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
September 30, 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;

· 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.








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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, 2021
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.







  26






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.



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 September 30, 2022 Compared to the Three Months Ended September 30, 2021





The Company reported $23,003 and $5,280 in service revenues with cost of sales
of $5,140 and $1,275 for the three months ended September 30, 2022 and 2021,
respectively.



The Company incurred general and administrative expenses ("G&A") of $158,818 for
the three months ended September 30, 2022 as compared to $208,531 for the same
comparable period in 2021. The net decrease of $49,713 in G&A expenses resulted
primarily due to a reduction in professional fees paid to consultants of $40,778
and reduction in payroll and stock compensation earned by the Officers and
Director of $2,946. The Company recorded a gain of $125,568 due to the change in
the fair market value of derivative liabilities during the three months ended
September 30, 2022 as compared to a loss of $18,103 for the same comparable
period in 2021. The Company recorded interest income of $5,986 for the three
months ended September 30, 2022 due to the unsecured promissory note extended to
a third party earning 10% interest per annum compared to $0 interest earned in
the comparable period of 2021. The Company recorded an interest expense of
$14,913 for the three months ended September 30, 2022 as compared to $100,701
for the same comparable period in 2021. The interest expense decreased because
the Company did not record any amortization of debt discount during the three
months ended September 30, 2022 as compared to recording $82,329 in amortization
of debt discounts to interest expense during the three months ended September
30, 2021.







  27

Results of Operations for the Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

The Company recorded $39,503 and $5,280 of revenues and $5,650 and $1,275 in cost of sales during the nine months ended September 30, 2022 and 2021, respectively.





The Company incurred general and administrative expenses ("G&A") of $543,449 for
the nine months ended September 30, 2022 as compared to $737,746 for the same
comparable period in 2021. The decrease in G&A expenses resulted primarily due
to reduction in professional and consulting fees of $316,400 in the nine months
ended September 30, 2022 as compared to the same comparable period in 2021. This
reduction of expense was offset by an increase in payroll costs of $99,723
during the nine months ended September 30, 2022 as compared to the same
comparable period in 2021. The Company recorded a gain of $277,424 due to the
change in the fair market value of derivative liabilities during the nine months
ended September 30, 2022 as compared to a gain of $172,558 for the same
comparable period in 2021. The Company recorded a loss on derivatives of
$207,447 and $0 for the nine months ended September 30, 2022 and 2021,
respectively, due to the change in mark to market of the fair value of
derivative liabilities. 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 nine months ended September 30, 2021,
whereas, no such gain or loss was recorded for the same comparable period in
2022. The Company recorded an interest income of $11,647 for the nine months
ended September 30, 2022 as compared to $0 for the same comparable period in
2021. The Company recorded interest expense of $278,605 and $333,039 for the
nine months ended September 30, 2022 and 2021, respectively. The interest
expense decreased due to the Company recording reduction in the fair market
value of the derivative liability to interest expense. As a result, the Company
recorded a loss of $775,217 for the nine months ended September 30, 2022 as
compared to a loss of $818,211 for the same comparable period in 2021.



Our revenue for the quarter ended September 30, 2022 exceeded the total revenue
for 2021, as was anticipated in our Quarterly Report on Form 10-Q for the first
quarter of 2022.



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]Through our
collaborations with Aretas Sensor Networks, we have access to a third market,
Indoor Air Quality Monitors, which is estimated at $3.7 billion USD in 2020 and
projected to reach $6.4 billion USD in 2027, growing at 8.2% CAGR.[3]

Year to Date Accomplishments in 2022:

· We announced in the first quarter that we entered into an NDA with an EU

Electrical Technology Original Equipment Manufacturer. Collaborative

discussions continue and we expect this agreement to lead to new business


        in due time.

    ·   The Canadian Indoor Air Quality Sensor and IIoT Platform company, Aretas

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

continues to progress as well. 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

this quarter. We also signed a co-marketing and co-selling agreement with


        Aretas in this quarter and expect revenue from sales commissions in the
        fourth quarter.

· Our Structural Health Monitoring business continues to gather momentum,

receiving a contract extension with a New England State's DOT for Bridge

Monitoring announced in the first quarter for monitoring throughout the

second quarter. A proposal for monitoring and equipment upgrades for the

2022 to 2023 fiscal year was submitted in the second quarter and received

the formal contract in the third quarter of 2022. We have recorded revenue

on this contract since July and will continue to receive revenue from the


        contract through June of 2023.

    ·   We continue to secure significant and supportive funding.

· Our full time Machine Learning Engineer, hired in the first quarter,


        continues to expand 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.




 _________________________

[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

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




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We believe the underlying strengths of the Company are gathering momentum for
expected growth: an experienced leadership team; contributions of our new
Machine Learning Engineer, a PhD level Machine Learning Algorithms specialist;
strong execution on contracts to date; and a steady focus on prospecting,
submitting proposals, and securing Proof of Concepts (POCs).  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, which includes equipment upgrades and additional analysis.
Our continued focus on high potential growth markets (specifically Biotech,
Pharma, and Medical Device Operations, Structural Health Monitoring, and Indoor
Air Quality), has yielded numerous prospects for future growth. Specifically, we
secured an AI - Machine Learning sub-contract and initiated a POC for our IAQ
strategic partner in the second quarter and signed a co-marketing and co-selling
agreement with the same strategic partner in the third quarter.



We are pleased that the momentum of the second quarter's revenue continued into
the third quarter and expect it will continue through the fourth quarter. Our
third quarter revenue exceeded our second quarter revenue and expect revenue for
the second half of 2022 will exceed that generated in the first half of 2022. In
total, we expect that total revenue for 2022 will be approaching 2019 levels.
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, intellectual property 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.

As of September 30, 2022, the total principal amount owed to Sergey Gogin was $205,000. For more information on the note, please see NOTE 6 - CONVERTIBLE NOTES PAYABLE of the footnotes to the consolidated, unaudited financial statements.

Liquidity and Capital Resources





At September 30, 2022, the Company had a cash balance of $34,284, which
represents a $12,537 reduction from the $46,821 balance at December 31, 2021.
This reduction was primarily the result of cash provided by the sale of common
stock of $481,657 and Series B preferred stock (net of offering costs of $9,633)
in the aggregate amount of $187,000, offset by net cash used in operating
activities of $471,561 due to acceleration in product development activities,
and cash used in investing activities by executing a note receivable of $200,000
from Aretas. The Company's working capital at September 30, 2022 was a deficit
of $1,473,996, as compared to a working capital deficit of $1,108,786 at
December 31, 2021.



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 $775,217 for the
nine months ended September 30, 2022, and has an accumulated deficit of
$9,005,473 at September 30, 2022, 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 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.









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Recently Issued Accounting Standards

Management does not believe that any other recently issued, but not yet effective, accounting standards 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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