ITOX 10-K & 10-Q changes, risk factors and insider trading

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.achievements

The financial information presented below and the following Management Discussion and Analysis of the CompanyConsolidated Financial Condition, Results of Operations, Stockholders’ Equity and Cash Flow for the quarterly periods ended DecemberSeptember 31,30, 20242025 and 20232024 gives effect to our acquisition of OXYS Corporation (“OXYS”) on July 28, 2017 and HereLab, Inc.2017. In accordance with the accounting reporting requirements for the recapitalization related to the “reverse merger” of OXYS, the consolidated financial statements for OXYS have been adjusted to reflect the change in the shares outstanding and the par value of the common stock of OXYS. Additionally, all intercompany transactions between the Company and its subsidiariesOXYS have been eliminated.

Statements in this management’s discussion and 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-lookingforward looking statements which, by definitiondefinition, involve risks and uncertainties. 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 or belief will result or be achieved or accomplished.

You should not rely on forward-looking statements in this document. This managementmanagement’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.

The preparation of these financial statements requires requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, 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.

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,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 received our first revenues in the last quarter of 2017, continued to realize revenues until 2020 when the pandemic hit, and we realized nominal revenues through 2021 to the present.

We use off the shelfoff-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.

For the year ended December 31, 2024,2025, we earned $0 revenues of $2,500 and recorded related cost of sales of $2,125.$0. Our operating expenses were $428,274,$532,791, which included payroll costs of $200,000,$163,200, amortization of intangible assets of $49,636,$149,449, legal and professional fees of $147,991,$153,857, and general and administrative expenses of $30,647.$66,285. We recorded net other expense of $251,836$125,055, consisting of lossa gain of $111,523$40,258 due to change in fair market value of derivative liability, loss gain on a derivativederivatives of $16,353$32,203 on Series CD Convertible Preferred Stock, Forgivenessgain on extinguishment of debt of $78,884, forgiveness of EIDL loan loanand other miscellaneous income of $34,228,$70,958, and interest expense of $190,894. $282,952. We also recorded $84,920$783,414 asof preferred stock dividend on convertible preferred stock for the year ended December 31, 2024.2025. As a result, we incurred a net loss attributable to common stockholders of $764,655$1,441,260 for the year ended December 3131, 30, 2024.2025.

For the year ended December 31, 2023,2024, we earned revenues of $114,666$2,500 and incurredrecorded related cost of sales of $76,645.$2,125. Our operating expenses were $731,420$428,274, which included professional fees of $172,704, payroll costs of $244,083,$200,000, amortization of intangible assets of $49,500,$49,636, badlegal debtsand professional fees of $214,103$147,991, and other general and administrative expenses expenses of $51,029.$30,647. We recorded net other expensesexpense, of $374,530$251,836 consisting of a loss of $185,973$111,523 due to debt extinguishment on notes payable due to change in conversion price, interest income on note receivable of $25,969, offset by interest expense of $210,426 and loss on change in fair market value of derivative liability, liability, forgiveness of $4,100.EIDL loan of $34,228, and interest expense of $174,541. We also recorded $68,531$84,920 as preferred stock dividend on convertible preferred stock for the year ended December 31, 2023.2024. As a result, we incurred a net loss attributable to common stockholders of $1,136,460$764,655 for the year ended December 31, 2023. 2024.

During the current and prior year,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.

RevenuesNo revenues were earned in 2024the year 2025 and, thus, revenues were substantially less than those in for the same period in 2023.2024. We expectbelieve revenue togrowth moderatefor the rest of 2026 will be challenging given the difficulty in 2025,raising asadditional capital to fuel sales and marketing efforts. Potential future revenue growth depends on our ability to raise fundingsaid to fuel sales & marketing efforts has been limited. Potential future revenue growth is possible, pending adequate funding for salescapital and marketingthe efforts.following factors:

As ofAt December 31, 2024,2025, we reported a cash and cash equivalents balance of $23,593$26,342 as a result of annet increase of $22,949$2,749 from the $644$23,593 cash balance at December 31, 2023.2024. This increase in cash and cash equivalents was primarily as a result of net cash used in operating activities of $46,391$195,051 andoffset by net cash provided by financing activities sale of $69,340.Series D convertible preferred stock of $210,000 less cash payments of $12,200 in offering costs.

Net cash flows used in operating activities for the year ended December 31, 20242025 was $46,391,$195,051, primarily attributed to the net loss of $764,655,$1,441,260, write-down of intangible assets of $99,949, amortization of intangible assets of $49,636,$49,500, issuance of common stock for services of $11,760, lossamortization of debt discount on Series B and D Preferred Stock of $46,800, gain on change in the fair market value of derivative liabilitiesliability of $111,523, $40,258, and net increase in operating assets and liabilities of $557,106. $1,078,458. The Company recorded changes in operating assets and liabilities liabilities, primarily attributable to a decrease in accounts receivable of $5,460, decrease in prepaid expenses and other current assets of $167,$2,139, increasedecrease in accounts payable of $118,276, $125,679, increase in accrued liabilities of $159,776,$816,103, increase in derivative liabilities of $111,612,$233,003, increasedecrease in shares payable to related parties of $3,413,$18,638, and increase in salaries payable to related parties of $158,402.$171,530 converted into by issuance of Series E Preferred Stock.

Net cash flows used in operating activities for the year ended December 31, 20232024 was $146,564,$46,391, primarily attributed to the net loss of $1,136,460, stock compensation expense of $4,665, bad debts of $214,103,$764,655, amortization of debt discount on notes payable and preferred stock of $12,400, amortization of intangible assets of $49,500,$49,636, loss on change in the fair market value of derivativesderivative liabilities of $4,100,$111,523, and lossnet onincrease extinguishmentin operating assets and liabilities of notes$557,105. payable of $186,294. The Company recorded changes in operating assets and liabilities of $518,835 primarily attributable to a decrease in accounts receivable of $4,663 due to collections from customers,$5,460, decrease in prepaid expenses and other current assets of $5,467,$167, increase in accounts payable of $86,145 due to negotiating longer payment terms, $118,276, increase in accrued liabilities of $248,368 due to non-payment of additional interest accrued on notes payable,$159,776, increase in derivative liabilities due to the change in the fair value of derivative liabilities of $65,779, decrease in unearned interest of $5,151,$111,612, increase in shares payable to related parties of $601,$3,413, and increase in salaries payable to related parties of $117,063.$158,402.

Net cash used in investing activities for the years year ended December 31, 20242025 and 20232024 was $0.

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, and a decrease in cash of $32,692 for the same comparable period ended December 31, 2023, respectively.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has suffered continuing operating losses, has a working capital deficit of $2,477,428,$2,309,032, usednet loss incurred for the year ended December 31, 2025 of $1,441,260, net cash flowsused in operating activities of $46,391,$195,051, and has an accumulated deficit of $11,208,252$12,649,512 as of December 31, 2024.2025. 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.

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 MarchJune 31,30, 2026 and 2025 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.

Results of Operations for the Three Months Ended MarchJune 31,30, 2026 Compared to the Three Months Ended MarchJune 31,30, 2025 (Unaudited)

For the three months ended MarchJune 31,30, 2025,2026, we did did not record any revenues and related cost of sales. Our operating expenses totaled $92,258$83,221 which included payrollprofessional costsfees ofto $50,000,consultants, amortization of intangible assets of $12,205,accountants and auditors totaling $74,728, and other general and administrative expenses ofrelating $30,053.to dues and subscriptions and state filing fees totaling $8,493. We recorded net other expense of $64,953 $363,593 consisting of gaina loss of $15,764$198,868 due to change in fair market value of derivative liability; loss on derivatives on Series D Convertible Preferred Stock of $14,224$54,197; and interest expense of $75,375$110,528 primarily due to recordingloss recorded on issuance of $62,800derivatives asto interest expense on issuance of Series D Convertible Preferred Stock;Stock. and other income of $8,882 received as employee retention credit from the Internal Revenue Service in February 2025.WeWe also recorded preferred stock dividend and default dividend due to non-payment of dividend on convertible preferred stock of $23,102.$174,888. As a result of the above, we recorded a net loss of $180,313$621,702 attributable to common stockholders for the three months ended MarchJune 31,30, 2025.2026.

No revenues were earned in Q1,the quarter ended June 30, 2026, as in prior year quarter ending MarchJune 31,30, 2025. We believe revenue growth for the rest of 2026 will be challenging given the difficulty in raising additional capital to fuel sales and marketing efforts. Potential future revenue growth depends on our ability to raise said capital and the following factors:

Liquidity and Capital Resources for the ThreeSix Months Ended MarchJune 31,30, 2026 Compared to the ThreeSix Months Ended MarchJune 31,30, 2025 (Unaudited)

At MarchJune 31,30, 2026, we reported a cash balance of of $6,838$8,651 as a result of neta decrease of cash balance of $19,504$17,691 from $26,342 cash balance at December 31, 2025. This decrease was primarily as a result of net cash used in operating activities of $59,624, offset by net cash provided by sale of Series D convertible preferred stock of $43,000,$125,000, offset by cash used by operating activities of $137,211 and cash payment of $2,880$5,480 in offering costs.

Net cash flows used in operating activities for the threesix months ended MarchJune 31,30, 2026 was $59,624,$137,211, primarily attributed to the net loss of $226,162,$672,976, commoninitial stockloss issuedon for servicesderivatives of $100,$54,197, stock compensation expense of $80, amortization of debtpreferred stock discount on Series B and D convertible preferred stock of $8,600,$39,400, loss due to change in the fair value of derivative liability of $97,220,$296,088, and net increase in operating assets and liabilities of $60,618.$146,001. The Company recorded changes in operating assets and liabilities primarily attributable to decrease in prepaid expenses and other current assets of $13,648, decrease in accounts payable of $9,242,$15,064, increase in accrued liabilities of $12,854,$38,327, and an increase in derivative liabilities of $57,006.$136,385.

Net cash flows used in operating activities for the threesix months ended MarchJune 31,30, 2025 was $56,532,$131,801, primarily attributed to the net loss of $182,540, initial loss on derivatives of $157,211,$35,658, stock compensation expense for services of $1,295,$2,529, amortization of intangible assets of $12,205,$24,546, amortization of preferred stock discounts on Series B & D convertible preferred stock of $33,000, gain due toon change in the fair value of derivative liability of $15,764 of Series C and Series D Convertible Preferred Stock,$228,311, and net increasedecrease in operating assets and liabilities of $90,943.$202,392. The Company recorded changes in operating assets and liabilities primarily attributable to an increasedecrease in prepaid expensesprepaids and other current assets of $15,000,$2,139, decrease in accounts payable of $34,827,$47,467, increase in accrued liabilities of $638,986,$37,291, increase in derivative liabilities of $69,825,$167,459, and increase in shares salaries payable to related parties of $360, and increase in salaries payable to related parties of $31,599.$78,628.

Net cash used in investing activities for the threesix months ended MarchJune 31,30, 2026 and 2025 was $0.

Net cash provided by financing activities for the threesix months ended MarchJune 31,30, 2025,2026 was $50,800,$119,520 due to cash received of $125,000 from saleequity financing of Seriesconvertible Dpreferred Convertible Preferred Stock of $60,000,stock, net of cash paymentspayment of offering$5,480 costsin offees $9,200.paid in connection with the capital raise.

As a result of the above activities, the Company recorded a decrease in cash of $19,504$17,691 for the threesix months ended MarchJune 31,30, 2026, and an increase in cash of $17,454 for the six months ended June 30, 2025, respectively.

The accompanying condensed unaudited 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 $2,653,885,$3,145,626, net loss fromincurred operations for the three six months ended MarchJune 31,30, 2026 of $226,162,$1,015,375, net cash used in operating activities of $59,624,$137,211, and has an accumulated deficit of $13,043,185 $13,664,887 as of MarchJune 31,30, 2026. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations. The accompanying condensed unaudited financial statements do not include any adjustments to reflect the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.