UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended

September 30, 2020

 

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.)

 

7401 W. Slaughter Lane #5078 Austin, Texas		78739
(Address of principal executive offices)		(Zip Code)

 

512-309-1776

(Registrant’s telephone number, including area code)

 

N/A

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

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered

 

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.

 

☒ YES ☐ NO

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ 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	☒
			Emerging growth company	☒

 

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 ☒ NO

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 2,061,257,203 common shares issued and outstanding as of September 30, 2020.

 

 

  

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION		F-1
Item 1.	Financial Statements	F-1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	4
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6
Item 4.	Controls and Procedures	6
PART II - OTHER INFORMATION		7
Item 1.	Legal Proceedings	7
Item 1A.	Risk Factors	7
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7
Item 3.	Defaults Upon Senior Securities	7
Item 4.	Mine Safety Disclosures	7
Item 5.	Other Information	7
Item 6.	Exhibits	7
SIGNATURES		8

 

 

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.

 

  

PART I - FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

INDOOR HARVEST CORP

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

		September 30,				December 31,
		2020				2019
ASSETS
Current Assets:
Cash		$	1,258			$	12,353
Prepaid expenses and other receivable			3,010				5,331
Total Current Assets			4,268				17,684
Furniture and equipment, net			-				4,615
Intangible asset, net			-				2,690
TOTAL ASSETS		$	4,268			$	24,989
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Accounts payable and accrued liabilities		$	526,447			$	399,710
Due to related party			-				100
Convertible notes payable, net of debt discount of $29,229 and $53,012, respectively			118,306				897,828
Derivative liabilities			23,237,742				3,029,748
Note payable			934				3,694
Total Current Liabilities			23,883,429				4,331,080
Total Liabilities			23,883,429				4,331,080
Stockholders’ Deficit
Preferred stock: 15,000,000 authorized; $0.01 par value;
Series A Convertible Preferred stock: 15,000,000 designated, 750,000 shares issued and outstanding			7,500				7,500
Common stock: 10,000,000,000 authorized; $0.001 par value;
2,061,257,203 and 201,037,304 shares issued and outstanding, respectively			2,061,257				201,038
Additional paid in capital			13,477,139				10,377,256
Accumulated deficit			(39,425,057	)			(14,891,885	)
Total Stockholders’ Deficit			(23,879,161	)			(4,306,091	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT		$	4,268			$	24,989

 

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

 

  

INDOOR HARVEST CORP

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2020				2019				2020				2019
Revenue		$	-			$	-			$	-			$	-
Operating Expenses
Professional fees			19,987				60,715				181,649				221,214
General and administrative			69				57,541				10,289				293,214
Total Operating Expenses			20,056				118,256				191,938				514,428
Loss from operations			(20,056	)			(118,256	)			(191,938	)			(514,428	)
Other Income (Expense)
Interest expense			(370,342	)			(73,947	)			(492,162	)			(162,382	)
Change in fair value of derivative liability			25,835,130				(301,458	)			(23,849,072	)			(501,886	)
Total other income (loss)			25,464,788				(375,405	)			(24,341,234	)			(664,268	)
Income (loss) before income taxes			25,444,732				(493,661	)			(24,533,172	)			(1,178,696	)
Provision for income taxes			-				-				-				-
Net income (loss)		$	25,444,732			$	(493,661	)		$	(24,533,172	)		$	(1,178,696	)
Basic and diluted income (loss) per common share
Basic		$	0.03			$	(0.01	)		$	(0.05	)		$	(0.03	)
Diluted		$	(0.00	)		$	(0.01	)		$	(0.05	)		$	(0.03	)
Weighted average number of common shares outstanding
Basic			818,037,754				52,651,594				513,135,724				44,666,277
Diluted			13,757,956,821				52,651,594				513,135,724				44,666,277

 

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

 

  

INDOOR HARVEST CORP

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(UNAUDITED)

 

For the Nine Months Ended September 30, 2020

 

		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, 2019			750,000			$	7,500				201,037,304			$	201,038			$	10,377,256			$	(14,891,885	)		$	(4,306,091	)
Common stock issued for services - third party			-				-				2,021,006				2,021				70,899				-				72,920
Convertible debt converted into common stock			-				-				70,264,956				70,265				(49,088	)			-				21,177
Derivative liability			-				-				-				-				38,999				-				38,999
Net loss			-				-				-				-				-				(1,733,953	)			(1,733,953	)
Balance - March 31, 2020			750,000				7,500				273,323,266				273,324				10,438,066				(16,625,838	)			(5,906,948	)
Convertible debt converted into common stock			-				-				1,270,440,600				1,270,440				(876,533	)			-				393,907
Derivative liability			-				-				-				-				2,097,395				-				2,097,395
Net loss			-				-				-				-				-				(48,243,951	)			(48,243,951	)
Balance - June 30, 2020			750,000				7,500				1,543,763,866				1,543,764				11,658,928				(64,869,789	)			(51,659,597	)
Convertible debt converted into common stock			-				-				517,493,337				517,493				225,526				-				743,019
Derivative liability			-				-				-				-				1,592,585				-				1,592,585
Write off of due to related party			-				-				-				-				100				-				100
Net income			-				-				-				-				-				25,444,732				25,444,732
Balance - September 30, 2020			750,000			$	7,500				2,061,257,203			$	2,061,257			$	13,477,139			$	(39,425,057	)		$	(23,879,161	)

 

For the Nine Months Ended September 30, 2019  

 

		Series A Convertible Preferred Stock								Common Stock								Additional								Total
		Number of Shares				Amount				Number of Shares				Amount				Paid in Capital				Accumulated Deficit				Stockholders’ Deficit
Balance - December 31, 2018			750,000			$	7,500				34,888,415			$	34,888			$	9,299,988			$	(11,795,064	)		$	(2,452,688	)
Common stock issued for services - third party			-				-				790,249				791				32,827				-				33,618
Common stock issued for services - related party			-				-				129,012				129				6,050				-				6,179
Convertible debt converted into common stock			-				-				2,898,278				2,898				63,629				-				66,527
Derivative liability			-				-				-				-				143,937				-				143,937
Net loss			-				-				-				-				-				(514,842	)			(514,842	)
Balance - March 31, 2019			750,000				7,500				38,705,954				38,706				9,546,431				(12,309,906	)			(2,717,269	)
Common stock issued for services - third party			-				-				1,455,069				1,455				29,793				-				31,248
Common stock issued for services - related party			-				-				130,000				130				4,379				-				4,509
Convertible debt converted into common stock			-				-				6,970,743				6,971				106,844				-				113,815
Derivative liability			-				-				-				-				204,886				-				204,886
Net loss			-				-				-				-				-				(170,193	)			(170,193	)
Balance - June 30, 2019			750,000				7,500				47,261,766				47,262				9,892,333				(12,480,099	)			(2,533,004	)
Common stock issued for services - related party			-				-				30,000				30				330				-				360
Convertible debt converted into common stock			-				-				18,398,994				18,399				88,501				-				106,900
Derivative liability			-				-				-				-				138,651				-				138,651
Net loss			-				-				-				-				-				(493,661	)			(493,661	)
Balance - September 30, 2019			750,000			$	7,500				65,690,760			$	65,691			$	10,119,815			$	(12,973,760	)		$	(2,780,754	)

  

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

 

 

INDOOR HARVEST CORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		Nine Months Ended
		September 30,
		2020				2019
Cash Flows from Operating Activities:
Net loss		$	(24,533,172	)		$	(1,178,696	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense			7,305				8,647
Amortization of debt discount			111,685				130,871
Expenses paid by related party			-				18,108
Change in fair value of embedded derivative liability			23,849,072				501,886
Stock issued for services - third party			72,920				100,466
Stock issued for services - related party			-				11,048
Changes in operating assets and liabilities:
Prepaid expenses and other receivable			2,321				9,370
Security deposit			-				12,600
Accounts payable and accrued expenses			471,534				94,117
Deferred rent			-				(1,826	)
Accrued compensation - officers			-				(3,722	)
Net Cash used in Operating Activities			(18,335	)			(297,131	)
Cash Flows from Financing Activities:
Repayments of note payable			(2,760	)			(5,456	)
Proceeds from convertible notes, less OID costs paid			10,000				162,000
Proceeds from related party			-				7,100
Net Cash provided by Financing Activities			7,240				163,644
Net change in cash			(11,095	)			(133,487	)
Cash, beginning of period			12,353				155,682
Cash, end of period		$	1,258			$	22,195
Supplemental Cash Flow Information
Cash paid for interest		$	-			$	779
Cash paid for taxes		$	-			$	-
Non-Cash Investing and Financing Activities:
Derivative liability recognized as debt discount		$	87,901			$	162,000
Conversion of convertible note into common shares		$	1,158,103			$	251,642
Derivative liability reclassified to paid-in capital		$	3,728,979			$	487,474
Write off due to related party		$	100			$	-

 

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

 

 

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 was located at 7401 W. Slaughter Lane #5078, Austin, Texas 78739. 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 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. Pursuant to ASC 805 “Business Combinations,” the Company determined the Alamo Acquisition was an asset purchase.

 

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.

 

On August 14, 2019, the Company established a wholly owned subsidiary, IHC Consulting, Inc. (“IHC”), in the State of New York of the United States of America. IHC Consulting will provide consulting and other services to the Company and others on a contracted basis.

 

The current strategy is to position the Company as an integrated consolidation platform offering for cannabis industry companies focused on hemp, other hemp-related products, CBD, with the potential to be part of a bigger opportunity while sharing intellectual capital, technology, expanded business networks, along with access to new capital markets and liquidity for investors.

 

The Company’s operational expenditures will be focused on plans to create shareholder value through an M&A and strategic partnership strategy, while managing the necessary costs related to being a fully reporting company with the SEC.

 

Effective May 11, 2020, the Company mutually and amicably completed a change of officers, as to the principal accounting officer and principal executive officer, the person serving in the capacity of interim CEO and interim CFO. Mr. Cook, serving as both up to such time, departed, and no longer serves in any officer or Director capacity. The Board of Directors appointed Leslie Bocskor to act as a principal executive officer serving in the capacity of CEO with non-material arrangements to apply moving forward, including compensation of $2,500 monthly, potential stock, and other considerations, indemnifications, and reimbursement of expenses.

 

On August 4, 2021, the Company formalized its employment and compensation arrangement with Mr. Leslie Bocskor. Mr. Bocskor was initially engaged as CEO on May 11, 2020, at a monthly rate of $2,500 pending the establishment of a comprehensive employment and compensation agreement. To date, Mr. Bocskor has not received any consideration for his efforts, and over this time continued to bring necessary resources to the company in the form of executive and administrative support, and more as needed. These resources included several critical functions provided by individuals and entities who worked to support the CEO and the Company over the prior year to stabilize and sustain the Company and lay the foundation for future success.

 

The Board has recognized the substantive efforts of Messrs. Leslie Bocskor, Benjamin Rote, and Dennis Forchic to sustain and support the Company over the past year without compensation while laying the foundation for the future. The Board has voted to formalize employment agreements with Messrs. Bocskor and Rote, and an advisory agreement with Mr. Forchic. Stock option agreements reflecting past contributions and incentives for the future have been issued to all three parties. Stock options plans were offered with an exercise price of $0.01 and consideration of 150 million options to Mr. Bocskor, 100 million options to Mr. Rote, and 150 million options to Mr. Forchic vesting immediately. On the one-year anniversary of their respective agreements, additional stock options priced at $0.015 will vest with consideration of 150 million options to Mr. Bocskor, 100 million options to Mr. Rote, and 150 million options to Mr. Forchic.

 

Lastly, the Board, consisting of Directors Rick Gutshall and Lang Coleman, having not received any consideration over the past 2 years, will receive stock options of 5 million options each at a price of $0.01. The company’s legal counsel will be receiving 10 million options, under the same terms as the Board, in recognition of their valuable work and support.

 

COVID-19

 

A novel strain of coronavirus (COVID-19) was first identified in December 2019, and subsequently declared a global pandemic by the World Health Organization on March 11, 2020. As a result of the outbreak, many companies have experienced disruptions in their operations and in markets served. The Company has instituted some and may take additional temporary precautionary measures intended to help ensure the well-being of its managers and minimize business disruption. The Company considered the impact of COVID-19 on the assumptions and estimates used and determined that there were no material adverse impacts on the Company’s results of operations and financial position at September30, 2020. The full extent of the future impacts of COVID-19 on the Company’s operations is uncertain. A prolonged outbreak could have a material adverse impact on financial results and business operations of the Company, including the timing and ability of the Company to develop its business plan.

 

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.

 

 

Reclassification

 

Certain amounts from prior periods have been reclassified to conform to the current period presentation.

 

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 the Company and its wholly-owned subsidiary. All significant inter-company accounts and transactions have been eliminated in consolidation.

 

Loss per Share

 

Basic earnings (loss) per share amounts are calculated based on the weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) 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.

 

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 September 30, 2020 and December 31, 2019, the Company did not have any derivative instruments that were designated as hedges.

 

 

Fair Value of Financial Instruments

 

As defined in ASC 820” Fair Value Measurements,” fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).

 

The following table summarizes fair value measurements by level at September 30, 2020 and December 31, 2019, measured at fair value on a recurring basis:

 

September 30, 2020		Level 1				Level 2				Level 3				Total
Assets
None		$	-			$	-			$	-			$	-
Liabilities
Derivative liabilities		$	-			$	-			$	23,237,742			$	23,237,742

 

December 31, 2019		Level 1				Level 2				Level 3				Total
Assets
None		$	-			$	-			$	-			$	-
Liabilities
Derivative liabilities		$	-			$	-			$	3,029,748			$	3,029,748

 

Recently Issued Accounting Pronouncements

 

In August 2020, the FASB issued ASU 2020-06, ASC Subtopic 470-20 “Debt—Debt with “Conversion and Other Options” and ASC subtopic 815-40 “Hedging—Contracts in Entity’s Own Equity”. The standard reduced the number of accounting models for convertible debt instruments and convertible preferred stock. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting; and, (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently assessing the impact of the adoption of this standard on its consolidated financial statements.

 

NOTE 2 - GOING CONCERN

 

The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. The Company had minimal cash as of September 30, 2020, incurred losses from its operations and did not generate cash from its operation for past two years and the nine months ended September 30, 2020. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

The Company’s continued existence is dependent upon management’s ability to develop profitable operations, continued contributions from the Company’s executive officers to finance its operations and the ability to obtain additional funding sources to explore potential strategic relationships and to provide capital and other resources for the further development and marketing of the Company’s products and business.

 

 

NOTE 3 – ACCOUNTS PAYABLE AND ACCRUED LIABILITEIS

 

Accounts payable and accrued liabilities at September 30, 2020 and December 31, 2019 are as follows:

 

		September 30,				December 31,
		2020				2019
Accounts payable		$	227,385			$	130,584
Credit card			16,570				16,595
Accrued expenses			15,714				15,714
Accrued management fee			3,605				9,000
Accrued interest			263,173				227,817
		$	526,447			$	399,710

 

NOTE 4 - CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable at September 30, 2020 and December 31, 2019 are as follows:

 

		September 30,				December 31,
		2020				2019
Note 2		$	50,000			$	50,000
Note 3			-				226,956
Note 4			24,335				522,884
Note 5			-				65,000
Note 6			25,200				48,000
Note 7			38,000				38,000
Note 8 - related party			10,000				-
Total convertible notes payable			147,535				950,840
Less: Unamortized debt discount			(29,229	)			(53,012	)
Total convertible notes			118,306				897,828
Less: current portion of convertible notes			118,306				897,828
Long-term convertible notes		$	-			$	-

 

During the nine months ended September 30, 2020 and 2019, the Company recorded interest expense of $492,162 and $162,382, and amortization of discount of $116,685 and $130,871, respectively. As of September 30, 2020 and December 31, 2019, the Company had accrued interest of $263,173 and $227,817, respectively.

 

Conversion

 

During the nine months ended September 30, 2020, the Company converted notes with principal amounts and accrued interest of $1,158,103 into 1,858,198,893 shares of common stock. The corresponding derivative liability at the date of conversion of $3,728,979 was settled through additional paid in capital.

 

Note 2

 

On October 12, 2017, 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%.

 

 

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, June 13, 2018, and July 27, 2018, the Company executed Amendments #1, #2, #3, and #4 to the Tangiers Note 3 for draws of $132,000, $132,000, $101,750 and $101,750, respectively. All other terms and conditions of the Tangiers Note 3 remain effective.

 

Note 4

 

On September 14, 2018, the Company issued and sold an 8% Fixed Convertible Promissory Note (“Note 4”) to Tangiers (the “Buyer”), in the aggregate principal amount of up to $550,000, which includes a 10% original issue discount. Note 4 is convertible into shares of the Company’s common stock at a conversion price of $0.08 per share. However, if Note 4 is not paid back on or before the maturity date, defined in Note 4 as a “Maturity Default”, the conversion price of Note 4 shall then be adjusted to be equal to the lower of: (i) $0.08 or (ii) 65% of the lowest trading price of the Company’s common stock during the 15 consecutive trading days prior to the date on which Buyer elects to convert all or part of the Note 4.

 

On December 14, 2018, April 2, 2019 and June 7, 2019, the Company executed Amendments #1, #2 and #3 to the Tangiers Note 4 for draws of $171,050, $110,000 and $71,834, respectively. All other terms and conditions of the Tangiers Note 4 remain effective.

 

Note 5

 

On September 23, 2019, the Company issued and sold an 10% Fixed Convertible Promissory Note (“Note 5”) to Power Up Lending Group Ltd. (“Power Up”), in the principal amount of $65,000, which includes a $3,000 original issue discount. Note 5 is convertible into shares of the Company’s common stock one hundred eighty (180) days from September 23, 2019. Note 5 is convertible at a conversion price of 61% of the average of the two (2) lowest trading prices of the Company’s common stock during the twenty (20) consecutive trading days prior to the date of on which Power Up elects to convert all or part of the Note 5.

 

Note 6

 

On October 22, 2019, the Company issued and sold an 10% Fixed Convertible Promissory Note (“Note 6”) to Power Up Lending Group Ltd. (“Power Up”), in the principal amount of $48,000, which includes a $3,000 original issue discount. Note 6 is convertible into shares of the Company’s common stock one hundred eighty (180) days from October 22, 2019. Note 6 is convertible at a conversion price of 61% of the average of the two (2) lowest trading prices of the Company’s common stock during the twenty (20) consecutive trading days prior to the date of on which Power Up elects to convert all or part of the Note 6.

 

Note 7

 

On December 19, 2019, the Company issued and sold an 10% Fixed Convertible Promissory Note (“Note 7”) to Power Up Lending Group Ltd. (“Power Up”), in the principal amount of $38,000, which includes a $3,000 original issue discount. Note 7 is convertible into shares of the Company’s common stock one hundred eighty (180) days from December 22, 2019. Note 7 is convertible at a conversion price of 61% of the average of the two (2) lowest trading prices of the Company’s common stock during the twenty (20) consecutive trading days prior to the date of on which Power Up elects to convert all or part of the Note 7.

 

Note 8 – related party

 

On September 28, 2020, the Company issued and sold an 10% Fixed Convertible Promissory Note (“Note 8”) to a related party, in the principal amount of $10,000. Note 8 is convertible into shares of the Company’s common stock ninety (90) days from September 28, 2020. Note 8 is convertible at the lower conversion price of $0.002 or 65% of the lowest trading prices of the Company’s common stock during the fifteen (15) consecutive trading days prior to the date of on which a noteholder elects to convert all or part of the Note 8. As of September 30, 2020, the proceeds had yet to be received in the entirety from Electrum Partners, LLC; accordingly, the Company recorded the balance as an other receivable due from Electrum Partners.

 

  

NOTE 5 - 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.

 

At September 30, 2020, the estimated fair values of the liabilities measured on a recurring basis are as follows:

 

			Nine months ended
			September 30, 2020
Expected term			0.06 - 0.50
Expected average volatility			146% - 389	%
Expected dividend yield			-
Risk-free interest rate			0.07% - 0.27	%

 

The following schedule shows the change in fair value of the derivative liabilities at September 30, 2020:

 

Fair Value Measurements Using Significant Observable Inputs (Level 3)
Balance - December 31, 2019		$	3,029,748
Addition of new derivatives recognized as debt discounts			87,901
Addition of new derivatives recognized as loss on derivatives			700,508
Settled on issuance of common stock			(3,728,979	)
Loss on change in fair value of the derivative			23,148,564
Balance - September 30, 2020		$	23,237,742

 

The aggregate loss on derivatives during the nine months ended September 30, 2020 and 2019 was $23,849,072 and $501,886, respectively.

 

If the Company shall at any time after the date of issuance of the Series A Convertible Preferred Stock issue any additional shares of common stock except exempted securities, without cash consideration or for a cash consideration per share less than the Series A Conversion Price in effect immediately prior to such issue, then the Series A Conversion Price shall be adjusted by being reduced, concurrently with such issue, to a price equal to the sale price of the additional shares of common stock. If the Company issues securities convertible into shares of common stock rather than common stock, the adjustment shall be based upon the conversion price of the convertible securities so issued. The conversion price of the Series A Convertible Preferred Stock as of December 31, 2020 is $0.00006. If the Series A Convertible Preferred Stock is fully converted, the common stock shares will be 12,500,000,000. The market price on September 30. 2020, which is $0.0039 was used in lieu of pricing model because the contract did not have an end date.

 

NOTE 6 – RELATED PARTY TRANSACTIONS

 

During the nine months ended September 30, 2020, the Company wrote off $100 due to related party and recognized it as additional paid-in-capital.

 

NOTE 7 - SHAREHOLDERS’ EQUITY

 

On May 11, 2020, the Company completed an increase in the authorized shares of the Company’s stock to a total number of 10,015,000,000, allocated as follows among these classes and series of stock:

 

	●	Common Stock Class, par value $0.001 per share - 10,000,000,000 shares authorized.
	●	Preferred Stock Class, Series A, par value $0.01 per share - 15,000,000 shares authorized.

 

Convertible Series A Preferred Stock

 

As at September 30, 2020 and December 31, 2019, there were 750,000 and 750,000 shares of Series A Convertible Preferred Stock issued and outstanding.

 

Common Stock

 

During the nine months ended September 30, 2020, the Company issued 1,860,219,899 shares of common stock as follows:

 

	●	2,021,006 shares to consultant valued at $72,920 for consulting services
	●	1,858,198,893 shares for conversion of debt of $1,158,103

 

Common Stock Warrants and option

 

As of September 30, 2020, no warrants or options were outstanding.

 

NOTE 8 - NET INCOME (LOSS) PER COMMON SHARE

 

Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the periods. Diluted net income per common share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the periods. Common equivalent shares consist of convertible preferred stock and convertible notes that are computed using the if-converted method, and outstanding warrants that are computed using the treasury stock method. Antidilutive stock awards consist of stock options that would have been antidilutive in the application of the treasury stock method.

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2020				2019				2020				2019
Numerator:
Net income (loss)		$	25,444,732			$	(493,661	)		$	(24,533,172	)		$	(1,178,696	)
Gain on change in fair value of derivatives			(25,835,130	)			-				-				-
Interest on convertible debt			329,453				-				-				-
Net loss - diluted		$	(60,945	)		$	(493,661	)		$	(24,533,172	)		$	(1,178,696	)
Denominator:
Weighted average common shares outstanding			818,037,754				52,651,594				513,135,724				44,666,277
Effect of dilutive shares			12,939,919,067				-				-				-
Diluted			13,757,956,821				52,651,594				513,135,724				44,666,277
Net income (loss) per common share:
Basic		$	0.03			$	(0.01	)		$	(0.05	)		$	(0.03	)
Diluted		$	(0.00	)		$	(0.01	)		$	(0.05	)		$	(0.03	)

 

For the nine months ended September 30, 2020 and the three and six months ended September 30, 2019, the convertible instruments are anti-dilutive and therefore, have been excluded from earnings (loss) per share.

 

NOTE 9 - SUBSEQUENT EVENTS

 

About March 2021, a third party advanced $25,000 to assist the Company in operating expenses and the Company is in the process of confirming arrangements for the repayment of said amount; it is anticipated it will be a promissory note due from the Company in cash or stock.

 

The Registrant had a dispute with Power Up Lending Group, Ltd., the holder of certain promissory notes dated October 22, 2019, and December 19, 2019, issued by the Registrant, including allegations or claims of default and suit, and related. As part of the company recovery efforts after COVID-19, with amicable cooperation from “Power Up”, in third quarter of 2021 the Registrant reached a full payoff resolution for $80,000 to successfully settle all issues.

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

 

Results of Operations

 

The following tables presents our operating results for the three and nine months ended September 30, 2020 compared to September 30, 2019:

 

Three months ended September 30, 2020 compared to three months ended September 30, 2019

 

		Three Months Ended
		September 30,
		2020				2019				Change				%
Revenue		$	-			$	-			$	-				-
Operating expenses
Depreciation and amortization expense			-				-
Professional fees			19,987				60,715				(40,728	)			(67	)%
General and administrative expenses			69				57,541				(57,472	)			(99	)%
Total operating expenses			20,056				118,256				(98,200	)			(83	)%
Loss from operations			(20,056	)			(118,256	)			(98,200	)			(83	)%
Other expense
Other income (expense)							-				-
Interest income (expense)			(370,342	)			(73,947	)			296,395				401	%
Amortization of debt discount			-
Change in fair value of embedded derivative liability			25,835,130				(301,458	)			25,533,672				8,470	%
Total other income (expense)			25,464,788				(375,405	)			25,089,383				6,683	%
Net loss		$	25,444,732			$	(493,661	)		$	24,951,071				5,054	%

 

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019

 

		Nine Months Ended
		September 30,
		2020				2019				Change				%
Revenue		$	-			$	-			$	-				-
Operating expenses
Depreciation and amortization expense
Professional fees			181,649				221,214				(39,565	)			(18	)%
General and administrative expenses			10,289				293,214				(282,925	)			(96	)%
Total operating expenses			191,938				514,428				(322,490	)			(63	)%
Loss from operations			(191,938	)			(514,428	)			(322,490	)			(63	)%
Other expense
Interest expense			(492,162	)			(162,382	)			329,780				203	%
Amortization of debt discount
Change in fair value of embedded derivative liability			(23,849,072	)			(501,886	)			23,347,186				4,652	)%
Total other income (expense)			(24,341,234	)			(664,268	)			23,676,966				3,564	)%
Net loss		$	(24,533,172	)		$	(1,178,696	)		$	23,354,476				1,981	)%

 

Revenues

 

During the nine months ended September 30, 2020 and 2019, the Company generated no revenue.

 

Operating Expenses

 

Total operating expenses for the nine months ended September 30, 2020 and 2019 were $191,938 and $514,448, respectively, for an aggregate decrease of $322,490 or 63%. The aggregate decrease primarily driven by a decrease in general and administrative expenses of $282,925 or 96% associated with lower corporate activity negatively influenced by Covid-19.

 

Other Income (Expense)

 

Total other income (expense) for the nine months ended September 30, 2020 and 2019 were ($24,341,234) and ($664,268), respectively. The increase in other expense is primarily related to the change in the fair value of the embedded derivative liability from ($501,886) to ($23,849,072).

 

 

Net Loss

 

As a result of the factors discussed above, net loss for the nine months ended September 30, 2020 and 2019 was $24,533,172 and $1,178,696, respectively, for an increase of $23,354,476 or 1,981%.

 

Liquidity and Capital Resources

 

The following table provides selected financial data about our Company as of September 30, 2020 and December 31, 2019, respectively.

 

Working Capital

 

		September 30, 2020				December 31, 2019				Change				%
Current assets		$	4,268			$	17,684			$	(13,416	)			(76	)%
Current liabilities		$	23,883,429			$	4,331,080			$	19,552,349				451	%
Working capital deficiency		$	(23,879,161	)		$	(4,313,396	)		$	19,547,765	)			451	%

 

Cash Flows

 

		Nine Months Ended
		September 30, 2020
		2020				2019				Change				%
Cash used in operating activities		$	(18,335	)		$	(297,131	)		$	(278,796	)			(94	)%
Cash provided by financing activities		$	7240			$	163,644			$	(156,404	)			(96	)%
Net Change in Cash During Period		$	(11,095	)		$	(133,487	)		$	(122,392	)			(92	)%

 

As of September 30, 2020, our Company’s cash balance was $1,258 and total assets were $4,268. As of December 31, 2019, our Company’s cash balance was $12,353 and total assets were $24,989.

 

As of September 30, 2020, our Company had total liabilities of $23,883,429 compared with total liabilities of $4,331,080 as at December 31, 2019.

 

As of September 30, 2020, our Company had a working capital deficiency of $23,879,161 compared with a working capital deficiency of $4,313,396 as at December 31, 2019. The increase in working capital deficiency was primarily attributed to an increase in derivative liabilities.

 

Cash Flow from Operating Activities

 

Net cash used in operating activities for the nine months ended September 30, 2020 and 2019 were $18,335 and $297,131 respectively, for a decrease of $278,796. The improvement in net cash used in operating activities is primarily related to an increase in operating liabilities.

 

Cash Flow from Investing Activities

 

For the nine months ended September 30, 2020 and 2019, our Company did not have any investing activities.

 

Cash Flow from Financing Activities

 

Net cash provided by (used in) financing activities for the nine months ended September 30, 2020 and 2019 were $7,240 and $163,644, respectively. During the nine months ended September 30, 2020, our Company repaid note payable of $2.760.

 

 

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

 

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer, Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

The Company’s management, consisting solely of the Company’s Chief Executive Officer, Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer has concluded that, as of September 30, 2020, the Company’s disclosure controls and procedures were not effective because of the following internal control over financial reporting deficiencies:

 

● We currently have an insufficient complement of personnel with the necessary accounting expertise and an inadequate supervisory review structure with respect to the requirements and application of US GAAP and SEC disclosure requirements.

 

● We currently have insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.

 

● We currently lack a formal process and timeline for closing the books and records at the end of each reporting period and such weaknesses restrict the Company’s ability to timely gather, analyze and report information relative to the financial statements.

 

● Our Company’s management is composed of a small number of individuals resulting in a situation where limitations on segregation of duties exist.

 

We will continue to monitor and evaluate the effectiveness of our disclosure controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.

 

Changes in Internal Controls

 

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 September 30, 2020 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. We are not currently a party to any material legal proceeding.

 

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

 

None.

 

Item 3.

Defaults Upon Senior Securities

 

None.

 

Item 4.

Mine Safety Disclosures

 

Not Applicable.

 

Item 5.

Other Information

 

(a) Not applicable.

 

(b) Not applicable.

 

Item 6.

Exhibits

 

The following exhibits are included as part of this report:

 

				INCORPORATED BY REFERENCE
Exhibit		Description		Form		Exhibit		Filing Date
(31)		Rule 13a-14(a)/15d-14(a) Certifications
*		Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer
*		Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer
(32)		Section 1350 Certifications
*		Section 906 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer and Principal Financial Officer
(101)		Interactive Data Files
*		XBRL Instance Document
*		XBRL Taxonomy Extension Schema Document
*		XBRL Taxonomy Extension Calculation Linkbase Document
*		XBRL Taxonomy Extension Definition Linkbase Document
*		XBRL Taxonomy Extension Label Linkbase Document
*		XBRL Taxonomy Extension Presentation Linkbase Document
†		Management Contract or Compensation Plan

 

* Filed herewith. In addition, in accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	INDOOR HARVEST CORP.
	(Registrant)
Dated: August 12, 2021	/s/ Leslie Bocskor
	Leslie Bocskor
	Chief Executive Officer, Chief Financial Officer
	(Principal Executive Officer)(Principal Financial Officer)