANSFER AGENT. The Company shall deliver instructions to its transfer agent to issue Purchased Shares to the Investor that are issued to the Investor pursuant to the Agreement.
5.10 ACKNOWLEDGEMENT OF TERMS. The Company hereby represents and warrants to the Investor that: (i) it is voluntarily entering into this Agreement of its own free will, (ii) it is not entering this Agreement under economic duress, (iii) the terms of this Agreement are reasonable and fair to the Company, and (iv) the Company has had independent legal counsel of its own choosing review this Agreement, advise the Company with respect to this Agreement, and represent the Company in connection with this Agreement.
SECTION VI
EXPIRATION
This Agreement shall expire upon the earlier to occur of:
6.1 that date when the Investor has purchased an aggregate of Five Million Dollars ($5,000,000) in Purchased Shares pursuant to this Agreement; or
6.2 Twelve (12) months from the Execution Date.
SECTION VII
INDEMNIFICATION
In consideration of the parties mutual obligations set forth in the Agreement, the Company (the “Indemnitor”) shall defend, protect, indemnify and hold harmless the Investor and all of the investor’s shareholders, officers, directors, employees, counsel, and direct or indirect investors and any of the foregoing person’s agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and reasonable expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’fees and disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (I) any misrepresentation or breach of any representation or warranty made by the Indemnitor or any other certificate, instrument or document contemplated hereby or thereby; (II) any breach of any covenant, agreement or obligation of the Indemnitor contained in the Agreement or any other certificate, instrument or document contemplated hereby or thereby; or (III) any cause of action, suit or claim brought or made against such Indemnitee by a third party and arising out of or resulting from the execution, delivery, performance or enforcement of the Agreement or any other certificate, instrument or document contemplated hereby or thereby, except insofar as any such misrepresentation, breach or any untrue statement, alleged untrue statement, omission or alleged omission is made in reliance upon and in conformity with information furnished to Indemnitor which is specifically intended for use in the preparation of any such Registration Statement, preliminary prospectus, prospectus or amendments to the prospectus. To the extent that the foregoing undertaking by the Indemnitor may be unenforceable for any reason, the Indemnitor shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. The indemnity provisions contained herein shall be in addition to any cause of action or similar rights Indemnitor may have, and any liabilities the Indemnitor or the Indemnitees may be subject to.
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SECTION VIII
GOVERNING LAW; DISPUTES SUBMITTED TO ARBITRATION
8.1 LAW GOVERNING THIS AGREEMENT. This Agreement shall be governed by and construed in accordance with the laws of the State of Massachusetts without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state or federal courts located in Boston, Massachusetts. The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The parties executing this Agreement and other agreements referred to herein or delivered in connection herewith on behalf of the Company agree to submit to the in personam jurisdiction of such courts and hereby irrevocably waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
8.2 LEGAL FEES; AND MISCELLANEOUS FEES. Except as otherwise set forth in the Agreement, each party shall pay the fees and expenses of its advisers, counsel, the accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. Any attorneys’ fees and expenses incurred by either the Company or the Investor in connection with the preparation, negotiation, execution and delivery of any amendments to this Agreement or relating to the enforcement of the rights of any party, after the occurrence of any breach of the terms of this Agreement by another party or any default by another party in respect of the transactions contemplated hereunder, shall be paid on demand by the party which breached this Agreement and/or defaulted, as the case may be. The Company shall pay all stamp and other taxes and duties levied in connection with the issuance of any Purchased Shares.
8.3 SURVIVAL. Sections 8.1, 8.2, 8.3, 8.4, and 8.5 of this Agreement shall survive the Commitment Period and the expiration of this Agreement.
8.4 ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes in its entirety any other agreements (either oral or written) between the parties and is the FINAL AGREEMENT between the Company and the Investor with respect to the terms and conditions set forth herein, and, the terms of this Agreement may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the Parties. No provision of this Agreement may be amended other than by an instrument in writing signed by the Company and the Investor, and no provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought.
8.5 SEVERABILITY. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.
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SECTION IX
NON-DISCLOSURE OF NON-PUBLIC INFORMATION
The Company shall not disclose non-public information to the Investor.
Your signature on this Signature Page evidences your agreement to be bound by the terms and conditions of this Agreement as of the date first written above. The undersigned signatory hereby certifies that he has read and understands this Agreement, and the representations made by the undersigned in this Agreement are true and accurate and agrees to be bound by its terms.
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GHS INVESTMENTS, LLC By: /s/ Mark Grober Name: Mark Grober Title: Member
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IIOT-OXYS, INC. By: /s/ Clifford L. Emmons Name: Clifford L. Emmons Title: Chief Executive Officer |
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EXHIBIT A
PURCHASE NOTICE
Date: _____, 202_
GHS INVESTMENTS, LLC,
This is to inform you that as of today the Company hereby elects to exercise its right pursuant to this Agreement to require you to purchase _____ Purchased Shares for an Investment Amount not to exceed Five Hundred Thousand Dollars ($500,000). The Company’s wire instructions are as follows:
[Insert Wire Instructions]
The total Investment Amount and price per Purchased Shares shall be calculated in accordance with the terms and conditions set forth in Section 2.1 of the Agreement.
Regards,
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IIOT-OXYS, INC. By: Name: Clifford L. Emmons Title: Chief Executive Officer |
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Exhibit 10.5
TERMINATION AGREEMENT
This Termination Agreement (the “Agreement”), entered into effective the 31st day of March, 2021 (the “Effective Date”), is by and among IIOT-OXYS, Inc., a Nevada corporation (hereinafter the “Client”), and Antony Coufal, an individual located at 49 Edgemere Road, Quincy MA 02169 (the “Consultant”). Each of the Client and the Consultant, as a “Party,” and, together, the “Parties.”
RECITALS:
WHEREAS, on February 28, 2019, the Consultant entered into an Amendment and Restated Consulting Agreement the Client (the “Restated Agreement”) which provided for the engagement of the Consultant by the Client to provide certain consulting services, as stated in the Restated Agreement;
WHEREAS, on June 12, 2020, the Consultant entered into an Amendment to the Restated Agreement with the Client (the “Amendment”);
WHEREAS, Section 8(b) of the Restated Agreement provides for mutual termination of the Restated Agreement;
WHEREAS, pursuant to Section 8(b) of the Restated Agreement and, as of the Effective Date, each of the Parties desire to terminate the Restated Agreement and the Amendment.
NOW, THEREFORE, in consideration of the terms and conditions of this Agreement, the Parties hereto agree as follows:
1. Termination of the Restated Agreement and the Amendment. Pursuant to Section 8(b) of the Restated Agreement, as of the Effective Date, each of the Restated Agreement and the Amendment are hereby terminated.
2. Effect of Termination. As of the Effective Date, none of the Consultant, on the one hand, nor the Client (or its affiliates or its directors, officers, employees, agents or other representatives), on the other hand, shall have any liability or obligation to each other under the Restated Agreement or the Amendment, except that Section 9 of the Restated Agreement shall continue in full force and effect in accordance with the terms of the Restated Agreement for a period of two (2) years from the Effective Date and all covenants and warranties subject to Section 12(e) of the Restated Agreement shall survive according to Section 12(e).
3. Resignation of Mr. Coufal. As of the Effective Date, Mr. Coufal resigns from all positions held within the Client and any of its subsidiaries.
4. Reimbursable Expenses Owed to the Consultant. Pursuant to Section 7(c) of the Restated Agreement, as of the Effective Date, the Client owed Eleven Thousand One Hundred and Forty Four Dollars and Forty Two Cents ($11,144.42) in reimbursable expenses to the Consultant (the “Reimbursable Expenses”). Pursuant to written instructions to be received from the Consultant by the Client no later than one (1) Business Day of the date of this Agreement, the Client shall pay to the Consultant the Reimbursable Expenses in cash within five (5) Business Days of this Agreement. As defined herein, a “Business Day,” or “Business Days” shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the Massachusetts are authorized or obligated by law or executive order to close.
5. Consulting Fees Owed to the Consultant. Pursuant to Section 7(a) of the Restated Agreement and the Amendment, as of the Effective Date, the Client owed One Hundred and Thirty Thousand Four Hundred and Fifty-One Dollars ($130,451) in accrued and unpaid consulting fees to the Consultant (the “Consulting Fees”). Pursuant to written instructions to be received from the Consultant by the Client no later than one (1) Business Day of the date of this Agreement, the Client shall pay to the Consultant the Consulting Fees in the amount of One Hundred and Twenty One Thousand Three Hundred and Sixty Four Dollars and Eighty-Three Cents ($121,364.83) in cash and Gross Wages of Nine Thousand Eighty Six Dollars and Fifty-Five Cents ($9,086.55) less payroll deductions and withholdings required by law, on account of Gross Wages and taxes, via direct deposit within five (5) Business Days of this Agreement.
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6. Award Shares. Pursuant to Section 7(d) of the Restated Agreement, as of the Effective Date, Eight Hundred Forty Three Thousand Two Hundred and Eighty Eight (843,288) (the “Award Shares,” together with the Reimbursable Expenses and the Consulting Fees, the “Compensation”) of Nine Hundred Thousand (900,000) shares of the Client’s Common Stock previously awarded to the Consultant shall fully vest and the Consultant shall have no more rights to the remaining Fifty Six Thousand Seven Hundred and Twelve (56,712) shares previously awarded. Pursuant to written instructions to be received from the Consultant by the Client no later than one (1) Business Day of the date of this Agreement, the Client shall issue to the Consultant the Award Shares within five (5) Business Days of this Agreement.
7. Full Release by the Consultant. The Consultant, for himself, and for his heirs, executors, administrators, and assigns, shall, and does, accept, receive, and take the Compensation from the Client as full and complete satisfaction of any and all monetary debts or other obligations owed to him by the Client and any of its subsidiaries and hereby forever fully releases and discharges each of the Client and any of its subsidiaries and their officers, directors, successors, assigns, attorneys, agents and affiliates from any and all claims, causes of actions, damages, liabilities or costs (including attorney’s fees and legal costs), whether known or unknown, relating in any way to the Restated Agreement, the Amendment, or any other issues or disputes that are the subject matter of or relating to the Restated Agreement or the Amendment.
8. Representations and Warranties of the Consultant. The Consultant represents and warrants to the Client as follows:
a. Restricted Securities. The Consultant understands that the Award Shares have not been registered pursuant to the Securities Act of 1933, as amended (the “Securities Act”), or any state securities act, and thus will be restricted securities as defined in Rule 144 promulgated by the U.S. Securities and Exchange Commission (the “SEC”). Therefore, under current interpretations and applicable rules, the Consultant may have to retain such securities for a period of at least six (6) months from the Effective Date and at the expiration of such holding period his sales may be confined to brokerage transactions of limited amounts requiring certain notification filings with the SEC and such disposition may be available only if the Client is current in its filings with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or other public disclosure requirements.
b. Section 16. The Consultant understands that after the Effective Date, he may be subjected to the requirements of Section 16 under the Exchange Act, including the “short-swing profit rule” and agrees to abide by applicable rules.
c. Non-distributive Intent. The Consultant acknowledges that the Award Shares are being acquired for his own account, for investment, and not with the present view towards the distribution thereof and he will not dispose of any of the shares except (i) pursuant to an effective registration statement under the Securities Act, or (ii) in any other transaction which, in the opinion of counsel acceptable to the Client, is exempt from registration under the Securities Act, or the rules and regulations of the SEC thereunder.
d. Evidence of Compliance with Private Offering Exemption. The Consultant represents and warrants that he, either individually or together with his purchaser representative, has such knowledge and experience in business and financial matters that he is capable of evaluating the risks of the prospective investment, and that the financial capacity of the Consultant is of such proportion that the total cost of the Consultant’s commitment in the Award Shares would not be material when compared with his total financial capacity. The Consultant has adequate means of providing for current needs and personal contingencies and has no need to sell the Award Shares in the foreseeable future.
e. Access to Information. The Consultant confirms that all documents, records, and books pertaining to this proposed transaction have been made available to him. In addition, the Consultant has reviewed or had access to the Client’s annual report on Form 10-K for the year ended December 31, 2019, and each filing made by the Client with the SEC since the filing of such annual report.
f. Opportunity to Ask Questions. The Consultant has had an opportunity to ask questions of and receive answers from duly designated representatives of the Client concerning the terms and conditions of this transaction and has been afforded an opportunity to examine such documents and other information which the Consultant or his representative, if any, has requested for the purpose of verifying the information set forth in this Agreement and for the purpose of answering any questions the Consultant may have concerning the business and affairs of the Client. In addition, the Consultant has received all requested additional information and documents.
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g. Limitations on Transfer of Award Shares. The Consultant acknowledges that he is aware that there are substantial restrictions on the transferability of the Award Shares. Since the Award Shares will not be registered under the Securities Act or any applicable state securities laws, the Award Shares may not be, and the Consultant agrees that they shall not be, transferred unless they are registered under the Securities Act and state securities laws, or unless such sale is exempt from such registration under the Securities Act and any other applicable state securities laws or regulations. The Consultant further acknowledges that the Consultant is under no obligation to aid in obtaining any exemption from the registration requirements. The Consultant also acknowledges that he will be responsible for compliance with all conditions on transfer imposed by any securities administrator of any state and for any expenses incurred by the Consultant for legal or accounting services in connection with reviewing such a proposed transfer and/or issuing opinions in connection therewith. The Consultant also acknowledges that an appropriate legend will be placed upon each of the certificate(s) representing the Award Shares stating that they have not been registered under the Securities Act and setting forth or referring to the restrictions on transferability and sale of the Settlement Shares.
h. Authorization; Enforceability. The Consultant has the requisite power and authority to enter into this Agreement. This Agreement has been duly executed by the Consultant and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Consultant enforceable against the Consultant in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application.
9. Representations and Warranties of the Client. The Client hereby represents and warrants to the Consultant as follows:
a. Authorization; Enforceability. The Client has the requisite corporate power and authority to enter into this Agreement. The Client has the requisite corporate power and authority to issue the Award Shares as contemplated by this Agreement. The execution and delivery of this Agreement by the Client has been duly authorized by all necessary action on the part of the Client and no further action is required by the Client in connection herewith. The issuance of the Award Shares contemplated hereby have been duly authorized by all necessary action on the part of the Client and no further action is required by the Client in connection herewith. This Agreement has been duly executed by the Client and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Client enforceable against the Client in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application.
b. Issuance of the Award Shares. The Award Shares have been duly authorized and, when issued in accordance with this Agreement, will be duly and validly issued, fully paid and nonassessable, free and clear of all of all encumbrances and restrictions (other than those created by the Consultant), except for restrictions on transfer imposed by applicable securities laws.
10. Miscellaneous.
a. Attorneys’ Fees. If any legal action or other proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing party or parties will be entitled to recover reasonable attorneys’ fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or he may be entitled.
b. Entire Agreement; Modification; Waiver. This Agreement constitutes the entire agreement between or among the Parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations, and understandings of the parties. No supplement, modification, or amendment of this Agreement will be binding unless executed in writing by all the Parties or the applicable parties to be bound by such amendment. No waiver of any of the provisions of this Agreement will constitute a waiver of any other provision, whether or not similar, nor will any waiver constitute a continuing waiver. No waiver will be binding unless executed in writing by the Party making the waiver.
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c. Survival of Covenants, Etc. All covenants, representations and warranties made herein shall survive the making of this Agreement and shall continue in full force and effect for a period of two (2) years from the dated of this Agreement, at the end of which period no claim may be made with respect to any such covenant, representation, or warranty unless such claim shall have been asserted in writing to the indemnifying party during such period.
d. Binding on Successors. This Agreement will be binding on, and will inure to the benefit of, the parties to it and their respective successors, and assigns.
e. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Massachusetts applicable to contracts made and to be performed in such State, without reference to the choice of law principals thereof.
f. Forum Selection. The parties agree that the exclusive jurisdiction for any lawsuit related to or arising under this Agreement shall be in the courts located in the State of Massachusetts. The Consultant waives any objection to jurisdiction and venue which the Consultant otherwise may have to this venue for any such lawsuit.
g. Non-Disparagement. The Consultant shall not, at any time from the date hereof and thereafter, make statements or representations, or otherwise communicate, directly or indirectly, in writing, orally, or otherwise, or take any action which may, directly or indirectly, disparage the Client or any of its subsidiaries or affiliates or their respective officers, directors, employees, advisors, businesses or reputations. Notwithstanding the foregoing, nothing in this Agreement shall preclude the Consultant from making truthful statements that are required by applicable law, regulation or legal process.
h. Severability. If any provision of this Agreement is held invalid or unenforceable by any court of final jurisdiction, it is the intent of the parties that all other provisions of this Agreement be construed to remain fully valid, enforceable, and binding on the parties if the essential terms and conditions of this Agreement for each party remain valid, binding and enforceable.
i. Headings. The descriptive headings of the various paragraphs or parts of this Agreement are for convenience only and shall not affect the meaning or construction of any of the provisions hereof.
j. Number and Gender. Wherever from the context it appears appropriate, each term stated in either the singular or the plural shall include the singular and the plural, and pronouns stated in either the masculine, the feminine, or the neuter gender shall include the masculine, feminine, and neuter.
k. Counterparts; Facsimile Execution. This Agreement may be executed in any number of counterparts and all such counterparts taken together shall be deemed to constitute one instrument. Delivery of an executed counterpart of this Agreement by facsimile or email shall be equally as effective as delivery of a manually executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by facsimile or email also shall deliver a manually executed counterpart of this Agreement, but the failure to deliver a manually executed counterpart shall not affect the validity, enforceability, or binding effect of this Agreement.
l. Full Knowledge. By their signatures, the parties acknowledge that they have carefully read and fully understand the terms and conditions of this Agreement, that each party has had the benefit of counsel, or has been advised to obtain counsel, and that each party has freely agreed to be bound by the terms and conditions of this Agreement.
SIGNATURE PAGE FOLLOWS
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SIGNATURE PAGE
IN WITNESS WHEREOF, each of the undersigned has executed this Agreement the respective day and year set forth below.
| THE CLIENT: | IIOT-OXYS, Inc. |
| Date: April 1, 2021 | By: /s/ Clifford L. Emmons |
| Clifford L. Emmons, CEO | |
| THE CONSULTANT: | |
| Date: April 1, 2021 | By: /s/ Antony Coufal |
| Antony Coufal, an individual |
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Exhibit 31.1
CERTIFICATIONS
I, Clifford L. Emmons, certify that:
| 1. | I have reviewed this Form 10-Q quarterly report of IIOT-OXYS, Inc. for the quarter ended March 31, 2021; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, 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;
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 17, 2021 | |||
| /s/ Clifford L. Emmons | |||
| Clifford L. Emmons, Chief Executive Officer | |||
| (Principal Executive & Financial Officer) | |||
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of IIOT-OXYS, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2021, as filed with the Securities and Exchange Commission (the “Report”), the undersigned principal executive and principal financial officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: May 17, 2021 | |||
| /s/ Clifford L. Emmons | |||
| Clifford L. Emmons, Chief Executive Officer | |||
| (Principal Executive & Financial Officer) | |||