IIOT OXYS : Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)


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, 2019. 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 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 period ended
June 30, 2019 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.



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.









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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.

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,
continued to realize revenues during 2018 and 2019, has realized revenues during
the first and second quarter of 2020, and expects to continue to realize revenue
growth in 2020 due to its business development pipeline.

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.

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.

OUR SOLUTIONS ACHIEVE TWO OBJECTIVES




ADD VALUE



   ·  We show clear path to improved asset reliability, machine uptime, machine
      utilization, energy consumption, and quality.




  · We provide advanced algorithms and insights as a service.










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RISK MINIMIZATION



    ·   We use simple measurements requiring almost zero integration - minimally
        invasive.




  · We do not interfere with command and control of critical equipment.




    ·   We do not physically touch machine control networks - total isolation of
        networks.




HOW WE DO IT



Our location in Cambridge, Massachusetts is ideal since market-leading Biotech,
Medtech, and Pharma multinational firms have offices or R&D centers in Cambridge
or the Greater Boston area, which gives us easier access to potential sales
which, in turn, lowers our cost of sales. Additionally, we continue to add value
to structural health monitoring and smart manufacturing customers as well. We,
therefore, have a range of opportunities as we continue to expand our customer
base.

Our goal is to help Biotech, Pharma, and Medical Device companies realize the
next wave of performance, productivity, and quality gains for their
organizations, and become Industry 4.0 compliant.

We have a unique value proposition in a fast-growing worldwide multi-billion USD
market, and have positioned our business with strategic partners for accelerated
growth. We are therefore well-poised for growth in 2020 and beyond, as we
execute our plans and acquire additional customers.



WHAT MARKETS WE SERVE



SMART MANUFACTURING


We help our customers maintain machine uptime and maximize operational
efficiency. We also enable then to do energy monitoring, predictive maintenance
that anticipates problems before they happen, and improve part and process
quality.

BIOTECH, PHARMACEUTICAL, AND MEDICAL DEVICES

We are on the operations side, not the patient-facing side. In this market
vertical, our customers must provide high-quality products that must also pass
rigorous review by governing bodies such as the FDA. Here again, we focus on
machine uptime, operational efficiency, and predictive maintenance to avoid
unplanned downtime.




SMART INFRASTRUCTURE



For bridges and other civil infrastructure, local, state and federal agencies
have limited resources. We help our clients prioritize how to spend limited
funds by addressing those fixes which need to be made first.



OUR UNIQUE VALUE PROPOSITION


EDGE COMPUTING AS A COMPLIMENT TO CLOUD COMPUTING

Within the Internet of Things (“IoT”) and Industrial Internet of Things
(“IIoT”), most companies right now are adopting an approach which sends all
sensor data to the cloud for processing. We specialize in edge computing, where
the data processing is done locally right where the data is collected. We also
have advanced cloud-based algorithms that implement various machine learning and
artificial intelligence algorithms.









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ADVANCED ALGORITHMS


We have sought to differentiate from our competitors by developing advanced
algorithms on our own and in collaboration with strategic partners These
algorithms are an essential part of the edge computing strategy that convert raw
data into actionable knowledge right where the data is collected without having
to send the data to the cloud first.

RECONFIGURABLE HARDWARE AND SOFTWARE

Instead of focusing on creating tools, we use open source tools to create
proprietary content.

Results of Operations for the Three Months Ended June 30, 2020 compared to the
Three Months Ended June 30, 2019

For the three months ended June 30, 2020, the Company earned revenues of $26,171
and incurred related cost of sales of $12,487. The Company incurred professional
fees of $244,216, interest fees of $49,434, loss on change in FMV of derivative
liability of $75,324 and other general and administrative expenses of $29,378.
As a result, the Company incurred a net loss of $384,668 for the three months
ended June 30, 2020.

Comparatively, for the three months ended June 30, 2019, the Company earned
revenues of $21,850 and incurred related cost of sales of $6,410. The Company
incurred professional fees of $492,257, interest fees of $25,343 and other
general and administrative expenses of $44,843. As a result, the Company
incurred a net loss of $547,003 for the three months ended June 30, 2019.

During the current and prior period, the Company did not record an income tax
benefit due to the uncertainty associated with the Company’s ability to utilize
the deferred tax assets.

Results of Operations for the Six Months Ended June 30, 2020 compared to the Six
Months Ended June 30, 2019

For the six months ended June 30, 2020, the Company earned revenues of $41,771
and incurred related cost of sales of $21,121. The Company incurred professional
fees of $431,337, interest fees of $567,723, loss on extinguishment of debt of
$139,232 and other general and administrative expenses of $56,905, partially
offset by miscellaneous income of $409. As a result, the Company incurred a net
loss of $1,174,138 for the six months ended June 30, 2020.

Comparatively, for the six months ended June 30, 2019, the Company earned
revenues of $64,687 and incurred related cost of sales of $18,579. The Company
incurred professional fees of $981,063, interest fees of $87,779, loss on
extinguishment of debt of $221,232 and other general and administrative expenses
of $83,075. As a result, the Company incurred a net loss of $1,327,041 for the
six months ended June 30, 2019.

During the current and prior period, the Company did not record an income tax
benefit due to the uncertainty associated with the Company’s ability to utilize
the deferred tax assets.

Year over Year (YoY) revenue for the first six months of 2020 was less than in
same period of 2019. This was due to several reasons, including: challenges
raising substantial capital and longer than anticipated customer acquisition
times. These two factors led to cash flow issues, which in turn led to
additional and aging AP. All this resulted in a challenging first half of 2020,
and, thus, the negative YoY revenue growth. Our Quarterly Report on Form 10-Q
for the period ended March 31, 2020 disclosed risks of ongoing concerns, and
those concerns still exist. A counter balance to these headwinds are the
achievements in the first half of 2020: We completed a successful pilot program
for our Fortune 500 Pharma customer, and also successfully completed a full year
of data collection and analysis on our pilot structural health monitoring
program for a New England state’s DOT. The underlying strengths of the Company
are still in place: an experienced leadership team; contributions of a PhD level
Machine Learning Algorithm engineer on our technology team; and strong execution
on current contracts. Our continued focus on high potential growth markets
(specifically Biotech, Pharma, and Medical Device Operations), have yielded
numerous prospects for future growth. Furthermore, the strength of our target
market, the Industrial Internet of Things (IIoT), continues: Market research
shows the worldwide IIoT market in 2017 was $92 billion and is projected to be
$227 billion by 2021 (25% CAGR).1

——————————————————————————–

1https://www.ptc.com/-/media/Files/PDFs/IoT/State-of-IIoT-Whitepaper.pdf



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It is anticipated that YoY revenue growth in the second half of 2020 will meet
or exceed that for same period of 2019. 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, recent liquidity of our
stock has attracted funding opportunities, and access to additional capital 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.

Liquidity and Capital Resources

At June 30, 2020, the Company had a cash balance of $34,032, which represents a
$9,820 increase from the $24,212 balance at December 31, 2019. This increase was
primarily the result of cash provided by the issuance of convertible notes in
the amount of $29,510 and cash provided by the issuance of the PPP loan in the
amount of $36,700 offset by cash used to satisfy the requirements of a reporting
company and due to acceleration in product development activities. The Company’s
working capital at June 30, 2020 was a deficit of $2,082,959, as compared to a
December 31, 2019 working capital deficit of $1,101,216.

For the three months ended June 30, 2020, the Company incurred a net loss of
$384,668.

For the three months ended June 30, 2019, the Company incurred a net loss of
$547,003.

For the six months ended June 30, 2020, the Company incurred a net loss of
$1,174,138. Net cash used in operating activities was $56,390 for the six months
ended June 30, 2020.

For the six months ended June 30, 2019, the Company incurred a net loss of
$1,327,041. Net cash used in operating activities was $181,319 for the six
months ended June 30, 2019.

For the six months ended June 30, 2020, investing activities consisted of $0.
During the same period, financing activities consisted of cash received totaling
$66,210 from proceeds from convertible note payable and PPP loan.

For the six months ended June 30, 2019, investing activities consisted of $0.
During the same period, financing activities consisted of cash received totaling
$155,000 from proceeds from convertible notes payable.

The accompanying 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 $384,668 and
$547,003 for the three months ended June 30, 2020 and 2019, 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, if ever. 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 being able to maintain current
operations for three 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 June 22, 2020. 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.









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The accompanying 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;




    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.

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