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, 2021. 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 March 31, 2021 and 2022 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;










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    ·   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.

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.











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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.

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.

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. 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.











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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 Three Months Ended March 31, 2022 Compared to the Three Months Ended March 31, 2021

For the three months ended March 31, 2022 and 2021, the Company did not earn any revenues.

The Company incurred general and administrative expenses ("G&A") of $167,009 for the three months ended March 31, 2022 as compared to $260,283 for the same comparable period in 2021. The decrease in G&A expenses resulted primarily due to reduction in stock compensation earned by the Officers and Director of $179,235 in the quarter ended March 31, 2021 as compared to $900 in stock compensation expense in 2022. This reduction of expense was offset by an increase in payroll costs of $83,781 during the quarter ended March 31, 2022 as compared to $41,214 for the same comparable period in 2021. The Company recorded a gain of $115,799 due to the change in the fair market value of derivative liabilities during the three months ended March 31, 2022 as compared to a gain of $84,700 for the same comparable period in 2021. The Company recorded a loss on derivatives of $201,943 and $0 for the three months ended March 31, 2022 and 2021, respectively. In addition, the Company recorded a gain of $120,000 on the extinguishment of debt upon agreeing with the note holders to a reduction in the debt conversion price during the three months ended March 31, 2021, whereas, no such gain or loss was recorded for the same comparable period in 2022. The Company recorded an interest expense of $247,372 for the three months ended March 31, 2022 as compared to $121,447 for the same comparable period in 2021. The interest expense increased due to the Company recording increase in the fair market value of the derivative liability to interest expense.

Although we did not generate any revenues during the quarter ended March 31, 2022, we are pleased with the progress we have made.

We continue to gain traction with strategic partners, customers, and potential customers in our key two markets: Smart Manufacturing / Industry 4.0 and Structural Health Monitoring (SHM). These are both high growth markets. Market research shows the worldwide Industry 4.0 market in 2021 was $64.9 billion USD and is projected to be $165.5 billion USD by 2026 (20.6% CAGR).[1] Also, the worldwide Structural Health Monitoring industry was $2.0 billion USD in 2021 and will reach $4.0 billion USD by 2027 (CAGR of 14.6%).[2]

Year to Date Accomplishments in 2022:

· We have entered into NDAs with an EU Medical Device as a Service Start-up and


   an EU Electrical Technology Original Equipment Manufacturer. We expect these
   agreements to lead to new business in due time.

· We also have entered into an NDA with a Canadian Indoor Air Quality Sensor and


   IIoT Platform company. An initial collaborative agreement has already been
   signed with this company at the beginning of our second quarter, and additional
   collaborations are expected this year.

--------------------------------------------------------------------------------

[1]https://www.marketsandmarkets.com/Market-Reports/industry-4-market-102536746.html

[2]

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



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· Our Structural Health Monitoring business continues to gather momentum, having


   signed a contract extension with a New England State's DOT for Bridge
   Monitoring.

· We continue to secure significant and supportive funding.

· We have hired a new full time Machine Learning Engineer, to expand our focus on

the Artificial Intelligence (AI) and Machine Learning (ML) aspects of our


   business.

We believe the underlying strengths of the Company are still in place: an experienced leadership team; contributions of our new Machine Learning Engineer, a PhD level Machine Learning Algorithms specialist; 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 - which has now led to a bridge monitoring contract extension. 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.

It is anticipated that revenue will be generated in the second quarter of 2022 that will exceed total revenue of 2021. We further expect revenue in the second half of 2022 to exceed the total revenue of 2021. In total, we expect that total revenue for 2022 will exceed that 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 collaboration agreements with both Aingura IIoT, S.G. and Aretas Sensor Networks have substantially 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.

Liquidity and Capital Resources

At March 31, 2022, the Company had a cash balance of $189,312, which represents a $142,491 increase from the $46,821 balance at December 31, 2021. This increase was primarily the result of cash provided by the sale of common stock and Series B preferred stock, net of offering costs of $2,277 in the aggregate amount of $299,549 offset by cash used by operating activities of $157,058 to satisfy the requirements of a reporting company and due to acceleration in product development activities. The Company's working capital at March 31, 2021 was a deficit of $1,445,025, as compared to a December 31, 2021 working capital deficit of $1,108,786.

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 $525,160 and $195,011 for the three months ended March 31, 2022 and 2021, respectively, and has an accumulated deficiency which raises substantial doubt about the Company's ability to continue as a going concern.











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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 April 14, 2022. 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 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.










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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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