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EX-32.2 - Indoor Harvest Corpex32-2.htm
EX-32.1 - Indoor Harvest Corpex32-1.htm
EX-31.2 - Indoor Harvest Corpex31-2.htm
EX-31.1 - Indoor Harvest Corpex31-1.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2018

 

or

 

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from   to  

 

Commission File Number 000-55594

 

INDOOR HARVEST CORP.
(Exact name of registrant as specified in its charter)

 

Texas   45-5577364
(State or other jurisdiction of incorporation or organization)   (IRS Employer Identification No.)

 

5300 East Freeway Suite A, Houston, Texas   77020
(Address of principal executive offices)   (Zip Code)

 

(346) 310-3427
(Registrant’s telephone number, including area code)

 

N/A
(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

[X] YES [  ] NO

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

  [  ] YES [X] NO

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [  ] (Do not check if a smaller reporting company) Smaller reporting company [X]
      Emerging growth company [X]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

 

[  ] YES [X] NO

 

As of August 20, 2018 there were 28,169,290 shares of common stock issued and outstanding.

 

 

 

   
 

 

INDOOR HARVEST CORP

 

FORM 10-Q

 

TABLE OF CONTENTS

 

PART I — FINANCIAL INFORMATION 
   
Item 1. Consolidated Financial Statements (Unaudited) F-1
  Consolidated Balance Sheets—June 30, 2018 and December 31, 2017 (Unaudited) F-1
  Consolidated Statements of Operations—for the six months ended June 30, 2018 and 2017 (Unaudited) F-2
  Consolidated Statements of Changes in Stockholders’ Deficit—for the six months ended June 30, 2018 and 2017 (Unaudited) F-3
  Consolidated Statements of Cash Flows—for the six months ended June 30, 2018 and 2017 (Unaudited) F-4
  Notes to Consolidated Financial Statements (Unaudited) F-5
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 4
   
Item 3. Quantitative and Qualitative Disclosure about Market Risk. 11
   
Item 4. Controls and Procedures. 11
   
PART II — OTHER INFORMATION
   
Item 1. Legal Proceedings. 12
   
Item 1A. Risk Factors 12
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 12
   
Item 3. Defaults Upon Senior Securities. 13
   
Item 4. Mine Safety Disclosures. 13
   
Item 5. Other Information. 13
   
Item 6. Exhibits. 14
   
SIGNATURES 15

 

 2 
 

 

FORWARD-LOOKING STATEMENTS

 

Except for any historical information contained herein, the matters discussed in this quarterly report on Form 10-Q contain certain “forward-looking statements’’ within the meaning of the federal securities laws. This includes statements regarding our future financial position, economic performance, results of operations, business strategy, budgets, projected costs, plans and objectives of management for future operations, and the information referred to under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

These forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may,’’ “will,’’ “expect,’’ “intend,’’ “estimate,’’ “anticipate,’’ “believe,’’ “continue’’ or similar terminology, although not all forward-looking statements contain these words. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, you are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Although we believe that the expectations reflected in such forward-looking statements are reasonable as of the date made, expectations may prove to have been materially different from the results expressed or implied by such forward-looking statements. Important factors that may cause actual results to differ from projections include, for example:

 

the success or failure of management’s efforts to implement our business plan;
   
our ability to fund our operating expenses;
   
our ability to compete with other companies that have a similar business plan;
   
the effect of changing economic conditions impacting our plan of operation; and
   
our ability to meet the other risks as may be described in future filings with the Securities and Exchange Commission (the “SEC”).

 

Unless otherwise required by law, we also disclaim any obligation to update our view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made in this quarterly report on Form 10-Q.

 

When considering these forward-looking statements, you should keep in mind the cautionary statements in this quarterly report on Form 10-Q and in our other filings with the SEC. We cannot assure you that the forward-looking statements in this quarterly report on Form 10-Q will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may prove to be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time-frame, or at all.

 

 3 
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

INDOOR HARVEST CORP

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

   June 30, 2018   December 31, 2017 
ASSETS        
Current Assets:          
Cash and cash equivalents  $60,661   $35,453 
Prepaid rent   -    4,452 
Unused commitment fee   50,000    50,000 
Total Current Assets   110,661    89,905 
           
Furniture and equipment, net   19,426    24,623 
Security deposit   12,600    12,600 
Intangible asset, net   5,034    5,892 
TOTAL ASSETS  $147,721   $133,020 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
Current Liabilities:          
Accounts payable and accrued expenses  $130,315   $89,033 
Accrued payroll   3,722    6,653 
Deferred rent   4,568    6,239 
Convertible notes payable, net of debt discount of $16,131 and $69,541, respectively   732,119    455,459 
Derivative liability   550,374    554,917 
Note payable - current portion   8,768    7,520 
Total Current Liabilities   1,429,866    1,119,821 
           
Long Term Liabilities:          
Note payable   7,912    12,823 
Total Liabilities   1,437,778    1,132,644 
           
Stockholders’ Deficit          
Preferred stock: 5,000,000 authorized; $0.01 par value 750,000 shares issued and outstanding at both June 30, 2018 and December 31, 2017   7,500    7,500 
Common stock: 125,000,000 authorized; $0.001 par value 25,922,363 and 25,503,678 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively   25,922    25,502 
Additional paid in capital   8,265,884    7,376,196 
Accumulated deficit   (9,589,363)   (8,408,822)
Total Stockholders’ Deficit   (1,290,057)   (999,624)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $147,721   $133,020 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

F-1
 

 

INDOOR HARVEST CORP

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2018   2017   2018   2017 
                 
Revenue  $-   $-   $-   $- 
Cost of sales   -    2,694    -    14,429 
Gross Loss   -    (2,694)   -    (14,429)
                     
Operating Expenses                    
Depreciation and amortization expense   3,017    13,112    6,055    26,254 
Research and development   -    887    -    1,625 
Professional fees   41,664    276,361    113,039    366,908 
General and administrative   266,841    130,099    465,031    752,497 
Total Operating Expenses   311,522    420,459    584,125    1,147,284 
                     
Loss from operations   (311,522)   (423,153)   (584,125)   (1,161,713)
                     
Other Income (Expense)                    
Other income (expense)   (4)   9    -    11 
Loss on investment in joint venture   -    (250,000)   -    (250,000)
Interest expense   (30,516)   (6,546)   (48,185)   (119,232)
Amortization of debt discount   (29,347)   (44,695)   (109,910)   (249,702)
Change in fair value of embedded derivative liability   (681,936)   -    (438,321)   - 
Total other expense   (741,799)   (301,232)   (596,416)   (618,923)
                     
Loss before income taxes   (1,053,321)   (724,385)   (1,180,541)   (1,780,636)
                     
Provision for income taxes   -    -    -    - 
                     
Net Loss  $(1,053,321)  $(724,385)  $(1,180,541)  $(1,780,636)
                     
Basic and dilutive loss per common share  $(0.04)  $(0.04)  $(0.05)  $(0.10)
                     
Weighted average number of common shares outstanding   25,002,161    19,153,022    24,822,879    17,991,073 

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

F-2
 

 

INDOOR HARVEST CORP

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(UNAUDITED)

 

   Series A Convertible           Additional       Total 
   Preferred Stock   Common Stock   Paid in   Accumulated   Stockholders’ 
   Number of Shares   Amount   Number of Shares   Amount   Capital   Deficit   Deficit 
                             
Balance - December 31, 2017   750,000   $7,500    25,503,678   $25,502   $7,376,196   $(8,408,822)  $(999,624)
                                    
Common stock issued for services - related party   -    -    1,169,034    1,170    205,324    -    206,494 
Convertible debt converted into common stock   -    -    2,530,121    2,530    222,470    -    225,000 
Voluntary return of stock by related party   -    -    (3,280,470)   (3,280)   3,280    -    - 
Derivative liability   -    -    -    -    442,864    -    442,864 
Beneficial conversion feature   -    -    -    -    15,750    -    15,750 
Net loss for the period   -    -    -    -    -    (1,180,541)   (1,180,541)
                                    
Balance - June 30, 2018   750,000   $7,500    25,922,363   $25,922   $8,265,884   $(9,589,363)  $(1,290,057)

 

The accompanying notes are an integral part of these unaudited financial statements.

 

F-3
 

 

INDOOR HARVEST CORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   Six Months Ended 
   June 30, 
   2018   2017 
         
Cash Flows from Operating Activities:          
Net loss  $(1,180,541)  $(1,780,636)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization expense   6,055    26,254 
Amortization of debt discount   109,910    249,702 
Change in fair value of embedded derivative liability   438,321    - 
Stock issued for services - related party   206,494    109,930 
Stock issued for services - third party   -    407,000 
Changes in operating assets and liabilities:          
Accounts receivable   -    34,853 
Prepaid rent   4,452    (8,632)
Accounts payable and accrued expenses   41,282    (1,977)
Billing in excess of costs and estimated earnings   -    (20,155)
Deferred rent   (1,671)   (1,137)
Accrued payroll   (2,931)   (3,420)
Net Cash used in Operating Activities   (378,629)   (988,218)
           
Cash Flows from Investing Activities:          
Purchase of property and equipment   -    (550)
Net Cash used in Investing Activities   -    (550)
           
Cash Flows from Financing Activities:          
Repayments of note payable   (3,663)   (228,807)
Proceeds from convertible notes, less OID costs paid   407,500    250,000 
Repayments of convertible note   -    (175,000)
Proceeds from Issuance of preferred stock for cash and warrants   -    300,000 
Proceeds from issuance of common stock   -    824,000 
Net Cash provided by Financing Activities   403,837    970,193 
           
Net increase (decrease) in cash and cash equivalents   25,208    (18,575)
Cash and cash equivalents, beginning of period   35,453    78,219 
Cash and cash equivalents, end of period  $60,661   $59,644 
           
Supplemental Cash Flow Information          
Cash paid for interest  $969   $1,321 
Cash paid for taxes  $-   $- 
           
Non-Cash Investing and Financing Activities:          
Beneficial conversion feature  $15,750   $95,333 
Debt discount from derivative liability  $-   $- 
Settlement of convertible note into common shares  $225,000   $100,000 
Conversion of preferred shares into common shares  $-   $2,500 
Derivative liability reclassified to paid-in capital  $442,864   $- 
Voluntary return of stock by related party  $3,280   $- 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

F-4
 

 

INDOOR HARVEST CORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Operations and Organization

 

Indoor Harvest Corp. (the “Company,”) is a Texas corporation formed on November 23, 2011. Our principal executive office is located at 5300 East Freeway Suite A, Houston, Texas 77020. On August 3, 2017, we formed Alamo Acquisition, LLC, a wholly owned Texas limited liability company (“Alamo Acquisition Sub”). On August 4, 2017, we consummated a business acquisition (the “Alamo Acquisition”) pursuant to which Alamo Acquisition Sub acquired all of the outstanding member interests of Alamo CBD, LLC. (“Alamo CBD”), a Texas limited Liability Company. Upon closing of the Alamo Acquisition, the member interests (“Alamo Surviver Members”) of Alamo CBD were exchanged for 7,584,008 shares of Indoor Harvest’s common stock, the parent company of Alamo Acquisition Sub, and Alamo CBD continued as our surviving wholly-owned subsidiary, and Alamo Acquisition Sub ceased to exist.

 

From inception until August 4, 2017, the Company provided full service, state of the art design-build, engineering, procurement and construction services to the indoor and vertical farming industry. The Company provided production platforms, mechanical systems and complete custom designed build outs for both Controlled Environment Agriculture (“CEA”) and Building Integrated Agriculture (“BIA”), for two unique industries, produce and cannabis. In mid-2016, the Company began efforts to separate its produce and cannabis related operations due to ongoing feedback from both clients and potential institutional investors. It was determined that the Company’s involvement in the cannabis industry was creating conflicts for clients and potential institutional investors wishing to work with the Company from the produce industry due to the public perception and political issues surrounding the cannabis industry. By late-2016, the Company had decided to cease actively selling its products and services to the vertical farming industry and to focus on utilizing the Company’s developed technology and methods for the cannabis industry. On August 4, 2017, the Company ceased actively supporting business development of vertical farms for produce production.

 

Basis of Presentation

 

The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

 

It is management’s opinion, however, that all material adjustments (consisting of normal and recurring adjustments) have been made which are necessary for a fair financial statement presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Significant estimates include, but are not limited to, the estimate of percentage of completion on construction contracts in progress at each reporting period which we rely on as a primary basis of revenue recognition, estimated useful lives of equipment for purposes of depreciation and the valuation of common shares issued for services, equipment and the liquidation of liabilities.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Indoor Harvest Corp. and its wholly-owned subsidiary, Alamo CBD. All significant inter-company accounts and transactions have been eliminated in consolidation.

 

F-5
 

 

Reclassification

 

Certain expense items have been reclassified in the statement of operations for the six months ended June 30, 2017, to conform to the reporting format adopted for the six months ended June 30, 2018.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid instruments with a maturity of three months or less to be cash and cash equivalents.

 

Stock Based Compensation

 

The Company recognizes stock-based compensation in accordance with ASC 718-10, Stock Compensation. ASC 718-10 focuses on transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus in which an entity obtains employee services in stock-based payment transactions. ASC 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award (with limited exceptions).

 

Loss per Share

 

Basic earnings per share amounts are calculated based on the weighted average number of shares of common stock outstanding during each period. Diluted earnings per share is based on the weighted average numbers of shares of common stock outstanding for the periods, including dilutive effects of stock options, warrants granted and convertible preferred stock. Dilutive options and warrants that are issued during a period or that expire or are canceled during a period are reflected in the computations for the time they were outstanding during the periods being reported. Since Indoor Harvest has incurred losses for all periods, the impact of the common stock equivalents would be anti- dilutive and therefore are not included in the calculation.

 

Fair Value of Financial Instruments

 

We adopted accounting guidance for financial and non-financial assets and liabilities (ASC 820). The adoption did not have a material impact on our results of operations, financial position or liquidity. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance does not apply to measurements related to share- based payments. This guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

 

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
   
Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
   
Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.

 

Income Taxes

 

The Company accounts for income taxes pursuant to FASB ASC 740—Income Taxes, which requires recognition of deferred income tax liabilities and assets for the expected future tax consequences of events that have been recognized in the financial statements or tax returns. The Company provides for deferred taxes on temporary differences between the financial statements and tax basis of assets using the enacted tax rates that are expected to apply to taxable income when the temporary differences are expected to reverse.

 

F-6
 

 

ASB ASC 740 establishes a more-likely-than-not threshold for recognizing the benefits of tax return positions in the financial statements. Also, the statement implements a process for measuring those tax positions that meet the recognition threshold of being ultimately sustained upon examination by the taxing authorities. There are no uncertain tax positions taken by the Company on its tax returns. The Company files tax returns in the U.S. and states in which it has operations and is subject to taxation.

 

Tax years 2017, 2016, 2015, 2014, and 2013, remain subject to examination by the IRS and respective states.

 

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Reform Act”). We recognize the impact of tax legislation in the period in which the law is enacted. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, which addresses how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes in the Tax Reform Act. Consistent with that guidance, we recognized provisional amounts based upon our interpretation of the tax laws and estimates which require significant judgments. The actual impact of these tax laws may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in our interpretations and assumptions, additional guidance that may be issued by the government and actions we may take as a result of these enacted tax laws. Any adjustments recorded to the provisional amounts will be included in income from operations as an adjustment to tax expense.

 

Property and Equipment

 

Property and equipment is recorded at cost and depreciated or amortized using the straight-line method over the estimated useful life of the asset or the underlying lease term for leasehold improvements, whichever is shorter. The estimated useful life by asset description is noted in the following table:

 

Asset description   Estimated Useful Life (Years)
Furniture and equipment   3 - 5
Tooling equipment   10
Leasehold improvements   *

 

* The shorter of 5 years or the life of the lease.

 

Additions are capitalized and maintenance and repairs are charged to expense as incurred. Gains and losses on dispositions of equipment are reflected in other income.

 

Goodwill

 

In accordance with ASC 350 Goodwill is not amortized but evaluated for impairment annually or more often if indicators of a potential impairment are present.

 

Intangible Assets

 

In accordance with ASC 350 Goodwill and Other Intangible Assets, indefinite-lived intangible assets are not amortized but are evaluated for impairment annually or more often if indicators of a potential impairment are present. Indefinite-lived intangible assets consist of the Company’s domain name. Finite-lived intangible assets include software and is amortized over a 3 to 5 year period.

 

Derivative Liability

 

The Company accounts for derivative instruments in accordance with ASC 815, which establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts and requires recognition of all derivatives on the balance sheet at fair value, regardless of hedging relationship designation. Accounting for changes in fair value of the derivative instruments depends on whether the derivatives qualify as hedge relationships and the types of relationships designated are based on the exposures hedged. At June 30, 2018 and December 31, 2017, the Company did not have any derivative instruments that were designated as hedges.

 

F-7
 

 

Beneficial Conversion Feature

 

For conventional convertible debt where the rate of conversion is below market value, the Company records a “beneficial conversion feature” (“BCF”) and related debt discount.

 

When the Company records a BCF, the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument. The discount is amortized to interest expense over the life of the debt.

 

Patent and Patent Application Expenses

 

Although the Company believes that its patent and underlying technology will have continuing value, the amount of future benefits to be derived from the patent is uncertain. Therefore, patent costs are expensed as incurred.

 

Research and Development

 

Research and development expenditures are charged to expense as incurred. Research and development expense for the six months ended June 30, 2018 and 2017 are as follows:

 

  

June 30, 2018

  

June 30, 2017

 
Research and development expense  $-   $1,625 

 

Advertising Expense

 

Advertising and promotional costs are expensed as incurred. Advertising expense for the Six months ended June 30, 2018 and 2017 are as follows:

 

  

June 30, 2018

  

June 30, 2017

 
Advertising expense  $739   $12,887 

 

Recent Accounting Pronouncements

 

Management has evaluated subsequent events through the date these financial statements were available to be issued. Based on our evaluation no material events have occurred that require disclosure.

 

NOTE 2 - GOING CONCERN

 

As reflected in the accompanying financial statements, the Company had a net loss of $1,180,541, net cash used in operations of $378,629 and has an accumulated deficit of $9,589,363, for the six months ended June 30, 2018. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The ability of the Company to continue as a going concern is dependent on Management’s plans which include potential asset acquisitions, mergers or business combinations with other entities, further implementation of its business plan and continuing to raise funds through debt or equity financings. The Company will likely rely upon related party debt or equity financing in order to ensure the continuing existence of the business.

 

The business plan of the Company is to engage in the design, development, marketing and direct-selling of commercial grade aeroponics fixtures and supporting systems for use in urban Controlled Environment Agriculture (“CEA”) and Building Integrated Agriculture (“BIA”). During the next twelve months, the Company’s strategy is to: complete ongoing product development; commence product marketing, product assembly and sales; construct a demonstration CEA and BIA farm; and offer design-build services. The Company’s long-term strategy is to direct sale, license and franchise their patented technologies and methods.

 

F-8
 

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

 

NOTE 3 - PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following as of June 30, 2018 and December 31, 2017:

 

Classification 

June 30, 2018

  

December 31, 2017

 
Furniture and equipment  $11,666   $11,666 
Leasehold improvements   38,717    38,717 
Computer equipment   3,019    3,019 
Total   53,402    53,402 
Less: Accumulated depreciation   (33,976)   (28,779)
Property and equipment, net  $19,426   $24,623 

 

Depreciation expense for the six months ended June 30, 2018 and 2017, totaled $5,197 and $25,402, respectively.

 

NOTE 4 – INTANGIBLE ASSETS

 

There were no impairment charges taken for the domain name during the six months ended June 30, 2018 and 2017.

 

Intangible assets consist of the following as of June 30, 2018 and December 31, 2017:

 

Classification  

June 30, 2018

   

December 31, 2017

 
Domain name   $ 2,000     $ 2,000  
Facilities Manager’s Package Online     1,022       1,022  
MLC CD Systems (software)     7,560       7,560  
Total     10,582       10,582  
Less: Accumulated amortization     (5,548 )     (4,690 )
Intangible assets, net   $ 5,034     $ 5,892  

 

Amortization expense for the six months ended June 30, 2018 and 2017, totaled $858 and $854, respectively.

 

NOTE 5 - COMMITMENTS & CONTINGENCIES

 

On February 20, 2014, the Company signed a 60-month lease on a 10,000 sq. ft. office/warehouse facility and paid a deposit of $12,600. The monthly base rent is $4,200 increasing 6% every two years for the term of the lease. The property is adequate for all of the Company’s currently planned activities. On January 22, 2018, the Company entered into a 6-month sublease agreement for a portion of the 10,000 sq. ft. office/warehouse facility. The term of the sublease is February 1, 2018 through July 31, 2018 at $2,000 per month. The Company records the sublease income as a reduction of rent expense in the Consolidated Statements of Operations within general and administrative expenses.

 

Deferred rent payable at June 30, 2018 was $4,568. Deferred rent payable is the sum of the difference between the monthly rent payment and the straight-line monthly rent expense of an operating lease that contains escalated payments in future periods.

 

F-9
 

 

Rent expense, net of sublease payments received, for the six months ended June 30, 2018 and 2017 were as follows:

 

  

June 30, 2018

  

June 30, 2017

 
Rent expense  $21,308   $26,975 

 

NOTE 6 - FAIR VALUE MEASUREMENTS

 

Carrying amounts reported on the balance sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value due to their relatively short maturity. Debt classified as Level 2 in the fair value hierarchy represent convertible notes payable of $732,119 and $455,459 at June 30, 2018 and December 31, 2017, respectively. Financial instruments classified as Level 3 in the fair value hierarchy represents derivative liability of $550,374 and $554,917 June 30, 2018 and December 31, 2017, respectively.

 

NOTE 7 - NOTE PAYABLE

 

On June 5, 2015, the Company entered into a five-year loan agreement totaling $36,100. The loan carries interest at a rate of 10.25%.

 

  

June 30, 2018

  

December 31, 2017

 
Balance as of period ended  $16,680   $20,343 
Less: current portion   8,768    7,520 
Long-term note payable, net  $7,912   $12,823 

 

NOTE 8 - CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable at June 30, 2018 and December 31, 2017 are as follows:

 

   June 30, 2018   December 31, 2017 
Note 1  $250,000   $475,000 
Note 2   50,000    50,000 
Note 3   448,250    - 
Total convertible notes payable   748,250    525,000 
           
Less: Unamortized debt discount   (16,131)   (69,541)
Total convertible notes   732,119    455,459 
           
Less: current portion of convertible notes   732,119    455,459 
Long-term convertible notes  $-   $- 

 

Note 1

 

On March 24, 2017, the Company entered into a securities purchase agreement with Tangiers Global, LLC (“Tangiers”) relating to the issuance and sale of notes (“Note 1”) in the aggregate principal amount of up to $550,000, which includes a 10% original issue discount. Note 1 is convertible into shares of common stock at a price equal to $0.30 per share; provided, however that if Note 1 is not retired on or before the maturity date, defined in Note 1 as a “Maturity Default” the conversion price shall be adjusted to be equal to the lower of: (i) $0.30 or (ii) 65% multiplied by the lowest trading price of the Company’s common stock in the fifteen (15) consecutive trading day period immediately preceding the date that the Company receives a notice of conversion. The Tangiers Note 1 carries interest on the unpaid principal amount at the rate of 8% per annum and is due and payable eight months from the effective date of each payment. As of June 30, 2018, the balance under Note 1 is $294,000, which includes $44,000 guaranteed interest. As of June 30, 2018, Note 1 can be converted into 4,184,615 shares of the Company’s common stock.

 

F-10
 

 

On October 12, 2017, the Company entered into an Investment Agreement with Tangiers. Pursuant to the terms of the Investment Agreement, Tangiers committed to purchase up to $2,000,000 of our common stock over a period of up to 36 months. From time to time during the 36-month period commencing from the effectiveness of the registration statement, we may deliver a put notice to Tangiers which states the dollar amount that we intend to sell to Tangiers on a date specified in the put notice. The maximum investment amount per notice must be no more than 200% of the average daily trading dollar volume of our common stock for the eight (8) consecutive trading days immediately prior to date of the applicable put notice and such amount must not exceed an accumulative amount of $250,000. The minimum put amount is $5,000. The purchase price per share to be paid by Tangiers will be the 80% of the of the average of the two lowest closing bid prices of the common stock during the pricing period applicable to the put notice, provided, however, an additional 10% will be added to the discount of each put if (i) we are not DWAC eligible and (ii) an additional 15% will be added to the discount of each put if we are under DTC “chill” status on the applicable date of the put notice.

 

On October 10, 2017, the Company executed Amendment #1 to the Tangiers Note 1 for a final draw of $250,000 payment plus a 10% original issue discount. Amendment #1 modified the maturity date for the Tangier Note from eight months to six months from the effective date of each payment. All other terms and conditions of the Tangiers Note 1 remain effective.

 

The execution of Amendment #1 to Note 1 on October 10, 2017 caused the Company to default on the first draw due under Note 1 due to the acceleration of the maturity date. The default allows Tangiers to demand payment in cash equal to 150% of the outstanding principal and interest, which is automatically added to the outstanding principle, and convert all or a portion of the outstanding principal into shares of common stock of the Company. The default conversion rate of Note 1 is now the lower of the conversion rate then in effect or 65% of the lowest trading price for the 15 days prior to Tangiers’ notice of conversion. As of May 1, 2018, Tangiers has informed the Company that they have elected at this time not to enforce the default interest rate of 18% under Note 1 and also not to enforce the fees, reserving its rights to enforce the foregoing in their discretion.

 

Note 2

 

The Company issued a fixed convertible promissory note to Tangiers for the principal sum of $50,000 as a commitment fee for the Investment Agreement. The promissory note (“Note 2”) maturity date is May 12, 2018. The principal amount due under Note 2 can be converted by Tangiers any time, into shares of the Company’s common stock at a conversion price of $0.1666 per share. The promissory note is in a “Maturity Default,” which is defined in Note 2 as the event in which Note 2 is not retired prior to its maturity date, Tangiers’ conversion rights under Note 2 would be adjusted such that the conversion price would be the lower of (i) $0.1666 or (ii) b) 65% of the average of the two lowest trading prices of the Company’s common stock during the 10 consecutive trading days prior to the date on which Tangiers elects to convert all or part of the note. The default interest rate is 20%. As of June 30, 2018, the balance under Note 2 is $55,000, which includes $5,000 guaranteed interest. As of June 30, 2018, Note 2 can be converted into 769,231 shares of the Company’s common stock.

 

Note 3

 

On January 16, 2018, the Company issued and sold an 8% Fixed Convertible Promissory Note (“Note 3”) to Tangiers (the “Buyer”), in the aggregate principal amount of up to $550,000, which includes a 10% original issue discount. Note 3 is convertible into shares of the Company’s common stock at a conversion price of $0.30 per share. However, if Note 3 is not paid back on or before the maturity date, defined in Note 3 as a “Maturity Default”, the conversion price of Note 3 shall then be adjusted to be equal to the lower of: (i) $0.30 or (ii) 65% multiplied by the lowest trading price of the Company’s common stock in the fifteen (15) consecutive trading day period immediately preceding the trading day that the Company receives a notice of conversion of Note 3.

 

On February 13, 2018, April 17, 2018, and June 13, 2018, the Company executed Amendments #1, #2, and #3 to the Tangiers Note 3 for draws of $132,000, $132,000, and $101,750, respectively. All other terms and conditions of the Tangiers Note 3 remain effective. As of June 30, 2018, the balance under Note 3 is $484,110, which includes $35,860 guaranteed interest.

 

F-11
 

 

As of June 30, 2018, the Company accrued $96,226 in interest expense related to the outstanding the notes.

 

Debt Discount and Original Issuance Costs for Convertible Note

 

The debt discount amount consists of debt discount due to beneficial conversion features, warrant, original issue costs, and debt issue costs. The debt discounts recorded in 2018 and 2017, pertain to beneficial conversion feature on the convertible notes. The notes are required to be bifurcated and reported at fair value on the date of grant.

 

During the six months ended June 30, 2018 and for the year ended December 31, 2017, the Company amortized $109,910 and $466,862 to interest expense, respectively.

 

   June 30, 2018   December 31, 2017 
Debt discount, beginning of period  $69,541   $152,617 
Additional debt discount and debt issue cost   56,500    383,786 
Amortization of debt discount and debt issue cost   (109,910)   (466,862)
Debt discount, end of period  $16,131   $69,541 

 

Debt Issuance Costs for Convertible Note

 

During the six months ended June 30, 2018 and for the year ended December 31, 2017, the Company did not pay any debt issue costs.

 

NOTE 9 - DERIVATIVE LIABILITIES

 

The Company identified the conversion features embedded within its convertible debts as financial derivatives. The Company has determined that the embedded conversion option should be accounted for at fair value.

 

The following schedule shows the change in fair value of the derivative liabilities for the six months ended June 30, 2018:

 

Balance - December 31, 2017  $554,916 
Addition of new derivatives recognized as loss on derivatives   643,915 
Settled on issuance of common stock   (442,863)
Gain on change in fair value of the derivative   (205,594)
Balance - June 30, 2017   550,374 
Less: current portion   (550,374)
Long-term derivative liabilities  $- 

 

The following schedule shows the change in fair value of the derivative liabilities for the year ended December 31, 2017:

 

Derivative liabilities - December 31, 2016   $ -  
Add fair value at the commitment date for convertible notes issued during the current year     213,453  
Less derivatives due to conversion     (18,800 )
Fair value mark to market adjustment for derivatives     360,263  
Derivative liabilities - December 31, 2017     554,916  
Less : current portion     (554,916 )
Long-term derivative liabilities   $ -  

 

F-12
 

 

NOTE 10 - RELATED PARTY TRANSACTIONS

 

On January 15, 2018 Ms. Sandra Fowler, was appointed as the Chief Marketing Officer of the Company. Pursuant to the terms of the Fowler Employment Agreement, Ms. Fowler shall serve as Chief Marketing Officer of the Company. The initial term of the agreement will expire on January 15, 2019 and commencing on January 15, 2019 and on each anniversary of such date thereafter, the term of the Fowler Employment Agreement shall automatically renew for a one-year period, unless earlier terminated by either party pursuant to the terms of the Fowler Employment Agreement. In consideration for Ms. Fowler’s services, under the Fowler Employment Agreement, Ms. Fowler shall receive (i) an annual base salary of $48,000 and (ii) 200,000 shares of restricted common stock of the Company. Further, pursuant to the Fowler Employment Agreement, the Company agreed to revise the annual base compensation for Ms. Fowler to $65,000, after 90 days of the execution of the Fowler Employment Agreement, or after the Company raises not less than $1,000,000 from sales of its equity securities subsequent to the execution of the Fowler Employment Agreement, whichever may come first. In addition, Ms. Fowler shall be eligible to participate in any equity-based incentive compensation plan or programs adopted by the Company’s board of directors.

 

On February 5, 2018, Dr. Coleman and Benjamin Coleman voluntarily returned and canceled an aggregate of 3,280,470 common shares in order to prevent dilution to the shareholders during the Company’s efforts to secure new senior management, provide additional incentive equity and to form an advisory board. The return of common stock by Dr. Coleman and Benjamin Coleman was a non-cash transaction.

 

On February 20, 2018, Mr. Daniel Weadock was appointed Chief Executive Officer and Director of the Company. On February 20, 2018, the Company entered into an executive employment agreement with Mr. Weadock (the “Weadock Employment Agreement”), pursuant to which Mr. Weadock agreed to act as the Company’s chief executive officer. Pursuant to the terms of the Weadock Employment Agreement, Mr. Weadock initial will not receive a salary. However, effective on the business day after the date on which the Company achieves Capitalization (as hereinafter defined) of $2,000,000 or more, Mr. Weadock’s annual base salary will be $100,000. For purposes of the Weadock Employment Agreement, “Capitalization” means aggregate net cash proceeds received by the Company from (a) the Company’s sale of common stock pursuant to Puts (as such term is defined in the Investment Agreement dated as of October 12, 2017 by and between the Company and Tangiers Global, LLC (the “Investment Agreement”)) under the Investment Agreement, and/or (b) any other sale by the Company of common stock or preferred stock, whether in a public offering or a private placement. In addition, pursuant to the terms of the Weadock Employment Agreement, the Company agreed to grant Mr. Weadock (i) 300,000 shares of restricted stock as soon as administratively practicable following execution of the Weadock Employment Agreement, and (ii) 1,584,202 shares of restricted common stock, consistent with the grant and vesting schedule set forth in the agreement; provided, however, that no grant will be made and no shares will be issued with respect to any grant if Mr. Weadock is not employed by the Company as an executive on the respective Date of Grant as set forth in the agreement. The Weadock Employment Agreement has a term of one year, unless Mr. Weadock’s employment is terminated sooner by the board of directors, and the term will be extended for additional one-year periods unless the Company or Mr. Weadock gives the other party at least 30 days’ prior written notice of its intent not to renew. On February 20, 2018, the Company also entered into a compensation agreement with Mr. Weadock (the “Director Compensation Agreement”).Pursuant to the terms of the Director Compensation Agreement, the Company agreed to grant Mr. Weadock an aggregate of 240,000 shares of restricted common stock, consistent with the grant and vesting schedule set forth in the agreement; provided, however, that no grant will be made and no shares will be issued with respect to any grant, if Mr. Weadock is not a member of the Company’s board of directors on the respective Date of Grant as set forth in the agreement. If the Company is acquired by, or merged into and with, another entity prior to the last Date of Vesting set forth in the agreement (i.e. February 23, 2022), all shares issuable to Mr. Weadock under the Director Compensation Agreement will become fully vested and non-forfeitable. The Company also agreed to reimburse Mr. Weadock for all reasonable travel and incidental expenses incurred by Mr. Weadock in performing his services and attending meetings as approved in advance by the Company. Also, on February 20, 2018, the Company also entered into an indemnity agreement with Mr. Weadock (the “Weadock Indemnity Agreement”). Pursuant to the terms of the Indemnity Agreement, the Company agreed to use reasonable efforts to obtain and maintain in full force and effect directors’ and officers’ liability insurance (“D&O Insurance”) in reasonable amounts from established and reputable insurers; provided, however, the Company shall have no obligation to obtain or maintain D&O Insurance if the Company determines in good faith that such insurance is not reasonably available, the premium costs for such insurance are disproportionate to the amount of coverage provided, the coverage is reduced by exclusions so as to provide an insufficient benefit, or Mr. Weadock is covered by similar insurance maintained by a subsidiary of the Company. In addition the foregoing, the Company will indemnify Mr. Weadock from certain third party actions, derivative actions and actions where Mr. Weadock is decreased; provided, however, the Company shall not be obligated to indemnify Mr. Weadock for actions including, but not limited to, actions initiated by Mr. Weadock, for any action in which it is determined that the material assertions made by Mr. Weadock in such proceeding were not made in good faith or were frivolous, for any settlements not authorized by the Company, for any actions on the account of Mr. Weadock’s willful misconduct, and for any expenses and the payment of profits arising from the purchase and sale Mr. Weadock of securities in violation of Section 16(b) of the Securities Exchange Act, or any similar successor statute; provided, further that, that the Company shall not be obligated to indemnify Mr. Weadock for expenses or liabilities of any type whatsoever which have been paid directly to Mr. Weadock pursuant to the Company’s D&O Insurance policy.

 

F-13
 

 

NOTE 11 - STOCKHOLDERS’ DEFICIT

 

Series A Convertible Preferred Stock

 

As at June 30, 2018 and December 31, 2017, there were 750,000 shares of Series A Convertible Preferred Stock issued and outstanding.

 

Common Stock

 

On January 9, 2018, the Company issued 899,685 shares of its common stock to Tangiers pursuant to Tangiers’ conversion of $100,000 of Note 1 at a conversion price of $0.11.

 

On January 15, 2018, the Company issued 200,000 shares of common stock related to an Employment Agreement with Sandra Fowler, Chief Marketing Officer. The Company recorded a fair value of $66,000 ($0.33 per share) based upon the most current trading price of the Company’s stock.

 

On February 5, 2018, Dr. Coleman and Benjamin Coleman voluntarily returned and canceled an aggregate of 3,280,470 common shares in order to prevent dilution to the shareholders during the Company’s efforts to secure new senior management, provide additional incentive equity and to form an advisory board. The return of common stock by Dr. Coleman and Benjamin Coleman was a non-cash transaction and reduces the common stock outstanding as of March 31, 2018.

 

On February 20, 2018, the Company issued 43,387 shares of common stock related to an Employment Agreement with Daniel Weadock, Chief Executive Officer. The Company recorded a fair value of $7,810 ($0.18 per share) based upon the most current trading price of the Company’s stock.

 

On February 23, 2018, the Company issued 12,135 shares of common stock related to an Director Agreement with Daniel Weadock, Chief Executive Officer. The Company recorded a fair value of $2,063 ($0.17 per share) based upon the most current trading price of the Company’s stock.

 

On March 5, 2018, the Company issued 269,716 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $25,000 of Note 1 at a conversion price of $0.09.

 

On March 20, 2018, the Company issued 30,000 shares of its common stock to members of the Company’s Advisory Board. The Company recorded a fair value of $4,200 ($0.14 per share) based upon the most recent trading price of the Company’s stock.

 

On March 21, 2018, the Company issued 295,631 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $25,000 of Note 1 at a conversion price of $0.08 per share.

 

On April 13, 2018, the Company issued 769,231 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $50,000 of Note 1 at a conversion price of $0.065 per share.

 

F-14
 

 

On April 17, 2018, the Company issued 300,000 shares of common stock related to an Employment Agreement with Daniel Weadock, Chief Executive Officer. The Company recorded a fair value of $51,000 ($0.17 per share) based upon the most current trading price of the Company’s stock.

 

On May 20, 2018, the Company issued 99,012 shares of common stock related to an Employment Agreement with Daniel Weadock, Chief Executive Officer. The Company recorded a fair value of $16,832 ($0.17 per share) based upon the most current trading price of the Company’s stock.

 

On May 23, 2018, the Company issued 30,000 shares of common stock related to an Director Agreement with Daniel Weadock, Chief Executive Officer. The Company recorded a fair value of $5,100 ($0.17 per share) based upon the most current trading price of the Company’s stock.

 

On June 21, 2018, the Company issued 295,858 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $25,000 of Note 1 at a conversion price of $0.0845 per share.

 

On June 6, 2018, the Company issued 30,000 shares of its common stock to members of the Company’s Advisory Board. The Company recorded a fair value of $2,550 ($0.085 per share) based upon the most recent trading price of the Company’s stock.

 

On June 27, 2018, the Company issued 424,500 shares of common stock related to an advisory agreement with Electrum Partners, LLC. The Company recorded a fair value of $50,940 ($0.12 per share) based upon the most current trading price of the Company’s stock.

 

Common Stock Warrants

 

For the six months ended June 30, 2018 and the year ended December 31, 2017, no warrants were outstanding.

 

NOTE 12 - SUBSEQUENT EVENTS

 

On July 2, 2018, the Company issued 244,755 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $17,500 of Note 1 at a conversion price of $.07.

 

On June 27, 2018, the Board of Directors of the Company approved the termination of Annette Knebel from her position as Chief Financial Officer of the Company pursuant to the terms of Mr. Knebel’s employment agreement with the Company effective immediately and further on the same date, the Board of Directors of the Company approved the termination of Mr. Knebel from her position as a member of the Company’s Board of Directors consistent with the Company’s Amended and Restated Bylaws, effective immediately.

 

On July 3, 2018, Chad Sykes was appointed to act as the Company’s principal financial officer and principal accounting officer.

 

On July 12, 2018, the Company issued 269,231 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $17,500 of Note 1 at a conversion price of $.07.

 

On July 27, 2018, the Company and Tangiers entered into Amendment #4 to the January 16, 2018 promissory note (“Amendment #4”), pursuant to which Tangiers agreed to make a payment to the Company in the amount of $101,750 ($92,500 in cash and $9,250 in OID) under the note. The Company agreed that within one and a half months of the payment it will use the proceeds as follows: $54,000 for general and administrative expenses, $25,000 for accounting and legal and $13,500 for miscellaneous expenses.

 

On August 1, 2018, the Company issued 50,000 shares of its common stock to Electrum Partners pursuant to an advisory agreement. The Company recorded fair value of $4,500 ($0.09 per share) based upon the most recent trading price per share of the Company’s stock.

 

On August 2, 2018, the Company issued 1,307,846 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $42,590 of Note 1 at a conversion price of $.033.

 

On August 13, 2018, the Company issued 460,617 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $15,000 of Note 1 at a conversion price of $.033.

 

F-15
 

 

Item 2. Management’s Discussion and Analysis of Financial Condition or Plan of Operation

 

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes, and other financial information included in this filing. Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are, by their very nature, uncertain and risky. Although the forward-looking statements in this Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

 

General Overview

 

We are a Texas corporation formed on November 23, 2011. Our principal executive office is located at 5300 East Freeway Suite A, Houston, Texas 77020. On August 3, 2017, we formed Alamo Acquisition, LLC, a wholly owned Texas limited liability company (“Alamo Acquisition Sub”).

 

On August 4, 2017, we consummated a business acquisition (the “Alamo Acquisition”) pursuant to which Alamo Acquisition Sub acquired all of the outstanding member interests of Alamo CBD, LLC. (“Alamo CBD”), a Texas limited Liability Company. Upon closing of the Alamo Acquisition, the member interests (“Alamo Surviver Members”) of Alamo CBD were exchanged for 7,584,008 shares of Indoor Harvest’s common stock, the parent company of Alamo Acquisition Sub, and Alamo CBD continued as our surviving wholly-owned subsidiary, and Alamo Acquisition Sub ceased to exist.

 

In addition to the foregoing, following the closing of the Alamo Acquisition, and Alamo CBD being successfully awarded a provisional or full license to produce and dispense cannabis in the State of Texas, Indoor Harvest will issue to the individual Alamo Surviver Members, an additional Eight Million Five Hundred Thousand Dollars ($8,500,000) of newly-issued shares of common stock of Indoor Harvest, par value $0.001, based upon the three (3) day average closing price of the Company’s common stock, as quoted on the OTCQB, prior to the time of issuance.

 

Additionally, upon Alamo CBD successfully being registered and licensed by the DEA to produce and dispense cannabis under federal law, Indoor Harvest will issue to the individual Alamo Surviver Members, an additional Two Million Five Hundred Thousand Dollars ($2,500,000) cash payment, or newly-issued shares of common stock of Indoor Harvest, par value $0.001, based upon the three (3) day average closing price of the Company’s common stock, as quoted on the OTCQB, prior to the time of issuance, at the option of the individual Alamo Surviver Member. A combination of cash and common stock may be elected by Alamo Surviver Member individually.

 

Our Current Business

 

Indoor Harvest, through its brand name Indoor Harvest®, is a technology company focused on producing bio pharma grade cannabis for research and development and a provider of advanced cultivation methods and processes for the cannabis industry. We are seeking to use the proprietary technology we have developed to become a registered producer and seller under the federal Controlled Substances Act (“CSA”) of pharmaceutical grade cannabis for research and targeted treatment of specific medical symptoms by third parties.

 

We have developed a patent pending aeroponic process of growing cultivars in an air or mist environment without the use of soil or an aggregate growing medium. Aeroponic production differs from both conventional hydroponics and in-vitro (plant tissue culture) growing. Unlike hydroponics, which uses water as a growing medium and essential minerals to sustain plant growth, aeroponics is conducted without a growing medium. Because water is used in aeroponics to transmit nutrients, it is sometimes considered a type of hydroponics. Our aeroponic process and production methods provide an ability to test the phenotypic plasticity of cannabis and to test and develop specific phenotypic response. Phenotypic plasticity refers to the changes in cannabis morphology and physiology due to its adaption to a unique environment and its impact on phytochemical production.

 

4
 

 

We, through Alamo CBD, have applied to produce and dispense low-tetrahydrocannabinol cannabis under the Texas Compassionate Use Program. THC is a psychotropic cannabinoid and is the principal psychoactive constituent of cannabis. We have signed a binding LOI with Zoned Properties outlining three independent pending agreements to complete research and development projects for licensed medical cannabis facilities to be located in Tempe, Arizona, Parachute, Colorado and Stockdale, Texas or other location to be determined after approval of a provisional license under the Texas Compassionate Use Program (“TCUP”). The Company intends to generate revenue from production of cannabis under the TCUP, through related engineering, project management, equipment leasing and technology licensing from constructed facilities in Tempe, Arizona and Parachute, Colorado and through the development and licensing of related environmental and climate recipes.

 

Our operational expenditures are primarily related to further developing our technology, launching and completing test trials, developing research partnerships and collaborations related to perfecting precise expressions of personalized medicine and the costs related to being a fully reporting company with the SEC.

 

Current Operations

 

On July 10, 2017, we entered into a Cultivation Design Agreement with Bright Orchard Developments, Ltd. (“Bright Orchard”), for the design of an aeroponic cannabis production facility by a pending licensed producer in Canada. On July 25, 2018, we received formal cancelation of the agreement from Bright Orchard.

 

On October 11, 2017, we entered into a binding letter of intent (“LOI”) with Zoned Properties outlining three pending independent agreements to complete research and development projects for licensed medical cannabis facilities to be located in Tempe, Arizona, Parachute, Colorado and Stockdale, Texas or other location to be determined after approval of a provisional license under the TCUP. Zoned Properties is an OTCQX quoted company and strategic real estate development firm whose primary mission is to identify, develop, and lease sophisticated, safe, and sustainable properties in emerging industries, including the licensed medical cannabis industry.

 

Under the terms of the binding LOI, the two companies will work together to mutually agree upon terms, provisions and obligations of three simultaneous, independent agreements.

 

Tempe Arizona Research Cultivation Site – an agreement for the development and installation of a research cultivation site utilizing Indoor Harvest’s cultivation technology and equipment within at most 2,500 square feet of space at Zoned Properties’ Tempe Medical Marijuana Business Park.
   
Parachute Colorado Production Facility – an agreement for the development and operation of Zoned Properties’ Parachute Medical Marijuana Business Park and for Indoor Harvest to engage Zoned Properties as the exclusive Strategic Development Advisory.
   
Texas Compassionate Use Program Applicant – an agreement for Indoor Harvest to engage Zoned Properties as the exclusive Strategic Development Advisory for Indoor Harvest’s anticipated future development located in Stockdale, Texas or at another location to be determined.

 

Execution of any of the three individual agreements is subject to, among other things, satisfactory due diligence and the negotiation and execution of definitive agreements, each of which will contain customary representations, warranties, covenants and closing conditions. There is no assurance that any or all of the agreements will be executed nor consummated.

 

The binding LOI includes non-refundable payments totaling $50,000 by our company to Zoned Properties. The payments are consideration for entering into the binding LOI and represents a 20% deposit to be applied towards the assignment of the Parachute Development Rights which have been valued at $250,000 within the binding LOI.

 

5
 

 

On October 26, 2017, we entered into a LOI with Harvest Air, LLC (“Harvest Air”) and on November 1, 2017, entered into a LOI with Biological Innovations and Optimization Systems, LLC (“BIOS Lighting”). The two companies plan to collaborate with our company towards the development of a fully integrated platform designed to provide cannabis producers the ability to manage and record phenotypic plasticity in the cannabis plant. By combining our proven aeroponic methods, Harvest Air’s HVAC designs, and customized lighting solutions from BIOS Lighting, the three companies plan to demonstrate an ability to manipulate and control phenotypic expression in the cannabis plant for the purpose of research and production of pharmaceuticals.

 

In addition to collaborative research and development, the group plans to develop advanced automation strategies to control the growth of cultivars with high pressure aeroponics by integrating power generation, HVAC, LED lighting systems, phytometric devices, and near-infrared technologies, into a fully integrated facilities package. By using real time measurements of plant physiological processes and precision management of the production facility environment, the group intends to offer scalable solutions and production methods designed specifically for cannabis phytochemistry and precise phytochemical production.

 

Prototype development will take place in Tempe, Arizona, as part of our planned cannabis technology development described below. In exchange for Harvest Air and BIOS Lighting support and services, we have agreed to exclusively utilize any developed hardware or strategies provided by both companies in its future developments in Parachute, Colorado and Stockdale, Texas, or other location in Texas approved under the TCUP as described in more detail below.

 

Tempe Arizona Research Cultivation Site

 

Our company plans to install 20 HPA Tables at an existing licensed medical cannabis production facility at Zoned Properties’ Tempe Medical Marijuana Business Park. The purpose of this project is to conduct a demonstration of our company’s aeroponic technology while integrating LED and HVAC designs, provided by BIOS Lighting and Harvest Air, respectively. The resulting demonstration will be compared to traditional flood irrigation, HVAC and lighting methods. Our company plans to prepare a case study and white paper to showcase industry adoption value and to serve as a proof of concept for the construction of larger facilities in Parachute, Colorado and Stockdale, Texas, or other location in Texas approved under the TCUP.

 

Both Zoned Properties and our company agreed to work together in good faith to mutually agree upon the terms, provisions and obligations of an agreement for the development, installation, and research of our cultivation technology and equipment within at most 2,500 square feet of space at Zoned Properties’ Tempe Medical Marijuana Business Park located at 410 S. Madison Dr. Tempe, Arizona 85281. Our company expects to generate revenue from the Tempe, Arizona facility through future leasing and licensing agreements. The 20 HPA Table installation is expected to produce over 206 pounds of cannabis annually at under $150 per pound in cost of goods with an expected breakeven point of 430 pounds for the equipment. There is no assurance that any or all of the agreements will be executed nor consummated.

 

Parachute Colorado Production Facility

 

Our company has secured rights to develop Zoned Properties Parachute Medical Marijuana Business Park. Our company intends to construct a 25,000 square foot facility based on the technology developed and tested at the Tempe Arizona Research Cultivation Site and to generate revenue through the leasing of the facility and licensing of our company’s technology to either a medical or recreational licensee, which has yet to be determined. We would additionally conduct research and development towards creating specific environmental and climate recipes for the production of cannabis in order to produce and replicate a desired phenotypic response. Our company also expects to file an application with the DEA to register the facility under the CSA and to obtain rights to acquire the operating license from the licensee upon changes in Colorado law, which currently does not allow direct ownership by a publicly traded company.

 

Both Zoned Properties and our company agreed to work together in good faith to mutually agree upon the terms, provisions and obligations of an agreement for the assignment and/or sale of Zoned Properties’ Parachute Development Rights for the Parachute Marijuana Business Park located at Lot #7 N. Diamond Loop Rd, Parachute, Colorado 81635. The agreement would include: (a) the assignment and/or sale of the Parachute Development Rights from Zoned Properties to our company, and (b) the engagement by our company of Zoned Properties as the exclusive Strategic Development Advisor for the Parachute Property. Our company has paid a $25,000 deposit towards securing these rights. There is no assurance that any or all of the additional agreements will be executed or that our company will be successful in registering the facility with the DEA.

 

6
 

 

Texas Compassionate Use Program Applicant

 

We, through our wholly owned subsidiary Alamo CBD, have applied to produce and dispense low-THC cannabis under the TCUP. Our company plans to partner with Zoned Properties, Harvest Air and BIOS Lighting to develop a 50,000 square foot facility in Stockdale, Texas or other location to be determined after approval of a provisional license under the TCUP. Zoned Properties and our company agreed to work together in good faith to mutually agree upon the terms, provisions and obligations of an Agreement for our company to engage Zoned Properties as the exclusive Strategic Development Advisory for our company’s development in Texas under the TCUP. Our company also expects to file an application with the DEA to register the facility under the CSA. Our company expects to generate revenue through the production and sale of cannabis under the TCUP. There is no assurance that any or all of the agreements will be executed or that we will be successful in obtaining a license to produce cannabis in Texas or in registering the completed facility with the DEA.

 

As published in the Texas DPS Self-Evaluation Report, on page 543, question (D), dated September 29, 2017, the DPS originally interpreted the statute as requiring a market-based system by which the number and location of licensees are determined by market factors rather than by regulation – as not mandating or limiting the number of licensed distributors. It was originally understood that the applicants would be required to satisfy certain basic requirements prior to licensure, and the ability to maintain compliance with DPS guidelines will be evaluated through on-going audits and inspections.

 

In late 2016, the DPS modified its approach to restrict the number of licenses to three. This necessitated the development of a competitive review process, where three applicants were conditionally approved based on the review of the submitted application materials. Upon successful onsite inspection of their facilities, qualified applicants will be issued licenses. Because of this competitive review process, Alamo CBD placed 16th out of 43 applicants and its application is currently considered pending by the DPS. Our company and other pending applicants have questioned the last minute modification in approach by the DPS and the lack of transparency in the reviewing process.

 

Our company is a member of and is working with the Medical Cannabis Association of Texas and expects both lobbying and legislative efforts currently being undertaken to result in the program being expanded, additional permits being awarded, and new legislation being introduced in 2019 to allow for a separate permitting process to conduct cannabis research in line with the CSA. There is no guarantee that these efforts will result in our company obtaining a license or permit to produce cannabis in Texas or that legislation will be adopted allowing a separate licensing or permitting process for research purposes.

 

There can be no assurance that any of the foregoing plans can occur as planned or at all.

 

Results of Operations

 

The following summary of our operations should be read in conjunction with our unaudited financial statements for the three and six months ended June 30, 2018 and 2017.

 

Three months ended June 30, 2018 compared to three months ended June 30, 2017.

 

  

For the three months ended

June 30,

     
   2018   2017   $ Change 
Revenue  $-   $-   $- 
Cost of Sales   -    2,694    - 
Gross profit (loss)        (2,694)   - 
Operating expenses               
Depreciation and amortization expense   3,017    13,112    (10,095)
Research and development   -    887    (887)
Professional fees   41,664    276,361    (234,697)
General and administrative expenses   266,841    130,099    136,742 
Total operating expenses   311,522    420,459    (108,937)
Loss from operations   (311,522)   (423,153)   (111,631)
Other expense               
Other income (expense)   (4)   9      
Loss on investment in joint venture   -    (250,000)   250,000 
Interest expense   (30,516)   (6,546)   23,970 
Amortization of debt discount   (29,347)   (44,695)   (15,348)
Change in fair value of embedded derivative liability   (681,936)   -    - 
Total other income (expense)   (741,799)   (301,232)   380,704 
Net loss  $(1,053,321)  $(724,385)  $17,414 

 

7
 

 

We earned no revenues for the three months ended June 30, 2018 and June 30, 2017.

 

Total operating expenses for the three months ended June 30, 2018 and June 30, 2017 were $311,522 and $420,459 respectively, for an aggregate decrease of $108,937 or -26%. The decrease is primarily related to a reduction in professional fees.

 

Total other expense for the three months ended June 30, 2018 was $(741,799) and total other expense for the three months ended June 30, 2017 was $(301,232), for an increase in loss of $440,567 or 146%. The increase is primarily related to the embedded derivative liability related to the Tangiers convertible notes payable.

 

As a result of the factors discussed above, net loss for the three months ended June 30, 2018 and June 30, 2017 was $1,053,321 and $724,385, respectively, for an increase in net loss of $328,936 or 45%.

 

Six months ended June 30, 2018 compared to six months ended June 30, 2017.

 

  

For the six months ended

June 30,

     
   2018   2017   $ Change 
Revenue  $-   $-   $- 
Cost of Sales   -    14,429    - 
Gross profit (loss)        (14,429)   - 
Operating expenses               
Depreciation and amortization expense   6,055    26,254    (20,199)
Research and development   -    1,625    - 
Professional fees   113,039    366,908    (253,869)
General and administrative expenses   465,031    752,497    (287,466)
Total operating expenses   584,125    1,147,284    (563,159)
Loss from operations   (584,125)   (1,161,713)   (577,588)
Other expense               
Other income (expense)   -    11    - 
Loss on investment in joint venture   -    (250,000)   - 
Interest expense   (48,185)   (119,232)   (71,047)
Amortization of debt discount   (109,910)   (249,702)   (139,792)
Change in fair value of embedded derivative liability   (438,321)   -    - 
Total other income (expense)   (596,416)   (618,923)   (22,507)
Net loss  $(1,180,541)  $(1,780,636)  $(600,095)

 

We earned no revenues for the six months ended June 30, 2018 and June 30, 2017.

 

8
 

 

Total operating expenses for the six months ended June 30, 2018 and June 30, 2017 were $584,125 and $1,147,284 respectively, for an aggregate decrease of $563,159 or -49%. The decrease is primarily related to a decrease in general and administrative expenses and professional fees.

 

Total other expense for the six months ended June 30, 2018 was $596,416 and total other expense for the six months ended June 30, 2017 was $618,923, for an improvement of $22,507 or -4%. The improvement is primarily related to a positive change in the fair value of the embedded derivative liability related to the Tangiers convertible notes payable, a decrease in interest expenses related to the paydown of the FirstFire Notes and Chuck Rifici Notes and a decrease in amortization of debt discount.

 

As a result of the factors discussed above, net loss for the six months ended June 30, 2018 and June 30, 2017 was $1,180,541 and $1,780,636, respectively, for a decrease in net loss of $600,095 or -34%.

 

Liquidity and Capital Resources

 

The following table provides selected financial data about our company as of June 30, 2018 and December 31, 2017, respectively.

 

Working Capital

 

   As at
June 30, 2018
   As at
December 31, 2017
 
Total current assets  $110,661   $89,905 
Total current liabilities  $1,429,866   $1,119,821 
Working capital (deficit)  $(1,319,205)  $(1,029,916)

 

Cash Flows

 

   Six Months Ended 
   June 30, 2018   June 30, 2017 
Cash Flows used in Operating Activities  $(378,629)  $(988,218)
Cash Flows from Investing Activities   -    (550)
Cash Flows from Financing Activities   403,837    970,193 
Net Decrease in Cash During Period  $60,661   $59,644 

 

As at June 30, 2018 our company’s cash balance was $60,661 and total assets were $147,721. As at December 31, 2017, our company’s cash balance was $35,453 and total assets were $133,020.

 

As at June 30, 2018, our company had total liabilities of $1,437,778, compared with total liabilities of $1,132,644 as at December 31, 2017.

 

As at June 30, 2018, our company had working capital deficiency of $1,327,117 compared with working capital deficiency of $1,029,916 as at December 31, 2017. The increase in working capital deficiency was primarily attributed to an increase in convertible notes payable and accounts payable and accrued expenses.

 

Cash Flow from Operating Activities

 

Net cash used in operating activities for the six months ended June 30, 2018 and June 30, 2017 were $378,629 and $988,218, respectively, for a decrease of $609,589 or -62%. The improvement in net cash used in operating activities is primarily related to a reduction in general and administrative expenses and professional fees.

 

9
 

 

Cash Flow from Investing Activities

 

Net cash used in investing activities for the six months ended June 30, 2018 and June 30, 2017 were $0 and $550, respectively, for a decrease of $550 or 100%.

 

Cash Flow from Financing Activities

 

Net cash provided by financing activities for the six months ended June 30, 2018 and June 30, 2017 were $403,837 and $970,193, respectively, for a decrease of $566,356 or -58%. The decrease is primarily related to a reduction in operating expenses.

 

Cash Requirements: Potential Future Planned Operational Activities

 

During the next 12 months, we anticipate engaging in the additional planned operational activities set forth in the table below, although we may vary our plans depending upon operational conditions and available funding.

 

Category  Estimated Time  Estimated Cost 
Development Rights, Parachute, Colorado  Q1 2018- Q4 2018  $225,000 
Facility Construction, Tempe, Arizona  Q1 2018- Q4 2018  $775,000 

 

Existing Cash and Operational Cash Flow

 

During the next twelve months, we anticipate that we will incur a minimum of approximately $560,000 of general and administrative expenses and $1,000,000 in development expenses in order to execute our current business plans. We also plan to incur significant sales, marketing, research and development expenses during the next 12 months. We must obtain additional financing to continue our operations. We may not be able to obtain additional funding on terms that are favorable to us or at all. We may not be able to obtain sufficient funding to continue our operations, or if we do receive funding, to generate adequate revenues in the future or to operate profitably in the future. These conditions raise substantial doubt about our ability to continue as a going concern.

 

Meeting Cash Requirements

 

Based upon the assumption of our monthly current operational burn rate remaining unchanged during the fiscal year, exclusive of those costs in our additional planned operations for the next 12, months as set forth above, our company will need to raise additional funds to implement its business plans. There is no assurance we will obtain the anticipated funds from our sources of funding. If we don’t obtain additional funding, and we don’t take other measures such as cutting back operational activities, we may not have sufficient funds to continue operations for the next 12 months. During the first half of 2018, our company laid-off two employees.

 

The ability to fund our operational activities is contingent upon us obtaining additional financing. If we don’t obtain additional funding needed for current operational activities, we may not be able to finance our additional planned operations and continue growing our business.

 

We cannot guarantee we will be successful in our business operations, both current and potential future operations as described above.

 

We cannot guarantee that we will have sufficient financial resources to fund current operational activities and additional planned operational activities. Our business is subject to risks inherent in the establishment of a new business enterprise, including the financial risks associated with the limited capital resources currently available to us for the implementation of our business strategies. To become profitable and competitive, we must continue to execute our business plan as described above.

 

We have an accumulated deficit and have incurred operating losses since our inception and expect losses to continue during 2018. Our auditor has indicated in their Report that these conditions raise substantial doubt about our ability to continue as a going concern.

 

10
 

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

As a “smaller reporting company”, we are not required to provide the information required by this Item.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

An evaluation was conducted under the supervision and with the participation of our management of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2018. Based on that evaluation, our management concluded that our disclosure controls and procedures were not effective as of such date to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms as a result of the following material weaknesses:

 

The specific material weakness identified by our management was ineffective controls over certain aspects of the financial reporting process because of a lack of a sufficient complement of personnel with a level of accounting expertise and an adequate supervisory review structure that is commensurate with our financial reporting requirements and inadequate segregation of duties. A “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our company’s annual or interim financial statements would not be prevented or detected on a timely basis.

 

We expect to be materially dependent upon a third party to provide us with accounting consulting services for the foreseeable future. Currently our founder, Chad Sykes, is acting as Principal Accounting Officer and Principal Financial Officer. Until such time as we have a chief financial officer with the requisite expertise in U.S. GAAP, there are no assurances that the material weaknesses in our disclosure controls and procedures and internal control over financial reporting will not result in errors in our financial statements which could lead to a restatement of those financial statements.

 

Changes in Internal Controls

 

On June 27, 2018, the Board of Directors of the Company approved the termination of Annette Knebel from her position as Chief Financial Officer of the Company pursuant to the terms of Mr. Knebel’s employment agreement with the Company effective immediately and further on the same date, the Board of Directors of the Company approved the termination of Mr. Knebel from her position as a member of the Company’s Board of Directors consistent with the Company’s Amended and Restated Bylaws, effective immediately.

 

11
 

 

Effective July 3, 2018, Chad Sykes was appointed to act as the Company’s principal financial officer and principal accounting officer.

 

On June 27, 2018, the Company entered into an accounting services agreement (the “AS Agreement”) with PubCo Reporting Solutions, Inc. (“PubCo”). Pursuant to the AS Agreement, the Company engaged PubCo to provide accounting services including the preparation of the Company’s financial statements and assistance with the preparation of the Company’s filings with the Securities and Exchange Commission.

 

Other than the foregoing, there have been no changes in our internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of Securities Exchange Act Rule 13a-15 or Rule 15d-15 that occurred in the quarter ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

From time to time we may become involved in various legal proceedings that arise in the ordinary course of business, including actions related to our intellectual property. Although the outcomes of these legal proceedings cannot be predicted with certainty, other than as previously disclosed, we are currently not aware of any such legal proceedings or claims that we believe, either individually or in the aggregate, will have a material adverse effect on our business, financial condition or results of operations.

 

Item 1A. Risk Factors.

 

As a “smaller reporting company”, we are not required to provide the information required by this Item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

On April 13, 2018, the Company issued 769,231 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $50,000 of Note 1 at a conversion price of $0.065 per share. The issuance of the above securities was exempt from the registration requirements of the Securities Act in reliance upon Section 4(a)(2) of the Securities Act.

 

On April 17, 2018, the Company issued 300,000 shares of common stock related to an Employment Agreement with Daniel Weadock, Chief Executive Officer. The Company recorded a fair value of $51,000 ($0.17 per share) based upon the most current trading price of the Company’s stock. The securities were issued pursuant to exemptions from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and Rule 506 of Regulation D promulgated thereunder.

 

On May 20, 2018, the Company issued 99,012 shares of common stock related to an Employment Agreement with Daniel Weadock, Chief Executive Officer. The Company recorded a fair value of $16,832 ($0.17 per share) based upon the most current trading price of the Company’s stock. The securities were issued pursuant to exemptions from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and Rule 506 of Regulation D promulgated thereunder.

 

On May 23, 2018, the Company issued 30,000 shares of common stock related to an Director Agreement with Daniel Weadock, Chief Executive Officer. The Company recorded a fair value of $5,100 ($0.17 per share) based upon the most current trading price of the Company’s stock. The securities were issued pursuant to exemptions from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and Rule 506 of Regulation D promulgated thereunder.

 

12
 

 

On June 21, 2018, the Company issued 295,858 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $25,000 of Note 1 at a conversion price of $0.0845 per share. The issuance of the above securities was exempt from the registration requirements of the Securities Act in reliance upon Section 4(a)(2) of the Securities Act.

 

On June 6, 2018, the Company issued 30,000 shares of its common stock to members of the Company’s Advisory Board. The Company recorded a fair value of $2,550 ($0.085 per share) based upon the most recent trading price of the Company’s stock. The securities were issued pursuant to exemptions from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and Rule 506 of Regulation D promulgated thereunder.

 

On June 27, 2018, the Company issued 424,500 shares of common stock related to an advisory agreement with Electrum Partners, LLC. The Company recorded a fair value of $50,940 ($0.12 per share) based upon the most current trading price of the Company’s stock. The securities were issued pursuant to exemptions from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and Rule 506 of Regulation D promulgated thereunder.

 

On July 2, 2018, the Company issued 244,755 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $17,500 of Note 1 at a conversion price of $.07. The issuance of the above securities was exempt from the registration requirements of the Securities Act in reliance upon Section 4(a)(2) of the Securities Act.

 

On July 12, 2018, the Company issued 269,231 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $17,500 of Note 1 at a conversion price of $.07. The issuance of the above securities was exempt from the registration requirements of the Securities Act in reliance upon Section 4(a)(2) of the Securities Act.

 

On August 1, 2018, the Company issued 50,000 shares of its common stock to Electrum Partners pursuant to an advisory agreement. The Company recorded fair value of $4,500 ($0.09 per share) based upon the most recent trading price per share of the Company’s stock. The securities were issued pursuant to exemptions from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and Rule 506 of Regulation D promulgated thereunder.

 

On August 2, 2018, the Company issued 1,307,846 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $42,590 of Note 1 at a conversion price of $.033. The issuance of the above securities was exempt from the registration requirements of the Securities Act in reliance upon Section 4(a)(2) of the Securities Act.

 

On August 13, 2018, the Company issued 460,617 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $15,000 of Note 1 at a conversion price of $.033. The issuance of the above securities was exempt from the registration requirements of the Securities Act in reliance upon Section 4(a)(2) of the Securities Act.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not Applicable.

 

Item 5. Other Information.

 

(a) Not applicable.

 

(b) During the quarter ended June 30, 2018, there have not been any material changes to the procedures by which security holders may recommend nominees to the Board of Directors.

 

13
 

 

Item 6. Exhibits.

 

Exhibit

No.

  Document Description
     
10.1   Amendment dated April 17, 2018 to the Convertible Promissory Note issued to Tangiers on January 16, 2018. (Incorporated by reference to exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on April 20, 2018).
     
10.2   Form of Advisory Agreement with Electrum Partners, LLC dated June 27, 2018. (Incorporated by reference to exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on July 3, 2018).
     
10.3   Form of Agreement with PubCo Reporting Solutions, Inc. dated June 27, 2018. (Incorporated by reference to exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on July 3, 2018).
     
10.4   Amendment #3 to January 16, 2018 $550,000 Promissory Note issued to Tangiers Global, LLC dated June 13, 2018. (Incorporated by reference to exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on June 15, 2018).
     
31.1   Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2   Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1   Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2   Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS   XBRL Instance Document.
     
101.SCH   XBRL Taxonomy Extension Schema Document.
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document.
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document.
     
101.LAB   XBRL Taxonomy Extension Labels Linkbase Document.
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document.

 

14
 

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    INDOOR HARVEST CORP
    (Registrant)
     

Dated: August 20, 2018

  /s/ Daniel Weadock
    Daniel Weadock
    Chief Executive Officer and Director
    (Principal Executive Officer)
     

Dated: August 20, 2018

  /s/ Chad Sykes
    Chad Sykes
    Principal financial officer and principal accounting officer
    (Principal Financial Officer and Principal Accounting Officer)

 

15