NOTES
TO FINANCIAL STATEMENTS
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 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.
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”).
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 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.
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, Stock Compensation. ASC 718 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 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 (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.
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.
|
The
following table summarizes fair value measurements by level at December 31, 2018 and 2017, measured at fair value on a recurring
basis:
December 31, 2018
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,452,469
|
|
|
$
|
1,452,469
|
|
December 31, 2017
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
554,917
|
|
|
$
|
5545,917
|
|
Income
Taxes
The
Company accounts for income taxes pursuant to 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.
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 subsequent
to 2011 remain open to examination by U.S. federal and state tax jurisdictions.
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.
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. The Company recognized $0 and $1,440,961 for impairment charges taken during the year ended December 31, 2018 and 2017,
respectively.
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 December 31, 2018 and 2017,
the Company did not have any derivative instruments that were designated as hedges.
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.
Advertising
Expense
Advertising
and promotional costs are expensed as incurred.
Recent
Accounting Pronouncements
The
Company has implemented all new accounting pronouncements that are in effect as of the date of the issuance of these financial
statements. The following pronouncements may significantly impact future reporting of financial position and results of operations.
Management is currently assessing implementation.
In
October 2018, FASB issued ASU No. 2018-17,
Consolidation - Targeted Improvements to Related Party Guidance for Variable Interest
Entities (Topic 810).
ASU No. 2018-17 guidance eliminates the requirement that entities consider indirect interests held through
related parties under common control in their entirety when assessing whether a decision-making fee is a variable interest. Instead,
the reporting entity will consider such indirect interests on a proportionate basis. This pronouncement is effective for public
entities for fiscal years ending after December 15, 2019, with early adoption permitted. The Company does not expect the adoption
to have a material impact on its consolidated financial statements.
In
July 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting. This update addresses several aspects of the accounting for nonemployee share-based payment transactions and
expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The
main provisions of the update change the way nonemployee awards are measured in the financial statements. Under the simplified
standards, nonemployee options will be valued once at the date of grant, as compared to at each reporting period end under ASC
505-50. At adoption, all awards without established measurement dates will be revalued one final time, and a cumulative effect
adjustment to retained earnings will be recorded as the difference between the pre-adoption value and new value. Companies will
be permitted to make elections to establish the expected term and either recognize forfeitures as they occur or apply a forfeiture
rate. Compensation expense recognition using a graded vesting schedule will no longer be permitted. This pending content is the
result of the FASB’s Simplification Initiative, to maintain or improve the usefulness of the information provided to the
users of financial statements while reducing cost and complexity in financial reporting. This ASU is effective for fiscal years,
and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted, but no earlier than an
entity’s adoption date of Topic 606. Because the Company does not currently have any outstanding awards to non-employees
for which a measurement date has not been established the adoption of ASU 2018-07 does not have a material impact to the Company’s
financial statements and related disclosures upon adoption. The adoption of this standard will change the way that the Company
accounts for non-employee compensation in the future.
In February 2016, the FASB issued
ASU 2016-02, Leases (Topic 842). Under this guidance, lessees will be required to recognize on the balance sheet a lease liability
and a right-of-use asset for all leases, with the exception of short-term leases. The lease liability represents the lessee’s
obligation to make lease payments arising from a lease, and will be measured as the present value of the lease payments. The right-of-use
asset represents the lessee’s right to use a specified asset for the lease term, and will be measured at the lease liability
amount, adjusted for lease prepayment, lease incentives received and the lessee’s initial direct costs. The standard also
requires a lessee to recognize a single lease cost allocated over the lease term, generally on a straight-line basis. The new
guidance is effective for fiscal years beginning after December 15, 2018. ASU 2016-02 is required to be applied using the modified
retrospective approach for all leases existing as of the effective date and provides for certain practical expedients. Early adoption
is permitted. The Company is currently evaluating the effects that the adoption, January 1, 2019, of ASU 2016-02 will have
on the Company’s financial statements.
NOTE
2 - GOING CONCERN
As reflected in the accompanying financial
statements, the Company had a net loss of $3,386,242, net cash used in operations of $680,753 and has an accumulated deficit
of $11,795,064, for the year ended December 31, 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 pursue ventures, acquisitions, and transactions involving cannabis related businesses.
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 – ASSET ACQUISITION
Alamo
CBD, LLC
On
January 3, 2017, the Company signed a binding LOI with Alamo CBD to enter discussions to combine and create a medical cannabinoids
pharmaceutical group. 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 reverse triangular merger 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 Merger,
the member interests (“Alamo Survivor 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.
As
discussed above, management is now accounting for the acquisition of Alamo CBD as an acquisition of assets (and not a business
combination).
In
addition to the foregoing, following the closing of the transaction, 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 Survivor
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 Survivor 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 Survivor Member. A combination of cash and common stock may be elected by Alamo Survivor Member individually.
On
August 8, 2017, Chad Sykes, the Company’s Founder and Chief of Cultivation, returned 2,500,000 shares of common stock to
the Company. Mr. Sykes voluntarily returned such shares in order to prevent dilution to the Company’s shareholders as a
result of the merger and in order to facilitate the merger. The return of common stock by Chad Sykes was a non-cash transaction
and reduces the common stock outstanding as of December 31, 2017.
On
September 6, 2017, the Company issued an aggregate of 7,584,008 shares of common stock to the members of Alamo CBD related to
the Merger. The Company recorded intangible assets at a fair value of $1,440,961 ($0.19 per share) based upon closing price per
share of the Company’s common stock on the date the stock was issued. The intangible assets acquired in the transaction,
were Alamo CBD’s pending provisional or full license to produce and dispense cannabis in the State of Texas.
During
the quarter ended September 30, 2017, the Company’s management decided to impair the intangible assets created by the Alamo
CBD transaction, as there are doubts regarding when a license may be issued, as the license is pending and may or may not ever
be issued, and whether upon receipt of the license if it will lead to significant positive cash flows. The Company recorded an
impairment loss of intangible assets of $1,440,961 in the Statement of Operations for the year ended December 31, 2017.
Contractual
Joint Venture with Alamo CBD and Vyripharm Enterprises, LLC
On
March 23, 2017, Indoor Harvest entered into a Contractual Joint Venture Agreement by and between Vyripharm Enterprises, LLC (“Vyripharm”)
and Alamo CBD, collectively the parties, pursuant to which the parties agreed to participate in an unincorporated joint venture
(the “Joint Venture”) for the following business purposes:
|
●
|
The
parties would work together to enhance the ability of Alamo CBD to apply for and obtain licensure, or a permit, to grow and/or
dispense marijuana products for medical and/or consumer use, as the case may be:
|
|
i.
|
In
Texas, pursuant to the Texas Compassionate Use Act, as may be amended;
|
|
|
|
|
ii.
|
In
Colorado, pursuant to recent Colorado legislation permitting foreign ownership of entities that grow and/or dispense marijuana
products for medical and/or consumer use; and
|
|
|
|
|
iii.
|
Pursuant
to recent United States Drug Enforcement Administration regulations which expand the opportunities for entities providing
research involving marijuana and its chemical constituents, as referenced in 21 U.S.C. 822(a)(1) and 21 U.S.C. 823(a), et.
seq.
|
|
●
|
To
establish Alamo CBD as a supplier of a variety of medical use cannabis oil to Vyripharm for Vyripharm’s use in conducting
research and development to create novel pharmaceutical and radiopharmaceutical compounds designed to image and treat certain
debilitating diseases including, but not limited to epilepsy, post-traumatic stress disorder, Alzheimer’s, ALS, and
other neurodegenerative diseases; and to establish Indoor Harvest as the project developer and engineering, procurement and
construction group, in which Indoor Harvest is responsible for costs and efforts related to Alamo CBD’s efforts to become
licensed under the Texas Compassionate Use Act and to meet its obligations under this Joint Venture agreement.
|
The
initial term of the Joint Venture was to be five (5) years following the effective date, and the Joint Venture Agreement could
be extended beyond this initial term by mutual consent of the parties. Pursuant to the Joint Venture terms, the Company agreed
to contribute a total of $5,000,000 on the basis of $1,000,000 per year for each of the first five (5) years of the Initial Term.
Should the Company fail to make payment under the Joint Venture, the agreement would terminate and neither party would have further
obligation to the other.
The
Company paid an initial down payment of $250,000 under the Joint Venture Agreement on March 30, 2017.
Background
for the Contractual Joint Venture
The
purpose of the above-described change in business and Joint Venture was twofold, as follows:
|
●
|
It
would separate the Company’s cannabis and produce related operations, as we indicated was previously a goal.
|
|
|
|
|
●
|
It
would put in place all elements necessary for the resulting Joint Venture, of which the resulting public reporting company
would have a significant on-going interest, to become a registered producer under the federal CSA to produce cannabis.
|
Voluntary
Default of Joint Venture and Status of Application with DPS
As
published in the Texas Department of Public Safety (“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, the Joint Venture group placed 16th out of 43 applicants and its application is currently considered pending by
the DPS.
On
June 30, 2017, the Company, Alamo CBD and Vyripharm entered into discussions to amend and extend the payment terms under the Joint
Venture Agreement due to the group not being awarded one of the three initial provisional licenses to produce cannabis in Texas
under the TCUP.
On
August 7, 2017, after negotiations, the Company advised Vyripharm that it intended to voluntarily default on the Joint Venture
Agreement and the Company wrote off the $250,000 down payment towards the Joint Venture investment and there is no further obligation
by either party under the terms of the Joint Venture. The Company’s management determined that without a license to produce
cannabis, the Company would not be able to fully utilize the intent of the Joint Venture partnership and the Company would be
financially burdened by the ongoing Joint Venture terms. Both parties agreed that this decision would not impair either party’s
ability to pursue a Joint Venture in the future, after the Company, or Alamo CBD, obtained license to produce cannabis.
The
Company is a member 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 the 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.
As
part of the Company’s annual impairment evaluation, management decided to impair the goodwill created by the Alamo Merger
as there are doubts regarding when a license may be issued, as the license is pending and may or may not ever be issued, and whether
upon receipt of the license if it will lead to significant positive cash flows. The Company recorded an impairment of goodwill
in the Statement of Operations for the year ended December 31, 2017 of $1,440,961.
NOTE
4 - PROPERTY AND EQUIPMENT
Property
and equipment consist of the following at December 31, 2018 and 2017:
|
|
December 31,
|
|
|
December 31,
|
|
Classification
|
|
2018
|
|
|
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
|
|
|
(39,152
|
)
|
|
|
(28,779
|
)
|
Property and equipment, net
|
|
$
|
14,250
|
|
|
$
|
24,623
|
|
Depreciation
expense for the years ended December 31, 2018 and 2017, totaled $10,373 and $49,797, respectively.
During
the year ended December 31, 2017, the Company sold $23,467 of equipment in exchange for $10,800. In addition, the Company wrote
off $201,651 of equipment primarily related to the fabrication of vertical farming equipment for produce. As a result of these
disposals, the Company recorded a loss of $73,750 that was recorded in the Statement of Operations within general and administrative
expenses.
NOTE
5 - INTANGIBLE ASSETS
There
were no impairment charges taken for the domain name during the year ended December 31, 2018 and 2017.
Intangible
assets consist of the following at December 31, 2018 and 2017:
|
|
December 31,
|
|
|
December 31,
|
|
Classification
|
|
2018
|
|
|
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
|
|
|
(6,380
|
)
|
|
|
(4,690
|
)
|
Intangible assets, net
|
|
$
|
4,202
|
|
|
$
|
5,892
|
|
Amortization
expense for the years ended December 31, 2018 and 2017, totaled $1,690 and $1,710, respectively.
NOTE
6 - NOTE PAYABLE
On
June 5, 2015, the Company entered into a five-year loan agreement totaling $36,100. The loan carries an interest rate of 10.25%.
During the year ended December 31, 2018 and 2017, the Company repaid $7,518 and $6,789 of the principal and the remaining balance
as of December 31, 2018 and 2017 is $12,825 and $20,343, of which $8,332 and $7,520 is recorded as a current portion of note payable,
respectively.
Year Ending December 31,
|
|
Amount
|
|
|
|
|
|
2019
|
|
$
|
9,258
|
|
2020
|
|
|
4,629
|
|
Total
|
|
|
13,887
|
|
Amount representing interest payments
|
|
|
1,062
|
|
Present value of future payments
|
|
|
12,825
|
|
Less: current portion
|
|
|
8,332
|
|
Loan payable
|
|
$
|
4,493
|
|
NOTE
7 - CONVERTIBLE NOTES PAYABLE
Convertible
notes payable at December 31, 2018 and 2017 are as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Note 1
|
|
$
|
32,027
|
|
|
$
|
475,000
|
|
Note 2
|
|
|
50,000
|
|
|
|
50,000
|
|
Note 3
|
|
|
550,000
|
|
|
|
-
|
|
Note 4
|
|
|
341,050
|
|
|
|
|
|
Total convertible notes payable
|
|
|
973,077
|
|
|
|
525,000
|
|
|
|
|
|
|
|
|
|
|
Less: Unamortized debt discount
|
|
|
(20,826
|
)
|
|
|
(69,541
|
)
|
Total convertible notes
|
|
|
952,251
|
|
|
|
455,459
|
|
|
|
|
|
|
|
|
|
|
Less: current portion of convertible notes
|
|
|
952,251
|
|
|
|
455,459
|
|
Long-term convertible notes
|
|
$
|
-
|
|
|
$
|
-
|
|
On
March 20, 2017, the Company entered into a settlement agreement relating to a promissory note with Chuck Rifici Holdings, Inc
originally dated September 26, 2016 (“Rifici Note”). The Company settled the amount owed by paying $269,498 in cash.
The Company was released from any further liability under this Rifici Note upon payment of this amount.
On
March 20, 2017, the Company entered into a settlement agreement relating to two (2) promissory notes with FirstFire Global Opportunities
Fund, LLC dated October 19, 2016 and December 12, 2016. Pursuant to the settlement, the Company paid the holder an aggregate of
$252,917 in cash and issued 333,333 shares of common stock with a fair value of $100,000 based upon the conversion price of $0.30
per share. The Company was released from any further liability under this FirstFire Global Opportunities Fund, LLC note upon payment
of this amount.
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 December 31, 2018 and 2017, the balance under Note 1 is $39,997 and $519,000,
which includes $0 and $44,000 guaranteed interest and $7,970 and $0 accrued interest, respectively. As of December 31,
2018 and 2017, Note 1 can be converted into 2,017,525 and 3,280,255 shares of the Company’s common stock, respectively.
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
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%. As of December 31, 2018 and 2017, the balance under Note 2 is $61,384 and $55,000, which includes $5,000 and $5,000
guaranteed interest and $6,384 and $0 accrued interest, respectively. As of December 31, 2018 and 2017, Note 2 can be converted
into 3,096,270 and 300,120 shares of the Company’s common stock, respectively.
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. As of December
31, 2018, the balance under Note 3 is $616,002, which includes $44,000 guaranteed interest and $22,002 accrued interest.
As of December 31, 2018, Note 3 can be converted into 25,528,999 shares of the Company’s common stock.
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, the Company executed Amendments #1 to the Tangiers Note 4 for draws of $171,050. All other terms and conditions
of the Tangiers Note 4 remain effective. As of December 31, 2018, the balance under Note 4 is $368,334, which includes $27,284
guaranteed interest.
During
the year ended December 31, 2018 and 2017, the Company accrued $120,257 and $49,000, respectively, in interest expense related
to the outstanding the notes.
Debt
Discount and Original Issuance Costs
During
the year ended December 31, 2018 and 2017, the Company recorded debt discounts totaling $98,300 and $383,786, respectively. 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.
The Company amortized $147,015 and
$466,862 to interest expense during the years ended December 31, 2018 and 2017, as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Debt discount, beginning of period
|
|
$
|
69,541
|
|
|
$
|
152,617
|
|
Additional debt discount and debt issue cost
|
|
|
98,300
|
|
|
|
383,786
|
|
Amortization of debt discount and debt issue cost
|
|
|
(147,015
|
)
|
|
|
(466,862
|
)
|
Debt discount, end of period
|
|
$
|
20,826
|
|
|
$
|
69,541
|
|
Debt
Issuance Costs for Convertible Note
During
the year ended December 31, 2018 and 2017, the Company did not pay any debt issue costs.
NOTE
8 - 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 at year end December 31, 2018:
Balance - December 31, 2017
|
|
$
|
554,917
|
|
Addition of new derivatives recognized as loss on derivatives
|
|
|
1,486,260
|
|
Settled on issuance of common stock
|
|
|
(1,127,306
|
)
|
Gain on change in fair value of the derivative
|
|
|
538,598
|
|
Balance - December 31, 2018
|
|
|
1,452,469
|
|
Less: current portion
|
|
|
(1,452,469
|
)
|
Long-term derivative liabilities
|
|
$
|
—
|
|
The
following schedule shows the change in fair value of the derivative liabilities at year end 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
|
|
|
(101,493
|
)
|
Fair value mark to market adjustment for derivatives
|
|
|
442,957
|
|
Derivative liabilities - December 31, 2017
|
|
|
554,917
|
|
Less: current portion
|
|
|
(554,917
|
)
|
Long-term derivative liabilities
|
|
$
|
—
|
|
The
aggregate loss on derivatives during the year ended December 31, 2018 and 2017 was $2,024,858 and $442,957, respectively.
NOTE
9 - 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.
On
January 16, 2017, the Company issued 145,740 shares of common stock related to a Director Agreement with Pawel Hardej. The Company
recorded fair value of $64,126 ($0.44 per share) based upon the most recent trading price per share of the Company’s stock.
On
January 16, 2017, the Company issued 41,640 shares of common stock related to a Director Agreement with John Zimmerman. The Company
recorded fair value of $18,322 ($0.44 per share) based upon the most recent trading price per share of the Company’s stock.
On
January 16, 2017, the Company issued 62,460 shares of common stock related to a Director Agreement with John Choo. The Company
recorded fair value of $27,482 ($0.44 per share) based upon the most recent trading price per share of the Company’s stock.
On
August 8, 2017, Chad Sykes, the Company’s Founder and Chief of Cultivation, returned 2,500,000 shares of common stock to
the Company. Mr. Sykes voluntarily returned such shares in order to prevent dilution to the Company’s shareholders as a
result of the Alamo Merger and in order to facilitate the merger. The return of common stock by Chad Sykes was a non-cash transaction
and reduces the common stock outstanding as of December 31, 2017.
On
August 9, 2017, Chad Sykes, the Company founder, tendered his resignation as a Director and member of the Board of Directors as
part of the Company’s merger agreement with Alamo CBD.
On
August 9, 2017, John Choo tendered his resignation as a Director and member of the Board of Directors as part of the Company’s
merger agreement with Alamo CBD.
On
August 9, 2017, Pawel Hardej tendered his resignation as a Director and member of the Board of Directors as part of the Company’s
merger agreement with Alamo CBD.
On
August 9, 2017, John Seckman was elected a Director and member of the Board of Directors. On November 1, 2017, John Seckman resigned
as a Director of the Company and as a member of the Board of Directors, effective December 4, 2017. Mr. Seckman’s resignation
was not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies (including
accounting or financial policies) or practices, the Company’s management or the Board. Mr. Seckman’s resignation was
due to time constraints based on new business and increasing demands of John Seckman and Associates, of which Mr. Seckman is principal.
On
August 9, 2017, we entered into a Director Agreement with Rick Gutshall. The Company agreed to reimburse the Director for reasonable
travel and other incidental expenses incurred by the Director in performing his services and attending meetings as approved in
advance by the Company.
On
August 9, 2017, we entered into a Director Agreement with Annette Knebel. The Company agreed to reimburse the Director for reasonable
travel and other incidental expenses incurred by the Director in performing his services and attending meetings as approved in
advance by the Company.
On
August 9, 2017, we entered into a Director Agreement with Dr. Lang Coleman. The Company agreed to reimburse the Director for reasonable
travel and other incidental expenses incurred by the Director in performing his services and attending meetings as approved in
advance by the Company.
On
September 6, 2017, the Company issued 2,957,763 shares of common stock to Dr. Lang Coleman, Director, related to the merger of
the Company and Alamo CBD. The Company recorded fair value of $561,975 ($0.19 per share) based upon the most recent trading price
per share of the Company’s stock.
On
September 6, 2017, the Company issued 758,401 shares of common stock Rick Gutshall, former Interim-Chief Executive Office, former
Chief Financial Officer, and Director, related to the merger of the Company and Alamo CBD. The Company recorded fair value of
$144,096 ($0.19 per share) based upon the most recent trading price per share of the Company’s stock.
On
September 15, 2017, the Company issued 250,000 shares of common stock related to an Employment Agreement with Annette Knebel,
Chief Financial Officer and Director and former Chief Accounting Officer. The Company recorded fair value of $50,000 ($0.20 per
share) based upon the most recent trading price per share of the Company’s stock.
NOTE
10 - SHAREHOLDERS’ EQUITY
Convertible
Series A Preferred Stock
During
the third quarter of fiscal 2016, the Company initiated a subscription agreement to offer accredited investors up to 1,000,000
units (“Units”) of securities, each Unit consists of one (1) share of Series A Convertible Preferred Stock and one
(1) Series A Warrant (“Warrant”). The price per Unit was $0.50 for a maximum aggregate proceeds of $500,000. There
are no dividends on the Series A Convertible Preferred Stock. The Warrants were exercisable at $0.50 per share for a period of
one year. As of September 30, 2017, the warrants were not exercised. Therefore, the Company has disclosed the expiration of the
Warrants.
From
August 15 to August 29, 2016, the Company sold an aggregate of 250,000 Units to three (3) investors for total proceeds of $125,000.
During the year ended December 31, 2018 and 2017, the Company amortized $0 and $33,238 of debt discount related to the warrants,
respectively. The remaining debt discount related to the warrants is $0.
On
March 20, 2017, the Company’s Series A Preferred Convertible Stock shareholders (“Series A Holders”) each voted
to waive and remove the provisions of Section 5(iii) of the Certificate of Designations of the Series A Preferred Stock Designation.
Series A Holders have each agreed individually and also as a group to convert their Series A Convertible Preferred Stock into
common stock at a conversion price equal to $0.30 per share. A total of 250,000 shares of the Company’s Series A Preferred
Convertible Stock were converted into an aggregate of 416,667 shares of common stock. As a result of this action, there currently
are no Series A Convertible Preferred Stock issued and outstanding.
From
April 26, 2017 through May 3, 2017, the Company sold an aggregate of 750,000 shares of Series A Preferred Common Stock to thirteen
(13) U.S. accredited investors at $0.40 per share for proceeds of $300,000.
As
at December 31, 2018 and 2017, there were 750,000 shares of Series A Convertible Preferred Stock issued and outstanding.
Common
Stock
Issued
in fiscal year 2018
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.
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.
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 $.072.
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 $.065.
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 $.031.
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 $.034.
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
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
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.
On
August 22, 2018, the Company issued 583,333 shares of its common stock to Ideal Business Partners pursuant to an advisory agreement.
The Company recorded fair value of $35,000 ($0.06 per share) based upon the most recent trading price per share of the Company’s
stock.
On
September 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 $3,000 ($0.06 per share) based upon the most recent trading price per share of the Company’s
stock.
On
September 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 $1,800 ($0.06 per share) based upon the most recent trading price of the Company’s stock.
On
September 24, 2018, the Company issued 569,801 shares of its common stock to Tangiers pursuant to Tangier’s conversion of
$20,000 of Note 1 at a conversion price of $.035.
On
September 28, 2018, the Company issued 1,424,501 shares of its common stock to Tangiers pursuant to Tangier’s conversion
of $50,000 of Note 1 at a conversion price of $.035.
On
October 1, 2018, the Company issued 2,621,083 shares of its common stock to Tangiers pursuant to Tangier’s conversion of
$92,000 of Note 1 at a conversion price of $.035.
On
October 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 $6,000 ($0.12 per share) based upon the most recent trading price per share of the Company’s
stock.
On
November 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 $3,500 ($0.07 per share) based upon the most recent trading price per share of the Company’s
stock.
On
December 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 $3,200 ($0.06 per share) based upon the most recent trading price per share of the Company’s
stock.
On
December 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 $1,446 ($0.05 per share) based upon the most recent trading price of the Company’s stock.
On
November 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 $5,545 ($0.06 per share) based upon the most current trading price of
the Company’s stock.
On
November 23, 2018, the Company issued 30,000 shares of common stock related to a Director Agreement with Daniel Weadock, Chief
Executive Officer. The Company recorded a fair value of $1,890 ($0.06 per share) based upon the most current trading price of
the Company’s stock.
On December 3, 2018, the Company issued
186,000 shares of its common stock to Daniel Strachman to an advisory agreement. The Company recorded fair value of $10,416 ($0.06
per share) based upon the most recent trading price per share of the Company’s stock.
On
December 20, 2018, the Company issued 730,861 shares of its common stock to Tangiers pursuant to Tangier’s conversion of
$20,000 of Note 1 at a conversion price of $.027.
Issued
in fiscal year 2017
On
January 17, 2017, the Company issued 800,000 shares of common stock to Lyons Capital, LLC for a six-month consulting and road
show services agreement. The Company recorded fair value of $352,000 ($0.44 per share) based upon the most recent trading price
per share of the Company’s stock.
From
February 22, 2017 through March 15, 2017, the Company sold, in reliance upon Regulation D Rule 506, a total of 2,060,000 shares
of common stock to seventeen (17) U.S. accredited investors at $0.40 per share for cash totaling $824,000.
On
March 20, 2017, the Company’s Series A Preferred Convertible Stock shareholders (“Series A Holders”) each voted
to waive and remove the provisions of Section 5(iii) of the Certificate of Designations of the Series A Preferred Stock. Series
A Holders have each agreed individually and also as a group to convert their Series A Convertible Preferred Stock into common
stock at a conversion price equal to $0.30 per share. A total of 250,000 shares of the Company’s Series A Preferred Convertible
Stock were converted into an aggregate of 416,667 shares of common stock.
On
March 20, 2017, the Company entered into a settlement agreement relating to two (2) promissory notes with FirstFire Global Opportunities
Fund, LLC dated October 19, 2016 and December 12, 2016. Pursuant to the settlement, the Company paid the holder an aggregate of
$252,917 in cash and issued 333,333 shares of common stock. The Company was released from any further liability under this FirstFire
Global Opportunities Fund, LLC note upon payment of this amount.
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 (“Tangiers Note”) in the aggregate principal amount of up to $550,000, which includes
a 10% original issue discount. The Tangiers Note is convertible into shares of common stock at a price equal to $0.30 per share.
On October 10, 2017, the Company executed Amendment #1 (“Amendment #1”) to the Tangiers Note for a final draw of $250,000
payment plus a 10% original issue discount (the “Final Draw”). Amendment #1 modified the maturity date of the Tangiers
Note from eight months to six months from the effective date of each payment. In addition, Amendment #1 included use of proceeds
for the $250,000 received from Tangiers. All other terms and conditions of the Tangiers Note remain effective and were not amended.
From
April 26, 2017 through May 3, 2017, the Company sold an aggregate of 750,000 shares of Series A Preferred Common Stock to thirteen
(13) U.S. accredited investors at $0.40 per share for proceeds of $300,000.
On
June 1, 2017, the Company issued 250,000 shares of common stock for a 12-month investor relations consulting agreement. The Company
recorded fair value of $55,000 ($0.22 per share) based upon the most recent trading price per share of the Company’s stock.
On
September 6, 2017, the Company issued 758,401 shares of common stock Rick Gutshall, former Interim-Chief Executive Office, former
Chief Financial Officer, and Director, related to the merger of the Company and Alamo CBD. The Company recorded fair value of
$144,096 ($0.19 per share) based upon the most recent trading price per share of the Company’s stock.
On
October 12, 2017, the Company issued a promissory note to Tangiers Global, in the principal amount of $50,000 in order to induce
Tangiers Global to enter into the Investment Agreement. The note bears interest at a rate of 10% per annum and matures on May
12, 2018. Tangiers Global may, at any time, convert the unpaid principal amount of the note into shares of the Company’s
common stock at a conversion price of $0.1666 per share.
On
October 17, 2017, the Company issued 329,670 shares of its common stock to Tangiers pursuant to Tangiers’ conversion of
$30,000 of Note 1 at a conversion price of $0.09.
On
December 18, 2017, the Company issued 516,648 shares of its common stock to Tangiers pursuant to Tangiers’ conversion of
$45,000 of Note 1 at a conversion price of $0.09.
NOTE
11 - INCOME TAXES
Indoor
Harvest operates in the United States; accordingly, federal and state income taxes have been provided based upon the tax laws
and rates of the US. Deferred taxes are determined based on the temporary differences between the financial statement and income
tax bases of assets and liabilities as measured by the enacted tax rates, which will be in effect when these differences reverse.
The
components of deferred income tax assets and liabilities as of December 31, 2018 and 2017 are as follows:
Description
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
1,382,118
|
|
|
|
1,118,472
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Accelerated tax depreciation
|
|
|
19,183
|
|
|
|
19,183
|
|
Net deferred tax assets
|
|
|
1,401,301
|
|
|
|
1,137,655
|
|
|
|
|
|
|
|
|
|
|
Less: Valuation allowance
|
|
|
(1,401,301
|
)
|
|
|
(1,137,655
|
)
|
Net
|
|
$
|
-
|
|
|
|
-
|
|
At December 31, 2018 and 2017, the Company
has provided a full valuation allowance for the deferred tax assets. The Company’s accumulated net operating loss as of
December 31, 2018 of $7,020,876, if not used, will begin to expire in 2033.
The
Company experienced a change in control for tax purposes in 2017 as a result of the merger with Alamo CBD. Accordingly, the future
utilization of net operating losses will be severely restricted by Section 382 of the Internal Revenue Code. Management is in
the process of assessing this impact.
This
loss carryforward expires according to the following schedule:
Year Ending December 31,
|
|
Amount
|
|
|
|
|
|
2033
|
|
$
|
217,074
|
|
2034
|
|
|
368,378
|
|
2035
|
|
|
761,615
|
|
2036
|
|
|
1,610,192
|
|
2037
|
|
|
2,899,509
|
|
2038
|
|
|
1,164,108
|
|
|
|
$
|
7,020,876
|
|
NOTE
12 - 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.
Deferred
rent payable at December 31, 2018 and 2017 was $1,826 and $6,239, respectively. 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.
Rent
expense for the years ended December 31, 2018 and 2017, were $47,618 and $52,550, respectively
At
December 31, 2018, rental commitments are as follows:
Years Ending December 31,
|
|
Amount
|
|
2019
|
|
$
|
18,876
|
|
Total
|
|
$
|
18,876
|
|
NOTE
13 - SUBSEQUENT EVENTS
On
January 22, 2019 the Company converted $20,000 of a convertible note into 879,121 shares of its common stock.
On
February 4, 201 the Company converted $12,026.99 of a convertible note payable and $2,000 of interest into 616,571 shares of its
common stock.
Results of Operations