Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contain certain forward-looking statements. Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events; are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements
Basis of Presentation
The 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 September 30, 2025 and 2024 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 are not limited to the following:
the impact of conflicts between the Russian Federation and Ukraine and Israel in on our operations;
geo-political events, such as the crisis in Ukraine and Israel, government responses to such events and the related impact on the economy both nationally and internationally;
general market and economic conditions;
our ability to maintain and grow our business with our current customers;
our ability to meet the volume and service requirements of our customers;
industry consolidation, including acquisitions by us or our competitors;
capacity utilization and the efficiency of manufacturing operations;
success in developing new products;
timing of our new product introductions;
new product introductions by competitors;
the ability of competitors to more fully leverage low-cost geographies for manufacturing or distribution;
product pricing, including the impact of currency exchange rates;
effectiveness of sales and marketing resources and strategies;
adequate manufacturing capacity and supply of components and materials;
strategic relationships with our suppliers;
product quality and performance;
protection of our products and brand by effective use of intellectual property laws;
the financial strength of our competitors;
the outcome of any future litigation or commercial dispute;
barriers to entry imposed by competitors with significant market power in new markets; and
government actions throughout the world.
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.
We regularly review 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.
When we issue convertible debt or convertible preferred stock, we first evaluate 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.
Historical Background
We were incorporated in the State of New Jersey on October 1, 2003 under the name of Creative Beauty Supply of New Jersey Corporation and subsequently changed our name to Gotham Capital Holdings, Inc. on May 18, 2015. We commenced operations in the beauty supply industry as of January 1, 2004. On November 30, 2007, our Board of Directors approved a plan to dispose of our wholesale and retail beauty supply business. From January 1, 2009 until July 28, 2017, we had no operations and were a shell company.
On March 16, 2017, our Board of Directors adopted resolutions, which were approved by shareholders holding a majority of our outstanding shares, to change our name to “IIOT-OXYS, Inc.”, to authorize a change of domicile from New Jersey to Nevada, to authorize a 2017 Stock Awards Plan, and to approve the Securities Exchange Agreement (the “ OXYS SEA ”) between the Company and OXYS Corporation (“ OXYS ”), a Nevada corporation incorporated on August 4, 2016.
Under the terms of the OXYS SEA we acquired 100% of the issued voting shares of OXYS in exchange for 34,687,244 shares of our Common Stock. We also cancelled 1,500,000 outstanding shares of our Common Stock and changed our management to Mr. DiBiase who also served in the management of OXYS. Also, one of our principal shareholders entered into a consulting agreement with OXYS to provide consulting services during the transition. The OXYS SEA was effective on July 28, 2017, and our name was changed to “IIOT-OXYS, Inc.” at that time. Effective October 26, 2017, our domicile was changed from New Jersey to Nevada.
At the present time, we have two wholly owned subsidiaries which are OXYS Corporation and HereLab, Inc. (an entity immaterial to our operations), through which our operations are conducted.
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 early-stage technology startups that are largely pre-revenue in their development phase. HereLab (an entity immaterial to our operations) is also an early-stage technology development company.
We develop hardware, software and algorithms that monitor, measure and predict conditions for energy, structural, agricultural and medical applications. We use domain-specific Artificial Intelligence to solve industrial and environmental challenges. Our engineered solutions focus on common sense approaches to machine learning, algorithm development and hardware and software products.
We use off-the-shelf components, with reconfigurable hardware architecture that adapts to a wide range of customer needs and applications. We use open-source software tools, while still creating proprietary content for customers, thereby reducing software development time and cost. The software works with the hardware to collect data from the equipment or structure that is being monitored.
We focus on developing insights. We develop algorithms that help our customers create insights from vast data streams. The data collected is analyzed and reports are created for the customer. From these insights, the customer can act to improve their process, product or structure.
Results of Operations for the Year Ended December 31, 2025 Compared to the Year Ended December 31, 2024
For the year ended December 31, 2025, we earned $0 revenues and recorded related cost of sales of $0. Our operating expenses were $532,791, which included payroll costs of $163,200, amortization of intangible assets of $149,449, legal and professional fees of $153,857, and general and administrative expenses of $66,285. We recorded net other expense of $125,055, consisting of a gain of $40,258 due to change in fair market value of derivative liability, loss on derivatives of $32,203 on Series D Convertible Preferred Stock, gain on extinguishment of debt of $78,884, forgiveness of EIDL loan and other miscellaneous income of $70,958, and interest expense of $282,952. We also recorded $783,414 of preferred stock dividend on convertible preferred stock for the year ended December 31, 2025. As a result, we incurred a net loss attributable to common stockholders of $1,441,260 for the year ended December 31, 2025.
For the year ended December 31, 2024, we earned revenues of $2,500 and recorded related cost of sales of $2,125. Our operating expenses were $428,274, which included payroll costs of $200,000, amortization of intangible assets of $49,636, legal and professional fees of $147,991, and general and administrative expenses of $30,647. We recorded net other expense, of $251,836 consisting of loss of $111,523 due to change in fair market value of derivative liability, , forgiveness of EIDL loan of $34,228, and interest expense of $174,541. We also recorded $84,920 as preferred stock dividend on convertible preferred stock for the year ended December 31, 2024. As a result, we incurred a net loss attributable to common stockholders of $764,655 for the year ended December 31, 2024.
During the current and prior year period, we did not record an income tax benefit due to the uncertainty associated with the Company’s ability to utilize the deferred tax assets.
No revenues were earned in the year 2025 and, thus, revenues were less than those in the same period in 2024. We believe revenue growth for the rest of 2026 will be challenging given the difficulty in raising additional capital to fuel sales and marketing efforts. Potential future revenue growth depends on our ability to raise said capital and the following factors:
Our DOT Bridge Monitoring Contract ended in December 2023 but we believe our Structural Health Monitoring (“ SHM ”) vertical is the foundation of our future revenue stream. Discussions with our main contractor to the DOT revealed that the monitoring program in which we’ve participated in previous years has been suspended with no foreseeable plans to restart the program. Despite this setback, our main contractor has confirmed we can continue to monitor our two sites (at our cost), which will allow us to effectively market our system and services to local municipalities and other state DOTs. We continue to pursue DOT contacts in two other northeast states, but these may not convert to contracts for another year. Projects with local municipalities in our current northeast state also continue to be prospected and may convert to contracts sometime in 2026, as they are based on potential state grants and not dependent on state or municipal budget cycles.
Our Smart Manufacturing vertical is another potential source of future revenue based on the strong use case developed from our CNC POC and SaaS contracts in previous years. Although the SaaS contract ended in May 2024, the tool cost savings exceeded our projections and our customer’s expectations. This previous customer will continue to endorse our capabilities and services, including promotional video material previously released and pending. We believe their endorsement and promotional videos are valuable collateral to prospect future Smart Manufacturing CNC business. Additional POCs for other discrete manufacturing processes, including metal stamping, plastic injection molding, plastic extrusion, and automated assembly and test are also potential avenues of future revenue streams.
We believe our strategic partnership continues to be our greatest asset. The strength of our Aingura IIoT, S.L. partnership provides supplemental expertise, equipment and software, which ensures our ability to bring value to our prospective customers. Their recent successes in expanding their minimally invasive monitoring and predictive algorithms into heavy industrial equipment applications bodes well for additional U.S. collaborations with us.
Despite these positive factors, we continue to face significant headwinds and we have not been able to raise material funds for ongoing operations through our existing financing agreements due to market conditions. Our management continues to secure limited funding from our lead investor to pay for ongoing expenses and our leadership team is considering our options for both the short and long term. Given the current challenges in raising adequate funds, management is pursuing options including vetting suitable companies to merge with or acquire us.
We believe we’ve created valuable assets from our business development in these industries, which are strong in both their size and growth. The global smart manufacturing (also known as Industry 4.0) was 233.3 billion in 2024 and will reach $479 billion by 2029 (CAGR 15.5%) 1 , and the worldwide SHM industry is $2.5 billion in 2024 and will reach $4.1 billion by 2029 (CAGR of 10.4%) 2 .
Given the valuable real-world data we have collected, our Artificial Intelligence (“ AI ”) Machine Learning algorithms we have developed, strong use cases and marketing collateral developed from our data and algorithms, combined with our prudent operational execution, we believe our company’s assets have potential future revenue growth, that will be attractive to prospective partners interested in an acquisition or merger.
On November 5, 2025, control of the Company was transferred to GHS, our lead investor. Vidhydahar Mitta, our independent board member, and Karen McNemar, our interim CFO and COO, resigned from their positions. Cliff Emmons continues in the role of CEO and, together with our new board, we are optimistic that under this new leadership the Company will have greater access to capital to secure additional assets for the Company, including potential synergistic mergers. We expect the net result will result in increased shareholder value.
1 https://www.marketsandmarkets.com/Market-Reports/smart-manufacturing-market-105448439.html
2 https://www.marketsandmarkets.com/Market-Reports/structural-health-monitoring-market-101431220.html
Liquidity and Capital Resources for the Year Ended December 31, 2025 Compared to the Year Ended December 31, 2024
At December 31, 2025, we reported a cash and cash equivalents balance of $26,342 as a result of net increase of $2,749 from $23,593 cash balance at December 31, 2024. This increase in cash and cash equivalents was primarily as a result of net cash used in operating activities of $195,051 offset by net cash provided by sale of Series D convertible preferred stock of $210,000 less cash payments of $12,200 in offering costs.
Operating Activities
Net cash flows used in operating activities for the year ended December 31, 2025 was $195,051, primarily attributed to the net loss of $1,441,260, write-down of intangible assets of $99,949, amortization of intangible assets of $49,500, issuance of common stock for services of $11,760, amortization of debt discount on Series B and D Preferred Stock of $46,800, gain on change in the fair value of derivative liability of $40,258, and net increase in operating assets and liabilities of $1,078,458. The Company recorded changes in operating assets and liabilities, primarily attributable to a decrease in prepaid expenses and other current assets of $2,139, decrease in accounts payable of $125,679, increase in accrued liabilities of $816,103, increase in derivative liabilities of $233,003, decrease in shares payable to related parties of $18,638, and increase in salaries payable to related parties of $171,530 converted into by issuance of Series E Preferred Stock.
Net cash flows used in operating activities for the year ended December 31, 2024 was $46,391, primarily attributed to the net loss of $764,655, amortization of intangible assets of $49,636, loss on change in the fair market value of derivative liabilities of $111,523, and net increase in operating assets and liabilities of $557,105. The Company recorded changes in operating assets and liabilities primarily attributable to a decrease in accounts receivable of $5,460, decrease in prepaid expenses and other current assets of $167, increase in accounts payable of $118,276, increase in accrued liabilities of $159,776, increase in derivative liabilities of $111,612, increase in shares payable to related parties of $3,413, and increase in salaries payable to related parties of $158,402.
Investing Activities
Net cash used in investing activities for the year ended December 31, 2025 and 2024 was $0.
Financing Activities
Net cash provided by financing activities for the year ended December 31, 2025 was $197,800, due to cash received from sale of Series D Convertible Preferred Stock of $210,000 less cash paid for offering costs of $12,200.
Net cash provided by financing activities for the year ended December 31, 2024 was $69,340 due to cash received of $75,600 from equity financing of convertible preferred stock, net of cash payment of $6,260 in commissions and legal fees paid in connection with the capital raise.
As a result of the above activities, the Company recorded an increase in cash and cash equivalents of $2,749 for the year ended December 31, 2025, and an increase in cash and cash equivalents of $22,949 for the year ended December 31, 2024 , respectively.
The accompanying 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, has a working capital deficit of $2,309,032, net loss incurred for the year ended December 31, 2025 of $1,441,260, net cash used in operating activities of $195,051, and has an accumulated deficit of $12,649,512 as of December 31, 2025. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations. The accompanying consolidated financial statements do not include any adjustments to reflect the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Off-Balance Sheet Arrangements
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.
