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
above and in "Risk Factors." 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







  23






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 periods ended December
31, 2022 and 2021 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;
    ·   the impact of conflict between the Russian Federation and Ukraine on our
        operations;

· geo-political events, such as the crisis in Ukraine, 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;
    ·   government actions throughout the world; and
    ·   our ability to service secured debt, when due.








  24






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 year ended December 31, 2020
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.

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.







  25






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.

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, 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. 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.



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, 2022 compared to the year ended December 31, 2021





For the year ended December 31, 2022, we earned revenues of $88,904 and incurred
related cost of sales of $10,499. Our operating expenses were $733,071 which
included professional fees of $268,837, payroll costs of $373,774, amortization
of intangible assets of $49,500, and general and administrative expenses of
$40,960. We recorded net other expenses of $369,560 consisting of recording loss
on derivatives of $200,519, interest expense of $377,138 offset by gain on
change in fair market value of derivative liability of $190,462 and interest
income on note receivable of $17,634. We also recorded $52,654 as preferred
stock dividend on convertible preferred stock for the year ended December 31,
2022. As a result, we incurred a net loss of $1,076,881 for the year ended
December 31, 2022.



Comparatively, for the year ended December 31, 2021, we earned revenues of
$11,280 and incurred related cost of sales of $2,040. Our Operating expenses
were $889,141 which included professional fees of $508,153, payroll costs of
$301,707, amortization of intangible assets of $49,771, and general and
administrative expenses of $29,510. We recorded net other expenses of $161,333,
consisting of interest expense of $430,999 on notes payable due to amortization
of debt discount and interest payable on notes payable, offset by gain on change
in the fair market value of derivative liability of $102,966, gain on
extinguishment of debt of $120,000, other income of $46,700 consisting of
forgiveness of PPP Loan of $36,700 and EIDL advance of $10,000, We also recorded
$22,320 as preferred stock dividend on convertible preferred stock for the year
ended December 31, 2021. As a result, we incurred a net loss of $1,063,554 for
the year ended December 31, 2021.







  26






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



Year over Year (YoY) revenue increased significantly in 2022 over 2021, by 7.9X
(688% increase). This YoY growth was anticipated by our leadership team in our
2021 Annual Report on Form 10-K, and we're pleased to deliver this growth for
our shareholders. We had a strong finish to 2022, with fourth quarter revenue
exceeding that in the third quarter, also as promised. It marked three
consecutive quarters of quarter-over-quarter revenue growth. While our Quarterly
Report on Form 10-Q for the period ended September 30, 2022 disclosed risks of
ongoing concerns (and those concerns still exist), there are several factors
that led to this strong growth in 2022 which are as follows:

- Our DOT Bridge Monitoring contract: We were awarded a six-figure sub-contract

from a major northeast state's DOT for bridge monitoring, in addition to the

extension that was given on the previous contract. This enabled us to deliver

consistent revenue beginning in the second quarter, continuing through the

remainder of the year, and will continue through June of 2023. We believe this

substantiates the strength of our Structural Health Monitoring (SHM) solutions

and bolsters our ability to gain new business in this vertical with both

current and new customers.

- Our continued focus on our Smart Manufacturing vertical enabled us to secure a

CNC Proof of Concept (POC) contract in December 2022. The POC successfully

kicked off in January 2023.

- Our partnership with the Canadian Indoor Air Quality Sensor and IIoT Platform

company, Aretas Sensor Networks, with whom we entered into an NDA in the first

quarter, progressed well through the year. In addition to the initial

collaborative agreement signed in the first quarter, we signed an algorithm

development contract in the second quarter and recorded revenue from that

contract in the third quarter. We also signed a co-marketing and co-selling

agreement with Aretas in the third quarter and began selling in the fourth

quarter of 2022.

- We secured and retained key talent. The full time Machine Learning Engineer,

hired in the first quarter, expanded our focus on the Artificial Intelligence

(AI) and Machine Learning (ML) aspects of our business. Our CEO, Cliff Emmons,


  and COO, Karen McNemar, both renewed their employment contracts in June,
  ensuring stable experienced leadership focused on long-term growth.




These accomplishments are proof that our successful pilots in our key industry
verticals have resulted in new business and will continue to do so in 2023 and
beyond. Also, the strength of the Aingura IIoT, S.G. collaboration agreement has
bolstered financial stability, added talent breadth and depth, and provides
complimentary industry segment experience. Furthermore, liquidity of our stock
has attracted funding that gives us access to additional capital. This capital
will enable the funding of business development, staff augmentation, and
inorganic growth opportunities.



It is anticipated that 2023 YoY revenue growth will meet or exceed that of 2022.
This is due to these aforementioned reasons: the strength of the Aingura IIoT,
S.G. collaboration, successful pilots in all three of our key target industries,
use cases and marketing collateral from the pilots' data and algorithms,
experienced leadership, savvy technological talent, and operational execution
excellence. Our continued focus on high potential growth markets, has yielded
numerous prospects for future growth. Furthermore, the strength of our target
markets continues, the global smart manufacturing (also known as Industry 4.0)
was $97.6 B USD in 2022 and will reach $228.3 B USD by 2027 (CAGR 18.5%);1 the
worldwide Structural Health Monitoring (SHM) industry was $2.0 billion USD in
2021 and will reach $4.0 billion USD by 2027 (CAGR of 14.6%).2 Through our
collaborations with Aretas Sensor Networks, we have access to a third market,
Indoor Air Quality Monitors, which was estimated at $3.7 billion USD in 2020 and
projected to reach $6.4 billion USD in 2027, growing at 8.2% CAGR.3 We believe
our strengths in these markets will yield breakthroughs in additional new
contracts with current customers, as well as new customers in all targeted
industry segments. By combining the resulting organic growth with strong
strategic partnerships, we believe these revenue goals are achievable.















_________________



1

https://www.marketsandmarkets.com/Enquiry_Before_BuyingNew.asp?id=105448439&utm_source=SE-NA&utm_medium=Email



2

https://www.marketsandmarkets.com/Market-Reports/structural-health-monitoring-market-101431220.html



3

https://www.reportlinker.com/p05957040/Global-Indoor-Air-Quality-Monitors-Industry.html









  27

Liquidity and Capital Resources for the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021





At December 31, 2022, we had a cash balance of $33,336, which represents a
$13,485 decrease from the $46,821 cash balance at December 31, 2021. This
decrease was primarily as a result of net cash used in operating activities of
$657,009, cash paid for note receivable of $200,000, and cash received from
convertible notes payable of $545,924 and cash received from the sale of Series
B Preferred Stock of $297,600. Our working capital deficit at December 31, 2022
was $1,606,828, as compared to a working capital deficit of $1,108,786 at
December 31, 2021, respectively.



For the year ended December 31, 2022, we incurred a net loss of $1,076,881. Net
cash flows used in operating activities was $657,009 for the year ended December
31, 2022.



For the year ended December 31, 2021, we incurred a net loss of $1,063,554. Net
cash flows used in operating activities was $628,103 for the year ended December
31, 2021.

For the year ended December 31, 2022, cash used in investing activities was $200,000 payment towards a note receivable.

For the year ended December 31, 2022, net cash flows provided by financing activities were $843,534, consisting of cash received from the issuance of Convertible Notes payable of $545,924 and cash proceeds from sale of Series B Preferred Stock of $297,600, respectively.

For the year ended December 31, 2021, net cash flows provided by financing activities were $571,850, consisting of cash received from the issuance of Convertible Notes payable of $470,850 and cash proceeds from sale of Series B Preferred Stock of $101,000, respectively.





The accompanying consolidated financial statements have been prepared assuming
we will continue as a going concern. As shown in the accompanying financial
statements, we have incurred net loss from operations of $1,076,881 for the year
ended December 31, 2022, and net loss of $1,063,554 for the year ended December
31, 2021, and have an accumulated deficit of $9,307,137 as of December 31, 2022,
which raises substantial doubt about our ability to continue as a going concern.

Recently Issued Accounting Standards





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.



Effective January 1, 2022, we early adopted 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" using the
modified retrospective method of adoption. ASU 2020-06 simplifies the accounting
for convertible instruments by removing certain separation models in Subtopic
470- 20, Debt-Debt with Conversion and Other Options, for convertible
instruments. Under ASU 2020-06, the embedded conversion features no longer are
separated from the host contract for convertible instruments with conversion
features that are not required to be accounted for as derivatives under Topic
815, Derivatives and Hedging, or that do not result in substantial premiums
accounted for as paid-in capital. Consequently, a convertible debt instrument
will be accounted for as a single liability measured at its amortized cost as
long as no other features require bifurcation and recognition as derivatives. By
removing those separation models, the interest rate of convertible debt
instruments typically will be closer to the coupon interest rate when applying
the guidance in Topic 835, Interest. We now account for our Convertible Notes as
single liabilities measured at amortized cost.



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. 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.







  28

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.

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