PART
I
Item
1. Business.
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 for the year ended 2019. From inception until about August 4, 2017, in summary,
the Company pursued a business of certain engineering, procurement and construction related services as to the indoor and vertical farming
industry and production platforms, mechanical systems and 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 pursuits 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 3, 2017, we formed Alamo Acquisition, LLC, a wholly owned Texas limited liability company (“Alamo Acquisition Sub”).
On August 4, 2017, the Company ceased actively supporting business development of vertical farms for produce production and consummated
a business acquisition (the “Alamo Acquisition”) pursuant to which Alamo Acquisition Sub acquired all of the outstanding
membership interests of Alamo CBD, LLC (“Alamo CBD”), a Texas limited liability company. Upon closing of the Alamo Acquisition,
the membership interests of Alamo CBD were exchanged for 7,584,008 shares of Indoor Harvest’s common stock, the parent company
of Alamo Acquisition Sub. Alamo CBD continued as our surviving wholly-owned subsidiary, and Alamo Acquisition Sub ceased to exist.
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.
Description
of Business
Indoor
Harvest, through its brand name Indoor Harvest®, is focused on leveraging technology and planning on Vertical Farming, Building Integrated
Agriculture, Controlled Environment Agriculture and Aeroponic Cultivation technology with other synergistic enterprises in the Cannabis
industry as part of our new 2019 merger and acquisition or an M&A/vertical integration strategy.
We
developed technology relating to a high pressure aeroponic platform for growing cannabis. Aeroponic production differs from both conventional
hydroponics and in-vitro (plant tissue culture) growing. Unlike hydroponics, which uses water as a growing medium, along with essential
minerals to sustain plant growth, aeroponics uses no growing medium. We plan to continue to look for partners and opportunities to refine
the development and commercialization of our high pressure Aeroponic Cultivation technology.
Our
previous efforts focused on aggregating and integrating early stage cannabis companies focused on Genetics, Tissue Culture, Controlled
Environment Ag technologies, including high pressure Aeroponic Cultivation, Micropropagation and Cultivation operations.
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.
Our
operational expenditures will be focused on our 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.
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.
Industry
and Regulatory Overview
The
United States federal government regulates drugs through the CSA (21 U.S.C. § 811), which places controlled substances, including
cannabis, in a schedule. Cannabis is classified as a Schedule I drug, which is viewed as highly addictive and having no medical value.
The United States Federal Drug Administration (“FDA”) has not approved the sale of cannabis for any medical application.
Doctors may not prescribe cannabis for medical use under federal law, however, they can recommend its use under the First Amendment.
In 2010, the United States Veterans Affairs Department clarified that veterans using medicinal cannabis will not be denied services or
other medications that are denied to those using illegal drugs.
State
legalization efforts conflict with the CSA, which makes cannabis use and possession illegal on a national level. On August 29, 2013,
the U.S. Department of Justice (“DOJ”) issued a memorandum (the “Cole Memo”) providing that where states and
local governments enact laws authorizing cannabis-related use, and implement strong and effective regulatory and enforcement systems,
the federal government will rely upon states and local enforcement agencies to address cannabis activity through the enforcement of their
own state and local narcotics laws.
On
January 4, 2018, the DOJ suspended the Cole Memo and replaced it with a new Memorandum titled with the subject “Marijuana Enforcement”
from Attorney General Jeff Sessions which provides that each U.S. Attorney has the discretion to determine which types of cannabis-related
cases should be federally prosecuted, thus ending the broad safe harbor provided under the Cole Memo.
In
November 2018, Attorney General Sessions resigned and left the DOJ. As a nominee, Attorney General William Barr testified before the
U.S. Senate and wrote to Congress that, as Attorney General, he would not seek to prosecute cannabis companies that relied on the Cole
Memo and are complying with state law.
As
of April 25, 2019, 34 states, the District of Columbia and Guam allow their citizens to use medical cannabis through de-criminalization.
Within this list of jurisdictions, voters in the States of Alaska, California, Colorado, D.C., Maine, Massachusetts, Nevada, Oregon,
Vermont, and Washington have legalized cannabis for adult recreational use.
The
Company continues to follow and monitor the actions and statements of the Trump administration, the DOJ and Congress’ positions
on federal law and cannabis policy. As the possession and use of cannabis is illegal under the CSA, we could be deemed to be aiding and
abetting illegal activities through the equipment we intend to sell in the U.S. and directly violating federal law if we should begin
producing cannabis under State law. Under federal law, and more specifically the CSA, the possession, use, cultivation, and transfer
of cannabis is illegal. Our equipment could be used by persons or entities engaged in the business of possession, use, cultivation, and/or
transfer of cannabis.
As
a result, law enforcement authorities, in their attempt to regulate the illegal use of cannabis, could seek to bring an action or actions
against us, including, but not limited to, a claim of aiding and abetting another’s criminal activities or directly violating the
CSA. The federal aiding and abetting statute provides that anyone who “commits an offense against the United States or aids, abets,
counsels, commands, induces or procures its commission, is punishable as a principal” (18 U.S.C. §2(a).) Enforcement of federal
law regarding cannabis would likely result in the Company being unable to proceed with our business plans, could expose us to potential
criminal liability and could subject our properties to civil forfeiture which could lead to an entire loss of any investment in the Company.
Any changes in banking, insurance or other business services may also affect our ability to operate our business.
Nothing
herein is a legal opinion or a complete or up to date statement on laws, regulations, or policies, especially given the shifting legal
and regulatory landscape.
Changes
in Business Operations
2020
was a continuation of our 2019 restructuring, reorganizing, and repositioning of the business. The Company believes it is positioned
to start executing its business strategy and leveraging the public company to create shareholder value. The recent long-term commitments
of the new management team coupled with a robust business network to support our business initiatives have laid the foundation
for the future. We will be working on branding and building our team in 2021, once we have our new plans funded.
The
Company’s current strategy is to position itself as an integrated consolidation platform offering for cannabis industry companies
focused on hemp, other hemp-related products, CBD, CPG, and ancillary business verticals 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 is subject to risks, no assurance exists of ability to raise sufficient capital on good terms or our ability to become profitable.
Intellectual
Property
The
Company relies on a strategy of a combination of patent law, trademark laws, trade secrets, confidentiality provisions and other contractual
provisions to protect our proprietary rights, which are primarily our brand names, product designs and marks. This does not mean these
efforts are up to date or fully effective. The following summarizes certain filings. The Company is currently studying the legal aspects
of these, including recent and past communications from counsel and the patent office, and makes no promise or representation as to this
information which is subject to correction and update.
The
Company’s primary trademark is “Indoor Harvest.” This trademark was registered (Registration Number 4,795,471) in the
United States on August 18, 2015.
The
Company filed a patent application (Serial Number 14/120,275) with the United States patent office related to an invention titled: “modular
aeroponic system and related methods.” The inventor is Chad Sykes, who assigned the patent application to the Company.
We
will research the status of our filings and restructure or update as needed this year.
Plan
of Expanded Operations
Our
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.
Sales
and Marketing
We
seek to differentiate ourselves in a crowded market. While we continue to look for opportunities to leverage our aeroponic system designs
to further refine development and commercialization, we are now also positioning the Company as an integrated consolidation platform
offering cannabis companies the opportunity to be part of a bigger play, sharing intellectual capital, technology, access to capital
markets and liquidity for investors.
We
will be working on branding and building our team in 2020, once we have our new plans funded.
Competition
and Market Position
Our 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. This may be done by asset acquisitions, mergers, joint ventures,
or other strategic initiatives.
OTC
Markets
OTC
Markets offer small companies almost comparable benefits of the NYSE or Nasdaq markets, a liquid, secondary trading market, visibility,
access to capital, a public market valuation and the ability for small companies to build their brand and reputation across the network,
at nearly half the cost of an NYSE listing.
We
are positioning to compete with consolidated or vertically integrated cannabis science and technology companies trading on the OTC Markets.
Technology
Competition
We
will be a small competitor in the industry. Many of our competitors have substantially greater financial, marketing, personnel, and other
resources than we do. We believe based upon management’s knowledge of the industry that we are the first company to develop and
offer a fixture based, fully integrated aeroponic biomanufacturing platform for the cannabis industry. Instead of relying on a product-based
design, we have developed individual fixtures that can be used in whole, or in part, to create a variety of modular designs of any scale,
or size. By breaking our platform down into individual, independent fixtures, we offer a level of customizability that currently is not
offered by our competitors.
Manufacturing
The
Company does not foresee manufacturing its own product platform to sell to the cannabis market.
Rather,
we will pursue opportunities to develop our technology with third party partners and eventually license or sell that technology or deploy
it in the market as part of a joint venture cultivation operation.
The
Company plans to source products and accessories from third party manufacturing companies that manufacture products in part using tooling
we own, in accordance with our specifications.
Employees
As
of December 31, 2020, we have no full-time employees but use a variety of advisors and consultants.
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Trading
History
Our
common stock is quoted on the OTCMarkets under the symbol “INQD”. As of December 31, 2020, there were 2,401,396,041 outstanding
shares of common stock and approximately 74 shareholders of record. The number of record holders was determined from the records of our
transfer agent and does not include beneficial owners of common stock whose shares are held in the names of bank, brokers and other nominees.
Dividends
We
have not paid any cash dividends on our common stock to date. Any future decisions regarding dividends will be made by our Board of Directors.
We do not anticipate paying dividends in the foreseeable future but expect to retain earnings to finance the growth of our business.
Our Board of Directors has complete discretion on whether to pay dividends. Even if our Board of Directors decides to pay dividends,
the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial
condition, contractual restrictions and other factors that the Board of Directors may deem relevant.
There
are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Texas Statutes, however,
prohibit us from declaring dividends where, after giving effect to the distribution of the dividend:
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We
would not be able to pay our debts as they become due in the usual course of business; or
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Our
total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of stockholders
who have preferential rights superior to those receiving the distribution, unless otherwise permitted under our articles of incorporation.
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Securities
Authorized for Issuance under Equity Compensation Plans
We
do not have in effect any compensation plans under which our equity securities are authorized for issuance.
Common
Stock
As
of December 31, 2020, there were 2,401,396,041 shares of common stock issued and outstanding.
The
holders of our common stock have equal ratable rights to dividends from funds legally available if and when declared by our Board of
Directors and are entitled to share ratably in all of our assets available for distribution to holders of common stock upon liquidation,
dissolution or winding up of our affairs. Our common stock does not provide the right to a preemptive, subscription or conversion rights
and there are no redemption or sinking fund provisions or rights. Our common stockholders are entitled to one non-cumulative vote per
share on all matters on which stockholders may vote.
All
shares of common stock now outstanding are fully paid for and non-assessable. We refer you to our certificate of incorporation, bylaws
and the applicable statutes of the State of Texas for a more complete description of the rights and liabilities of holders of our securities.
Holders
of shares of our common stock do not have cumulative voting rights, which means that the holders of more than 50% of the outstanding
shares, voting for the election of directors, can elect all of the directors to be elected, if they so choose, and, in that event, the
holders of the remaining shares will not be able to elect any of our directors.
Holders
of Common Stock
We
have 74 shareholders of record for our common stock, as of December 31, 2020.
Preferred
Stock
The
Company has designated 15,000,000 shares of Series A Preferred Stock with a par value of $0.01.
The
stated value of each issued share of Series A Convertible Preferred Stock shall be deemed to be $1.00, as the same may be equitably adjusted
whenever there may occur a stock dividend, stock split, combination, reclassification or similar event affecting the Series A Convertible
Preferred Stock. There are no dividends payable on the Series A Convertible Preferred Stock. Each holder of outstanding shares of Series
A Convertible Preferred Stock shall be entitled to cast the number of votes for the Series A Convertible Preferred Stock in an amount
equal to the number of whole shares of common stock into which the shares of Series A Convertible Preferred Stock held by such holder
are convertible as of the record date for determining stockholders entitled to vote on such matter
The
Series A Preferred Stock also had a “down-round” protection feature provided to the investors if the Company subsequently
issued or sold any shares of common stock, stock options, or convertible securities at a price less than the conversion price of $1.00
per common share. The conversion price was automatically adjustable down to the price of the instrument being issued. As a result of
conversions during the year ended December 31, 2020, the Series A Preferred Stock conversion price was reset to $0.00006 per share.
As
of December 31, 2020, the 13 preferred shareholders holding 750,000 preferred shares can convert to 12.5 billion shares of common stock,
which was significantly more than the outstanding common stock at that time. As of December 31, 2020, there are currently 2,401,396,041
shares outstanding. The Company has increased its authorized shares to 10 billion shares in May of 2020, addressing the potential Company
control issue if conversion of all the preferred shares were to occur at the same time.
Upon
any liquidation, dissolution or winding-up of the Company under Texas law, whether voluntary or involuntary, the holders of the shares
of Series A Convertible Preferred Stock shall be paid an amount equal to the aggregate stated value of their shares of Series A Convertible
Preferred Stock, before any payment shall be paid to the holders of common stock, or any other stock ranking on liquidation junior to
the Series A Convertible Preferred Stock, an amount for each share of Series A Convertible Preferred Stock held by such holder equal
to the sum of the Stated Value thereof.
As
at December 31, 2020, there were 750,000 shares of Series A Convertible Preferred Stock issued and outstanding.
On August 27, 2021, Indoor Harvest
Corp (the “Company”) completed an initiative when it entered into a Modification Agreement (the “Modification”)
in cooperation with the current Series A Preferred shareholders to modify their conversion privileges to align and support current management
team initiatives and shareholder interests. The modification agreement provides the Preferred shareholders the ability to convert
into common shares at a conversion price at the lower of $0.40 (per the original agreement), or the subsequent per share pricing of a
future equity raise greater than Five Hundred Thousand ($500,000) Dollars. This Modification is forecasted to support anti-
dilutive measures potentially to the benefit of our shareholders and may allow the Company to proceed with plans relating to funding
needs.
Transfer
Agent and Registrar
VStock
Transfer, LLC at 18 Lafayette Place, Woodmere, New York 11598 is the registrar and transfer agent for our common stock. Their telephone
number is (212) 828-8436.
Warrants
There
were no outstanding warrants as of December 31, 2020.
Options
There
are no outstanding options to purchase our securities as of December 31, 2020.
Recent
Sales of Unregistered Securities
During
the year ended December 31, 2020, we issued shares of our common stock that were not registered under the Securities Act, and were not
previously disclosed in a Current Report on Form 8-K or on a Quarterly Reports on Form 10-Q as follows:
During
the year ended December 31, 2020, the Company issued 2,200,358,737 shares of common stock as follows:
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2,021,006
shares to consultant valued at $72,920 for consulting services
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2,198,337,731
shares for conversion of debt of $1,412,106
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We
relied upon Section 4(a)(2) of the Securities Act of 1933, as amended for the above issuances to U.S. citizens or residents. We believe
that Section 4(a)(2) of the Securities Act of 1933 was available because:
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None
of these issuances involved underwriters, underwriting discounts or commissions.
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Restrictive
legends were and will be placed on all certificates issued as described above.
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The
distribution did not involve general solicitation or advertising.
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The
distributions were made only to investors who were sophisticated enough to evaluate the risks of the investment.
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In
connection with the above transactions, although some of the investors may have also been accredited, we provided the following to all
investors:
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Access
to all our books and records.
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Access
to documents relating to our operations.
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The
opportunity to obtain any additional information, including information relating to all of our agreements with third parties which
were only oral and not written, to the extent we possessed such information, and including all information necessary to verify the
accuracy of the information to which the investors were given access.
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Prospective
investors were invited to review at our offices at any reasonable hour, after reasonable advance notice, any materials available to us
concerning our business. Prospective Investors were also invited to visit our offices.
Item
6. Selected Financial Data.
Not
required.
Item
7. Management’s Discussion and Analysis Of Financial Condition and Results Of Operations.
The
discussion of our financial condition and results of operations and business and related within this document should be read in conjunction
with our financial statements and the related notes, and other financial information included in this filing. Our Management’s
Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking
statements are, by their very nature, uncertain and risky. Consequently, and because forward-looking statements are inherently subject
to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking
statements. You are urged to carefully review and consider the various disclosures made by us in this report as we attempt to advise
interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
Forward-Looking
Statements
The
following discussion of our financial condition and results of operations should be read in conjunction with our audited financial statements
and the related notes, and other financial information included in this filing.
Our
Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking.
Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national,
and local general economic and market conditions; our ability to sustain, manage, or forecast growth; our ability to successfully make
and integrate acquisitions; new product development and introduction; existing government regulations and changes in, or the failure
to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations
and difficulty in forecasting operating results; change in business strategy or development plans; business disruptions; the ability
to attract and retain qualified personnel; the ability to protect technology; the risk of foreign currency exchange rate; and other risks
that might be detailed from time to time in our filings with the Securities and Exchange Commission.
You
are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to
advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
Overview
Indoor
Harvest, through its brand name Indoor Harvest®, is focused on leveraging its investment and experience in Vertical Farming, Building
Integrated Agriculture, Controlled Environment Agriculture and Aeroponic Cultivation technology with other synergistic enterprises in
the Cannabis industry as part of an M&A/consolidation and integration strategy.
The
company spent the majority of 2020 reorganizing, restructuring, and repositioning the business.
The
Company was funded through a convertible note structure from 2017 into 2019, that allowed the Company to keep
being active while we restructure, reposition and recapitalize the company. We continue to seek funding from other capital sources as
we position the company for future growth.
As
part of a restructuring and recapitalization effort the Company plans to regularly increases the number of shares of common stock the
Company is authorized to issue. We believe this will enable the Company to raise additional capital by allowing funding sources to be
able to convert debt to shares, a common form of funding, and to utilize shares as currency for future M&A transactions or related
strategic initiatives.
Raising
new capital is critical to the Company going forward and is a primary focus as SEC filings are being completed and brought current.
Our
current strategy is positioning the Company as an integration and consolidation platform offering other cannabis and hemp companies the
potential to be part of a bigger opportunity, sharing intellectual capital, business networks, technology, and access to new capital
markets with liquidity for investors. We will analyze cannabis and hemp companies focused on Genetics, Tissue Culture, Controlled Environment
Ag technologies, including high pressure Aeroponic Cultivation, Cultivation operations, robotics and AI, Hemp, CBD and other CPG related
products.
Our
operational expenditures will primarily focus on review of existing assets, vetting potential M&A targets and related due diligence
costs, as well as the necessary costs related to being a fully reporting company with the SEC.
On
March 5, 2020, The Company entered into a material definitive agreement with Fincann Corp., a New York corporation (the “Fincann”).
Fincann provides banking related strategies or solutions for the cannabis-related industry through a growing consortium of financial
institutions, to help marijuana-related businesses (MRBs) to access essential banking services without complicated workarounds. Due diligence
efforts are ongoing.
The
Company is in the process of establishing a headquarters.
We
are an “emerging growth company” (“EGC”) that is exempt from certain financial disclosure and governance requirements
for up to five years as defined in the Jumpstart Our Business Startups Act (“the JOBS Act”), that eases restrictions on the
sale of securities; and increases the number of shareholders a company must have before becoming subject to the SEC’s reporting
and disclosure rules. We have elected to use the extended transition period for complying with new or revised accounting standards under
Section 102(b)(2) of the JOBS Act, that allows us to delay the adoption of new or revised accounting standards that have different effective
dates for public and private companies until those standards apply to private companies. Because of this election, our financial statements
may not be comparable to companies that comply with public company effective dates.
Results
of Operations
The
following summary of our results of operations should be read in conjunction with our consolidated financial statements for the years
ended December 31, 2020 and 2019, which are included herein.
For
the year ended December 31, 2020 compared to the year ended December 31, 2019
Our
operating results for the years ended December 31, 2020 and 2019 and the changes between those periods for the respective items are summarized
as follows:
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Year Ended
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December 31,
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2020
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2019
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Change
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%
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Revenue
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$
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-
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$
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-
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$
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-
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-
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Operating expenses
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Depreciation and amortization expense
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0
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11,147
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(11,147
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)
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(100
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)%
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Stock based compensation
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0
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111,553
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(111,553
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)
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(100
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)%
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Professional fees
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223,788
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310,588
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(86,800
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)
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(28
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)%
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General and administrative expenses
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24,327
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199,432
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(175,105
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)
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(88
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)%
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Total operating expenses
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248,115
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632,720
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(384,605
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)
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(61
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)%
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Loss from operations
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(248,115
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)
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(632,720
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)
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(384,605
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)
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(61
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)%
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Other expense
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Interest expense
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(382,370
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)
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|
(135,844
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)
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246,526
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|
181
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%
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Amortization of debt discount
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(140,913
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)
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(157,631
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)
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16,718
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(10
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)%
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Change in fair value of embedded derivative liability
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(45,509,377
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)
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(2,170,626
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)
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43,338,751
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1,997
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%
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Total other expense
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(46,032,660
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)
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(2,464,101
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)
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43,568,559
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1,768
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%
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Net loss
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$
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(46,280,775
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)
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$
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(3,096,821
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)
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$
|
(43,183,954
|
)
|
|
|
1,394
|
%
|
Revenues
During
the years ended December 31, 2020 and 2019, the Company generated no revenue.
Operating
Expenses
Total
operating expenses for the year ended December 31, 2020 and 2019 were $248,115 and $632,720 , respectively, for an aggregate decrease
of $384,605 or 61%. The aggregate decrease is primarily related to 100% decrease in stock-based compensation, a 28% decrease in professional
fees of $86,800 and an 88% decrease in general and administrative expenses of $175,105.
Other
Expense
Total
other expense for the year ended December 31, 2020 and 2019 were $$46,032,660 and $2,464,101 , respectively, for an increase of $43,568,559
or 1768%. The increase is primarily related to the change in the fair value of the embedded derivative liability of $43,568,559 related
to the Tangiers convertible notes payable and Series A Preferred Stock, and a 181% increase in interest expenses of $246,526.
Net
Loss
As
a result of the factors discussed above, net loss for the year ended December 31, 2020 and 2019 was $46,280,775 and $3,096,821, respectively,
for an increase of $43,183,954 or 1394%.
Liquidity
and Capital Resources
The
following table provides selected financial data about our Company as of December 31, 2020 and December 31, 2019, respectively.
Working
Capital
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
|
%
|
|
|
Current assets
|
|
$
|
3,083
|
|
|
$
|
17,684
|
|
|
$
|
(14,601
|
)
|
|
|
(83
|
)%
|
|
Current liabilities
|
|
$
|
44,752,523
|
|
|
$
|
4,331,080
|
|
|
$
|
40,421,443
|
|
|
|
936
|
%
|
|
Working capital (deficiency)
|
|
$
|
(44,749,523
|
)
|
|
$
|
(4,313,396
|
)
|
|
$
|
(40,436,127
|
)
|
|
|
937
|
%
|
Cash
Flows
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
|
%
|
|
|
Cash used in operating activities
|
|
$
|
17,452
|
|
|
$
|
441,602
|
|
|
$
|
(424,150
|
)
|
|
|
(96
|
)%
|
|
Cash used in investing activities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
Cash provided by financing activities
|
|
$
|
6,306
|
|
|
$
|
298,273
|
|
|
$
|
(291,967
|
)
|
|
|
(98
|
)%
|
|
Net Change in Cash During Period
|
|
$
|
(11,146
|
)
|
|
$
|
(143,329
|
)
|
|
$
|
(132,183
|
)
|
|
|
(92
|
)%
|
As
of December 31, 2020, our Company’s cash balance was $1,207 and total assets were $3,083. As of December 31, 2019,
our Company’s cash balance was $12,353 and total assets were $24,989.
As
of December 31, 2020, our Company had total liabilities of $44,752,523, compared with total liabilities of $4,331,080 as at December
31, 2019.
As
of December 31, 2020, our Company had a working capital deficiency of $44,749,440 compared with a working capital deficiency of $4,313,396
as of December 31, 2019. The increase in working capital deficiency was primarily attributed to an increase in derivative liabilities
of $40,436,127.
Cash
Flow from Operating Activities
Net
cash used in operating activities for the year ended December 31, 2020 and 2019 were $17,452 and $441,602, respectively, for a decrease
of $424,150. The improvement in net cash used in operating activities is primarily related to a decrease in operating expenses, from
reductions in professional fees and general and administrative expenses.
Cash
Flow from Investing Activities
During
the year ended December 31, 2020 and 2019, we had no cash used in investing activities.
Cash
Flow from Financing Activities
Net
cash provided by financing activities for the year ended December 31, 2020 and 2019 were $6,306 and $298,273, respectively, for a decrease
of $291,967. During the year December 31, 2020, the Company received $10,000 by way of a loan under a convertible note payable and repaid
note payable of $3,964. During the year December 31, 2019, the Company received $307,304 by way of loan under a convertible note payable
and repaid note payable of $9,131.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that
is material to stockholders
Critical
Accounting Policies and Estimates
For
a discussion of our accounting policies and related items, please see the Notes to the Financial Statements, included in Item 8.
Item
7A. Quantitative and Qualitative Disclosures About Market Risk.
Not
required.
Item
8. Financial Statements and Supplementary Data.
The
consolidated financial statements and Reports of Independent Registered Public Accounting Firms are listed in the “Index to Consolidated
Financial Statements” on page F-1 and included on pages F-2 through F-23.
Item
9 – Changes in and Disagreements With Accountants on Accounting and Financial Disclosures.
On
November 15, 2019, the Company replaced Thayer O’Neal Company with WWC, P.C. as our independent principal accountant to audit the
Company’s financial statements.
Item
9A – Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
The
Company’s Chief Executive Officer (the principal executive officer and principal financial officer) have evaluated the effectiveness
of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
December 31, 2020. Based upon such evaluation, Chief Executive Officer (the principal executive officer and principal financial officer)
have concluded that, as of December 31, 2020, the Company’s disclosure controls and procedures were not effective.
Management’s
Report on Internal Control over Financial Reporting
Under
the supervision and with the participation of our management, including our Chief Executive Officer (the principal executive officer
and principal financial officer), we conducted an evaluation of the effectiveness of our internal control over financial reporting as
of December 31, 2020, based on the framework stated by the Committee of Sponsoring Organizations of the Treadway Commission’s 2013
Framework.
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined
in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally
accepted accounting principles. Because of inherent limitations, a system of internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Based
on its evaluation as of December 31, 2020, our management concluded that our internal controls over financial reporting were not effective
as of December 31, 2020 due to the material weaknesses set forth below. A material weakness is a deficiency, or a combination of control
deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of
the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Because
of the Company’s limited resources, there are limited controls over financial information processing. The Company determined that
its internal control over financial reporting was not effective as of December 31, 2020. The basis for the conclusions that such internal
control was ineffective included the following considerations:
|
|
●
|
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.
|
|
|
|
|
|
|
●
|
Additionally,
there is a lack of 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.
|
Material
risks associated with the above issues include the following:
|
|
●
|
Because
the Company currently has insufficient written policies and procedures with regard to financial reporting, this could cause the Company
to be inefficient and potentially encounter errors in preparing its financial reports due to the lack of a written policy for the
company to follow.
|
|
|
|
|
|
|
●
|
Because
there is a lack of formal process and timeline, this cold lead the Company not to be able to timely prepare its financial statements
and could cause it to either file a report late or to a file a report which may contain some errors.
|
|
|
|
|
|
|
●
|
Because
the Company’s management is composed of a small number of persons, there is a lack of segregation of duties.
|
This
report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal
control over financial reporting. We were not required to have, nor have we, engaged the Company’s independent registered public
accounting firm to perform an audit of internal control over financial reporting pursuant to the rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this annual report.
Changes
in Internal Controls over Financial Reporting
There
has been no change in our internal control over financial reporting identified in connection with the evaluation required by paragraph
(d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the quarter ended December 31, 2020 that has materially affected
or is reasonably likely to materially affect our internal control over financial reporting.
Item
9B. Other Information.
None.
PART
III
Item
10. Directors, Executive Officers and Corporate Governance.
The
following sets forth our Officers and Directors as of December 31, 2020 . The Board of Directors elects our Executive Officers annually.
Our Directors shall be elected for the term of one year, and until their successors are elected and qualified, or until their earlier
resignation or removal. Our Officers also shall be elected for the term of one year, and until a successor is elected and qualified,
or until an earlier resignation or removal. Our Directors and Executive Officers are as follows:
|
Name
|
|
Position
|
|
Age
|
|
Thomas
Cook
|
|
Chief
Executive and Chief Financial Officer
|
|
55
|
|
Leslie
Bocskor
|
|
Incoming
Chief Executive and Chief Financial Officer
|
|
55
|
|
Rick
Gutshall
|
|
Director
|
|
46
|
|
Dr.
Lang Coleman
|
|
Director
|
|
66
|
Effective
May 15, 2019, the Company (Registrant) mutually and amicably arranged with departing officer and Director Daniel Weadock, for him to
transition to an advisor to the Registrant. Thus, Mr. Weadock no longer serves in any officer or Director capacity. As part of a non-material
arrangement, subject to the Board monthly requests, Mr. Weadock focuses include consulting on potential acquisitions, among other things.
The Board confirmed typical consulting arrangements to apply moving forward, including some shares of common stock, 100,000, potential
future stock and other considerations, indemnifications, and reimbursement of expenses.
Effective
May 15, 2019, the Board of Directors has appointed Thomas Cook to act as interim principal accounting officer and principal executive
officer serving in the capacity of interim CEO and interim CFO with non-material arrangements to apply moving forward, including compensation
of $2,500 monthly, potential stock and other considerations, indemnifications and reimbursement of expenses. Mr. Cook owns no Company
securities at this time. While Mr. Cook is acting CEO and CFO, the Company sees him serving in a limited role while it is actively seeking
new CEO and CFO candidates to serve on long term basis, with education and experiences to fit the Company 2020 plans.
Effective
May 11, 2020, the Company (Registrant) 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.
Thomas
Cook. Mr. Cook, age 54, was appointed as interim Chief Executive Officer and interim Chief Financial Officer to the Company effective
May 15, 2019. His appointment was for limited attention and services while the Company restructures management, business and seeks potential
long-term CEO and CFO candidates. Mr. Cook has years of experience dealing with management teams of companies, private and public, and
law firms, financial firms, and others and is skilled at dynamic communication, governmental filings compliance (mostly on a state basis),
follow-up skills, and organizational record keeping. He has about 22 years account management experience within the corporate compliance
industry, approximately 10 years of which was with CT Corporation, a Wolters Kluwer company. He founded his own compliance firm, TCE
Compliance Services, about 8 years ago and assists the Company, for nominal compensation, on certain standard corporate filing services.
He honorably served and was discharged, the United States Marine Corps, 1984 to 1988.
Rick
Gutshall. Mr. Gutshall served as our Interim Chief Executive Officer from August 2017 to February 20, 2018 and has served as
a member of our Board of Directors since August 2017 and served as our Chief Financial Officer from August 2017 to December 2017. Since
2016, Mr. Gutshall has served as Chief Financial Officer of Alamo CBD LLC, and since 1999, he has served as a principal of KW Gutshall
& Associates (“KW Gutshall”). Mr. Gutshall is responsible for personalized financial planning, wealth management and
retirement planning for clients at KW Gutshall and has been a licensed financial advisor since 1997. Mr. Gutshall received his Bachelor
of Business Administration, Management and Operations from Concordia University-Austin in 1997. As a member of the Board, Mr. Gutshall
will contribute the benefits of his executive leadership and management experience in finance, business development, contract negotiations
and public speaking. On February 20, 2018, Mr. Rick Gutshall resigned as Interim Chief Executive Officer of the Company.
Dr.
Lang Coleman. In August 2017, Dr. Lang Coleman was appointed as a member of the Board. Dr. Coleman is a proud disabled Army veteran,
long-time Texas resident, and psychologist specializing in Neuropsychology. Dr. Coleman received his B.S. and M.A. from Austin Peay State
University in Clarksville, Tennessee, his Ph.D. in Clinical Psychology from the University of Kansas, and he attended law school at the
University of Texas at Austin. Dr. Coleman completed his medical internship at William Beaumont Army Medical Center in El Paso, Texas,
and spent 22 years, from 1972 through 1994, in U.S. Army Psychiatry. A pensioned Army Officer and decorated combat veteran, Dr. Coleman
formerly directed soldiers and planned both treatments and evacuations for psychiatric casualties in a theatre of war for over 30,000
soldiers and marines. From his time as an Army Major, he has extensive knowledge and experience with chain of custody in his dealings
with deliverables ranging from drug-testing biological samples to weapons and ordinance and holds the Combat Medical Badge. After serving
17 years, from 1998 through 2015, Dr. Coleman retired as a tenured professor of psychology at St. Philip’s College in San Antonio,
Texas, where he taught Abnormal Psychology and Statistics courses. Dr. Coleman authored curriculum in 1994 for a juvenile justice alternative
education program and licensed the copyright, for one year, to The Key Corporation. The school was successfully launched in Dallas. As
the CEO of Alamo CBD since March 2017, Dr. Coleman has regularly facilitated, sponsored and participated in many community activities.
He has frequently appeared on television and at the Texas State Capital as an advocate for the Compassionate-Use Program. As a member
of the Board, Dr. Coleman will contribute the benefits of his military experience treating veterans with post-traumatic stress disorder,
or PTSD, and other medical conditions and will manage the Company’s medical and science policy and procedures. His contributions
and deep understanding of all aspects of our business and industry will provide considerable experience in developing the Company’s
medical and scientific procedures and policies.
Leslie
Bocskor. Mr. Bocskor is the Chairman and founder of Electrum Partners or “EP.” EP is involved in a variety of related
industry ventures and consulting. He is a recognized industry consultant in the legal cannabis area and interacts with mainstream media
often being featured, including Forbes, CNBC, The Wall Street Journal, and more. He formed Electrum Partners in 2014 and became the founding
Chairman of the Nevada Cannabis Industry Association (NVCIA). He is an active speaker at industry conferences, including the ArcView
Group. Leslie began his career at Lehman Brothers and later went on to co-found Mason Cabot, a New York based investment bank focused
on emerging technologies and finance. In 2005, he served as Managing Partner with Lennox Hill Partners. Bocskor often advised politicians,
industry leaders, and investment firms who seek out his groundbreaking analysis and insight into the cannabis economy.
Prior
Management.
Daniel
Weadock. On February 20, 2018, Mr. Daniel Weadock was appointed Chief Executive Officer and Director of the Company. Since August 2017,
Mr. Weadock was Co-Founder and CEO of Junebug Technologies, LLC, a next generation microbial biotechnology company focused on developing
solutions based on photosynthetic bacteria and other versatile microorganisms. Since 2005, Mr. Weadock also has served as President and
CEO of The International in Bolton, Massachusetts, a world class golf and special event destination with its own boutique lodge and signature
restaurant. As a change maker, he led a cultural and business transformation, from a very traditional and conservative enterprise to
a more modern, open and forward-thinking organization. Prior to 2005, Mr. Weadock served as Vice President of Enterprise Sales for Williams
Telecommunications from 2002 through 2004, building a new sales team and opening new doors in enterprise markets. From 1999 through 2001,
Mr. Weadock served as Co-Founder and CEO of FilmAxis, an online, broadband virtual film market, where he led business plan development
and capital raising. Prior to FilmAxis, Mr. Weadock was an Executive Vice President of Consortio from 1999 through 2000, a Seattle, Washington
incubator of internet-based business to business communities, where he led business development. Before joining Consortio, Mr. Weadock
spent a year working with Fast Engines as their VP of Sales and President, from 1998 through 1999, his first start up in Cambridge, Massachusetts,
a small software development company. Prior to Fast Engines, Mr. Weadock spent more than 10 years with Cable & Wireless Plc in a
variety of roles around the world. After landing what was at the time one of the largest data networking infrastructure deals in Cable
& Wireless’ history, Mr. Weadock was awarded a Fellowship to MIT’s Sloan School of Management where he earned a Master
of Science in Management. Mr. Weadock is a forward-thinking visionary who will bring his many years of experience as a thought leader
and an agent of change to the next stage of the Company’s development. As a member of the board, Mr. Weadock contributes the benefits
of his executive leadership and management experience in developing corporate strategy, assessing emerging industry trends, and business
operations. The Company believes that his contributions and deep understanding of all aspects of our business, products and markets will
provide substantial experience to fuel our corporate growth.
Family
Relationships
There
are no family relationships between any director or executive officer.
Involvement
in Certain Legal Proceedings
No
officer, director, or persons nominated for such positions, promoter or significant employee has been involved in the last ten years,
to our belief, in any of the following:
|
|
●
|
Any
bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the
time of the bankruptcy or within two years prior to that time,
|
|
|
|
|
|
|
●
|
Any
conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor
offenses),
|
|
|
|
|
|
|
●
|
Being
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities
or banking activities,
|
|
|
|
|
|
|
●
|
Being
found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
|
|
|
|
|
|
|
●
|
Having
any government agency, administrative agency, or administrative court impose an administrative finding, order, decree, or sanction
against them as a result of their involvement in any type of business, securities, or banking activity.
|
|
|
|
|
|
|
●
|
Being
the subject of a pending administrative proceeding related to their involvement in any type of business, securities, or banking activity.
|
|
|
|
|
|
|
●
|
Having
any administrative proceeding been threatened against you related to their involvement in any type of business, securities, or banking
activity.
|
Item
11. Executive Compensation.
The
table below summarizes all compensation awarded to, earned by, or paid to each named executive officer for the Company’s last completed
fiscal year of 2020 for all services rendered to the Company.
|
Name and Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock Awards
($) (1)
|
|
|
Option Awards
($)
|
|
|
Non-Equity Incentive Plan Compensation
($)
|
|
|
Nonqualified Deferred Compensation
($)
|
|
|
All Other Compensation
($)
|
|
|
Total
($)
|
|
|
Chad Sykes, former CEO, Secretary
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
2019
|
|
|
$
|
48,077
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
48,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel Weadock, Former CEO
|
|
|
2020
|
|
|
|
0
|
|
|
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rick Gutshall
|
|
|
2020
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
Former interim CEO and Former CFO (3)
|
|
|
2019
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
Thomas Cook
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,750
|
|
|
$
|
18,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leslie Bocskor
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
(1)
|
For
valuation purposes, the dollar amount shown is calculated based on the market price of the common stock on the grant dates. The number
of shares granted, the grant date, and the market price of such shares for each named executive officer is set forth below.
|
|
|
|
|
(2)
|
Chad
Sykes, Founder, resigned as CEO, Secretary on January 2, 2017 and was appointed Chief Innovation Officer. On August 9, 2017, Mr.
Sykes resigned from his position as Chief Innovation Officer. In March, 2019, Mr. Sykes resigned from his executive officer positions
with the Company.
|
|
|
|
|
(3)
|
Mr.
Gutshall served as the Company’s Chief Financial Officer from August 2017 to December 2017, and as the Company’s Interim
Chief Executive Officer from August 2017 to February 20, 2018. On February 20, 2018, Mr. Rick Gutshall resigned as Interim Chief
Executive Officer of the Company. Mr. Gutshall was not compensated in any way by the Company relating to his services as the Company’s
Interim Chief Executive Officer or as the Company’s Chief Financial Officer in 2017. Mr. Gutshall did receive 758,401 shares
of the Company’s common stock in connection with the Alamo Merger, however, such share issuance was not in any way connected
or related to Mr. Gutshall’s previous officer positions with the Company nor his position as a director of the Company.
|
Employment
Agreements
Past
Agreements-Daniel Weadock, Chief Executive Officer and Director
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 will initially not receive a salary. However, effective on the business day after the date on which the Company achieves Capitalization
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 Weadock Employment 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 Weadock Employment
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 shares of common stock of the Company, consistent with the grant and vesting schedule set forth in the Director Compensation
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.
Additionally,
on February20, 2018, the Company entered into an indemnity agreement with Mr. Weadock (the “Weadock Indemnity Agreement”).
Pursuant to the terms of the Weadock 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.
Mr.
Weadock no longer has an employment agreement.
Rick
Gutshall, Former Interim Chief Executive Officer and Current Director
Mr.
Gutshall served as our Interim Chief Executive Officer from August 2017 until February 2018 as a member of our Board of Directors since
August 2017, and as our Chief Financial Officer from August 2017 to December 2017. On August 9, 2017, the Company entered into a director
agreement (the “Gutshall Director Agreement”), employment agreement (the “Gutshall Employment Agreement”) and
an indemnity agreement (the “Gutshall Indemnity Agreement”) with Rick Gutshall. The Gutshall Employment Agreement commenced
on August 9, 2017.
Pursuant
to the terms of the Gutshall Director Agreement, Mr. Gutshall shall serve as a member of the Company’s Board and will receive a
stock award in such amount as determined by the Board upon the earlier of (i) 30 days from August 9, 2017 and (ii) the closing of a financing
pursuant to which the Company receives a minimum of $500,000 in proceeds. In addition, Mr. Gutshall shall be reimbursed for all reasonable
travel and other incidental expenses incurred in the performance of his services, including attendance at meetings, as approved by the
Company.
Pursuant
to the terms of the Gutshall Employment Agreement, Mr. Gutshall agreed to serve as Interim Chief Executive Officer and Chief Financial
Officer of the Company. The initial term of the agreement will expire on August 9, 2018 and commencing on August 9, 2018 and on each
anniversary of such date thereafter, the term of the Gutshall Employment Agreement shall automatically renew for one-year periods, unless
earlier terminated pursuant to the terms of the Gutshall Employment Agreement. In consideration for Mr. Gutshall’s services, the
Board shall determine Mr. Gutshall’s compensation upon the earlier of (i) 30 days from August 9, 2017 and (ii) the closing of a
financing pursuant to which the Company receives a minimum of $500,000 in proceeds. On February 20, 2018, Mr. Rick Gutshall resigned
as Interim Chief Executive Officer of the Company.
Effective May 15, 2019, the Board of Directors appointed
Thomas Cook to act as interim principal accounting officer and principal executive officer serving in the capacity of interim CEO and
interim CFO with non-material arrangements to apply moving forward, including compensation of $5,000 and 10,000 shares monthly, potential
stock and other considerations, indemnifications and reimbursement of expenses. While Mr. Cook was the acting CEO and CFO, the Company
sees him serving in a limited role while it is actively seeking new CEO and CFO candidates to serve on long term basis, with education
and experiences to fit the Company 2020 plans. As of December 31, 2019, the Company recorded accrued management fee of $9,000. On May
11, 2020, Mr. Cook resigned his positions with the Company.
Retirement
Benefits
We
do not currently provide our named executive officers with supplemental or other retirement benefits.
Outstanding
Equity Awards at December 31, 2020
As
of December 31, 2020, we had not granted any stock-based compensation awards to any of our named executive officers. A total, however,
of 100,000 shares of common stock were awarded to Daniel Weadock for 2018 per his 2018 employment agreement.
Director
Compensation
No
compensation applies to Directors.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
As
of December 31, 2020, the preferred shareholders can convert and own 12.5 Billion shares of common stock if they elect to do so. The
following table illustrates the year-end potential fully diluted shares as of December 31, 2020 and 2019. The shares issued and outstanding
on Dec 31 2020 was 201,037,304.
For
the year ended December 31, 2020 and 2019, the following common stock equivalents were excluded from the computation of diluted net loss
per share as the result of the computation was anti-dilutive.
|
|
|
Years ended
|
|
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
(shares)
|
|
|
(shares)
|
|
|
|
|
|
|
|
|
|
|
Series A Preferred Stock
|
|
|
12,500,000,000
|
|
|
|
1,214,574,899
|
|
|
Convertible notes
|
|
|
149,922,109
|
|
|
|
1,197,242,200
|
|
|
|
|
|
12,649,922,109
|
|
|
|
2,411,817,099
|
|
The
following table sets forth the ownership, as of the this date of our common stock by each person known by us to be the beneficial owner
of more than 5% of our outstanding common stock, our director, and our executive officer and director as a group. To the best of our
knowledge, the persons named have sole voting and investment power with respect to such shares, except as otherwise noted. There are
no pending or anticipated arrangements that may cause a change in control.
The
information presented below regarding beneficial ownership of our voting securities has been presented in accordance with the rules of
the Securities and Exchange Commission and is not necessarily indicative of ownership for any other purpose. Under these rules, a person
is deemed to be a “beneficial owner” of a security if that person has or shares the power to vote or direct the voting of
the security or the power to dispose or direct the disposition of the security. A person is deemed to own beneficially any security as
to which such person has the right to acquire sole or shared voting or investment power within 60 days through the conversion or exercise
of any convertible security, warrant, option or other right. More than one person may be deemed to be a beneficial owner of the same
securities. The percentage of beneficial ownership by any person as of a particular date is calculated by dividing the number of shares
beneficially owned by such person, which includes the number of shares as to which such person has the right to acquire voting or investment
power within 60 days, by the sum of the number of shares outstanding as of such date plus the number of shares as to which such person
has the right to acquire voting or investment power within 60 days. Consequently, the denominator used for calculating such percentage
may be different for each beneficial owner. Except as otherwise indicated below and under applicable community property laws, we believe
that the beneficial owners of our common stock listed below have sole voting and investment power with respect to the shares shown. The
business address of the shareholders is 7401 W. Slaughter Lane #5078, Austin, Texas 78739.
Certain
Ownership Table(1)
|
Name
|
|
Number of
Shares of
Common
Stock
|
|
|
Percentage
|
|
|
Thomas Cook (2)
|
|
|
1,218
|
|
|
|
0
|
%
|
|
Leslie Bocskor (3)
|
|
|
65,552
|
|
|
|
0.00003504
|
%
|
|
Rick Gutshall (4)
|
|
|
758,401
|
|
|
|
0.00040541
|
%
|
|
Lang Coleman (5)
|
|
|
1,317,528
|
|
|
|
0.0007043
|
%
|
|
All executive officers and directors as a group (4 persons)
|
|
|
2,141,481
|
|
|
|
0.0001109
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Benjamin Coleman
|
|
|
1,317,528
|
|
|
|
0.0007043
|
%
|
1.
The percentages are based on the total issued common stock as of December 31, 2020 of 2,401,396,041.
2.
Mr. Cook is both Chief Executive Officer and Chief Financial Officer.
3.
Mr. Bocskor is both Incoming Chief Executive Officer and Chief Financial Officer.
4.
Mr. Gutshall is a Director.
5.
Mr. Coleman is a Director.
This
table is based upon information derived from our stock records. Unless otherwise indicated in the footnotes to this table and subject
to community property laws where applicable, each of the shareholders named in this table has sole or shared voting and investment power
with respect to the shares indicated as beneficially owned.
Item
13. Certain Relationships and Related Transactions, and Director Independence.
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 January 15, 2019, this
agreement was terminated.
Weadock
Employment Agreement
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.
Effective
May 15, 2019, the Registrant mutually and amicably arranged with departing officer and Director Daniel Weadock, for him to transition
becoming an advisor to the Registrant. Thus, Mr. Weadock no longer serves in any officer or Director capacity. As part of a non-material
arrangement, subject to the Board monthly requests, Mr. Weadock focuses include consulting on potential acquisitions, among other things.
The Board confirmed typical consulting arrangements to apply moving forward, including some shares of common stock, 100,000, potential
future stock and other considerations, indemnifications, and reimbursement of expenses.
Management
Effective
May 15, 2019, the Board of Directors appointed Thomas Cook to act as interim principal accounting officer and principal executive officer
serving in the capacity of interim CEO and interim CFO with non-material arrangements to apply moving forward, including compensation
of $5,000 and 10,000 shares monthly, potential stock and other considerations, indemnifications and reimbursement of expenses. While
Mr. Cook was the acting CEO and CFO, the Company sees him serving in a limited role while it is actively seeking new CEO and CFO candidates
to serve on long term basis, with education and experiences to fit the Company 2020 plans. As of December 31, 2019, the Company recorded
accrued management fee of $9,000. On May 11, 2020, Mr. Cook resigned his positions with the Company.
Effective
May 11, 2020, the Company (Registrant) 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.
Convertible
Promissory Note
On
September 28, 2020, The Company entered into a Convertible Promissory Note with Electrum Partners, LLC, (the “Electrum Partners”)
for $10,000 USD with a maturity of 90 days. The proceeds will be used for general corporate purposes. Electrum Partners, LLC is an entity
under common control with the Company.
Director
Independence
Our
board of directors has determined that we do not have a board member that qualifies as “independent” as the term is used
in Item 7(d)(3) (iv)(B) of Schedule 14A under the Securities Exchange Act of 1934, as amended, and as defined by Rule 4200(a)(15) of
the NASDAQ Marketplace Rules.
Item
14. Principal Accountant Fees and Services.
WWC,
Professional Corporation, was our independent auditor for the year ended December 31, 2020.
The
following table shows the fees paid or accrued by us for the audit and other services provided by our auditor for the fiscal years ended
December 31, 2020 and 2019.
|
|
|
2020
|
|
|
2019
|
|
|
Audit fees
|
|
$
|
17,500
|
|
|
$
|
48,000
|
|
|
Audit-related fees
|
|
|
-
|
|
|
|
—
|
|
|
Tax fees
|
|
|
-
|
|
|
|
—
|
|
|
All other fees
|
|
|
-
|
|
|
|
—
|
|
|
Total
|
|
$
|
17,500
|
|
|
$
|
48,000
|
|
As
defined by the SEC, (i) “audit fees” are fees for professional services rendered by our principal accountant for the audit
of our annual financial statements and review of financial statements included in our Form 10-K, or for services that are normally provided
by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years; (ii) “audit-related
fees” are fees for assurance and related services by our principal accountant that are reasonably related to the performance of
the audit or review of our financial statements and are not reported under “audit fees;” (iii) “tax fees” are
fees for professional services rendered by our principal accountant for tax compliance, tax advice, and tax planning; and (iv) “all
other fees” are fees for products and services provided by our principal accountant, other than the services reported under “audit
fees,” “audit-related fees,” and “tax fees.”
Under
applicable SEC rules, the Audit Committee is required to pre-approve the audit and non-audit services performed by the independent auditors
in order to ensure that they do not impair the auditors’ independence. The SEC’s rules specify the types of non-audit services
that an independent auditor may not provide to its audit client and establish the Audit Committee’s responsibility for administration
of the engagement of the independent auditors. Until such time as we have an Audit Committee in place, the Board of Directors will pre-approve
the audit and non-audit services performed by the independent auditors.
Consistent
with the SEC’s rules, the Audit Committee Charter requires that the Audit Committee review and pre-approve all audit services and
permitted non-audit services provided by the independent auditors to us or any of our subsidiaries. The Audit Committee may delegate
pre-approval authority to a member of the Audit Committee and if it does, the decisions of that member must be presented to the full
Audit Committee at its next scheduled meeting.
NOTES
TO CONSOLIDATED 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 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.
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
December 31, 2019. 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.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant
estimates include, but are not limited to, the estimate of percentage of completion on construction contracts in progress at each reporting
period which we rely on as a primary basis of revenue recognition, estimated useful lives of equipment for purposes of depreciation and
the valuation of common shares issued for services, equipment and the liquidation of liabilities.
Principles
of Consolidation
The
consolidated financial statements include the accounts of Indoor Harvest Corp. and its wholly-owned subsidiaries, Alamo CBD and IHC.
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.
For
the years ended December 31, 2020 and 2019, respectively, the following common stock equivalents were excluded from the computation of
diluted net loss per share as the result of the computation was anti-dilutive.
|
|
|
Years ended
|
|
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
(shares)
|
|
|
(shares)
|
|
|
|
|
|
|
|
|
|
|
Series A Preferred Stock
|
|
|
12,500,000,000
|
|
|
|
1,214,574,899
|
|
|
Convertible notes
|
|
|
149,922,109
|
|
|
|
1,197,242,200
|
|
|
|
|
|
12,649,922,109
|
|
|
|
2,411,817,099
|
|
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 December 31, 2020 and 2019, measured at fair value on a recurring basis:
|
December 31, 2020
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
44,274,727
|
|
|
$
|
44,274,727
|
|
|
December 31,2019
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,029,748
|
|
|
$
|
3,029,748
|
|
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 are 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:
|
|
|
Estimated Useful
|
|
Asset Description
|
|
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 for impairment charges taken during the years ended December 31, 2020 and 2019, 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, 2020 and 2019, 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.
Reclassification
Certain
amounts from prior periods have been reclassified to conform to the current period presentation.
Adoption
of New Accounting Standards
Effective
January 1, 2019, we adopted Accounting Standards Codification 842, Leases (“ASC 842”). Operating lease right-of-use (“ROU”)
assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease
payments arising from the lease, both of which are recognized based on the present value of the future minimum lease payments over the
lease term at the commencement date. Leases with a lease term of 12 months or less at inception are not recorded on our consolidated
balance sheet and are expensed on a straight-line basis over the lease term in our consolidated statement of income. The adoption of
this standard did not have a significant impact on the financial statements.
NOTE
2 - GOING CONCERN
As
reflected in the accompanying financial statements, the Company had a net loss of $46,280,775, net cash used in operations of $17,452
and has an accumulated deficit of $61,172,660, for the year ended December 31, 2020. These factors raise substantial doubt about the
Company’s ability to continue as a going concern.
The
ability of the Company to continue as a going concern is dependent on Management’s plans which include potential asset acquisitions,
mergers or business combinations with other entities, further implementation of its business plan and continuing to raise funds through
debt or equity financings. The Company will likely rely upon related party debt or equity financing in order to ensure the continuing
existence of the business.
The
business plan of the Company is to engage in the design, development, marketing and direct-selling of commercial grade aeroponics fixtures
and supporting systems for use in urban Controlled Environment Agriculture (“CEA”) and Building Integrated Agriculture (“BIA”).
During the next twelve months, the Company’s strategy is to: complete ongoing product development; commence product marketing,
product assembly and sales; construct a demonstration CEA and BIA farm; and offer design-build services. The Company’s long-term
strategy is to direct sale, license and franchise their patented technologies and methods.
The
accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of
the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going
concern.
NOTE
3 - PROPERTY AND EQUIPMENT
Property
and equipment consist of the following at December 31, 2020 and 2019:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Classification
|
|
2020
|
|
|
2019
|
|
|
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
|
|
|
(53,402
|
)
|
|
|
(48,787
|
)
|
|
Property and equipment, net
|
|
$
|
-
|
|
|
$
|
4,615
|
|
Depreciation
expense for the years ended December 31, 2020 and 2019, totaled $0 and $4,615, respectively.
NOTE
4 - INTANGIBLE ASSETS
There
were no impairment charges taken for intangible assets during the years ended December 31, 2020 and 2019.
Intangible
assets consist of the following at December 31, 2020 and 2019:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Classification
|
|
2020
|
|
|
2019
|
|
|
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
|
|
|
(10,582
|
)
|
|
|
(7,892
|
)
|
|
Intangible assets, net
|
|
$
|
-
|
|
|
$
|
2,690
|
|
Amortization
expense for the years ended December 31, 2020 and 2019, totaled $0 and $2,690, respectively.
NOTE
5 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities at December 31, 2020 and 2019 are as follows:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Accounts payable
|
|
$
|
283,357
|
|
|
$
|
130,584
|
|
|
Credit card
|
|
|
16,570
|
|
|
|
16,595
|
|
|
Accrued expenses
|
|
|
15,714
|
|
|
|
15,714
|
|
|
Accrued management fee
|
|
|
3,605
|
|
|
|
9,000
|
|
|
Accrued interest
|
|
|
35,350
|
|
|
|
227,817
|
|
|
|
|
$
|
354,596
|
|
|
$
|
399,710
|
|
NOTE
6 - CONVERTIBLE NOTES PAYABLE
Convertible
notes payable at December 31, 2020 and December 31, 2019 are as follows:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Note 2
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
Note 3
|
|
|
-
|
|
|
|
226,956
|
|
|
Note 4
|
|
|
-
|
|
|
|
522,884
|
|
|
Note 5
|
|
|
-
|
|
|
|
65,000
|
|
|
Note 6
|
|
|
25,200
|
|
|
|
48,000
|
|
|
Note 7
|
|
|
38,000
|
|
|
|
38,000
|
|
|
Noe 8 - related party
|
|
|
10,000
|
|
|
|
-
|
|
|
Total convertible notes payable
|
|
|
123,200
|
|
|
|
950,840
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Unamortized debt discount
|
|
|
-
|
|
|
|
(53,012
|
)
|
|
Total convertible notes
|
|
|
123,200
|
|
|
|
897,828
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: current portion of convertible notes
|
|
|
123,200
|
|
|
|
897,828
|
|
|
Long-term convertible notes
|
|
$
|
-
|
|
|
$
|
-
|
|
During the years ended December 31, 2020 and 2019,
the Company recorded total interest expense of $523,283 and $293,475, of which included amortization of discount of $140,913 and $157,631.
As of December 31, 2020 and 2019, the Company had accrued interest of $35,350 and $374,231, respectively.
Conversion
During
the year ended December 31, 2020, the Company converted notes with principal amounts and accrued interest of $1,412,106 into 2,198,337,731
shares of common stock. The corresponding derivative liability at the date of conversion of $4,352,300 was settled through additional
paid in capital.
During
the year ended December 31, 2019, the Company converted notes with principal amounts and accrued interest of $374,231 into 159,584,559
shares of common stock. The corresponding derivative liability at the date of conversion of $757,634 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 a conversion price of 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.
NOTE
7 - DERIVATIVE LIABILITIES
The
Company identified the conversion features embedded within its convertible debts as financial derivatives. The Company bifurcated a conversion
liability related to a down-round protection provided to the Series A Preferred Stock. The Company has determined that the embedded conversion
option should be accounted for at fair value.
At
December 31, 2020, the estimated fair values of the liabilities measured on a recurring basis are as follows:
|
|
|
|
Year ended
|
|
|
|
Year ended
|
|
|
|
|
|
December 31, 2020
|
|
|
|
December 31, 2019
|
|
|
Expected term
|
|
|
0.06
- 0.50
|
|
|
|
0.01
- 1.00
|
|
|
Expected average volatility
|
|
|
146%
- 389
|
%
|
|
|
186%
- 287
|
%
|
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
|
Risk-free interest rate
|
|
|
0.07% - 0.27
|
%
|
|
|
1.60% - 2.45
|
%
|
The
following schedule shows the change in fair value of the derivative liabilities at December 31, 2020:
|
Fair Value Measurements Using Significant Observable Inputs (Level 3)
|
|
Balance - December 31, 2018
|
|
$
|
1,452,469
|
|
|
Addition of new derivatives recognized as debt discounts
|
|
|
164,287
|
|
|
Addition of new derivatives recognized as loss on derivatives
|
|
|
972,264
|
|
|
Settled on issuance of common stock
|
|
|
(757,634
|
)
|
|
Gain on change in fair value of the derivative
|
|
|
1,198,362
|
|
|
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
|
|
|
(4,352,299
|
)
|
|
Loss on change in fair value of the derivative
|
|
|
44,808,869
|
|
|
Balance - December 31, 2020
|
|
$
|
44,274,727
|
|
The
aggregate loss on derivatives during the years ended December 31, 2020 and 2019 was $45,509,377 and $2,170,626, 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 December 31, 2020, which is $0.0035
was used in lieu of pricing model because the contract did not have an end date.
NOTE
8 - 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 January 15, 2019, this
agreement was terminated.
Weadock
Employment Agreement
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.
Effective
May 15, 2019, the Registrant mutually and amicably arranged with departing officer and Director Daniel Weadock, for him to transition
to becoming an advisor to the Registrant. Thus, Mr. Weadock no longer serves in any officer or Director capacity. As part of a non-material
arrangement, subject to the Board monthly requests, Mr. Weadock focuses include consulting on potential acquisitions, among other things.
The Board confirmed typical consulting arrangements to apply moving forward, including some shares of common stock, 100,000, potential
future stock and other considerations, indemnifications and reimbursement of expenses.
Management
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.
Debt
forgiveness
During
the year ended December 31, 2020, the Company wrote off $100 due to related party and recognized it as additional paid-in-capital.
NOTE
9 - 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.
|
The
Company financials have been presented assuming that the increase in authorized was in effect from the first period presented.
Preferred
Stock
Series
A Convertible Preferred Stock
The
Company has designated 15,000,000 shares of Series A Preferred Stock with a par value of $0.01.
The
stated value of each issued share of Series A Convertible Preferred Stock shall be deemed to be $1.00, as the same may be equitably adjusted
whenever there may occur a stock dividend, stock split, combination, reclassification or similar event affecting the Series A Convertible
Preferred Stock. There are no dividends payable on the Series A Convertible Preferred Stock. Each holder of outstanding shares of Series
A Convertible Preferred Stock shall be entitled to cast the number of votes for the Series A Convertible Preferred Stock in an amount
equal to the number of whole shares of common stock into which the shares of Series A Convertible Preferred Stock held by such holder
are convertible as of the record date for determining stockholders entitled to vote on such matter
The
Series A Preferred Stock also had a “down-round” protection feature provided to the investors if the Company subsequently
issued or sold any shares of common stock, stock options, or convertible securities at a price less than the conversion price of $1.00
per common share. The conversion price would be automatically adjustable down to the price of the instrument being issued. As a result
of conversion during the year ended December 31, 2020, the Series A Preferred Stock conversion price was reset to $0.00006 per share.
Upon
any liquidation, dissolution or winding-up of the Company under Texas law, whether voluntary or involuntary, the holders of the shares
of Series A Convertible Preferred Stock shall be paid an amount equal to the aggregate stated value of their shares of Series A Convertible
Preferred Stock, before any payment shall be paid to the holders of common stock, or any other stock ranking on liquidation junior to
the Series A Convertible Preferred Stock, an amount for each share of Series A Convertible Preferred Stock held by such holder equal
to the sum of the Stated Value thereof.
As
at December 31, 2020 and 2019, there were 750,000 shares of Series A Convertible Preferred Stock issued and outstanding.
On
August 27, 2021, Indoor Harvest Corp (the “Company”) completed an initiative when it entered into a Modification Agreement
(the “Modification”) in cooperation with the current Series A Preferred shareholders to modify their conversion privileges
to align and support current management team initiatives and shareholder interests. The modification agreement provides the Preferred
shareholders the ability to convert into common shares at a conversion price at the lower of $0.40 (per the original agreement), or the
subsequent per share pricing of a future equity raise greater than Five Hundred Thousand ($500,000) Dollars. This Modification
is forecasted to support anti- dilutive measures potentially to the benefit of our shareholders and may allow the Company to proceed
with plans relating to funding needs.
Common
Stock
Each
common stock entitles the holder to one vote, in person or proxy, on any matter on which action of the stockholders of the corporation
is sought.
During
the year ended December 31, 2020, the Company issued 2,200,358,737 shares of common stock as follows:
|
|
●
|
2,021,006
shares to consultant valued at $72,920 for consulting services
|
|
|
●
|
2,198,337,731
shares for conversion of debt of $1,412,106
|
During
the year ended December 31, 2019, the Company issued 166,148,889 shares of common stock as follows:
|
|
●
|
6,245,318
shares valued at $100,466 for consulting services
|
|
|
●
|
129,012
shares valued at $6,179 pursuance to Weadock Employment Agreement (Note 8)
|
|
|
●
|
100,000
shares valued at $3,690 for a termination of Weadock Employment Agreement (Note 8)
|
|
|
●
|
90,000
shares valued at $1,218 for a management compensation (Note 8)
|
|
|
●
|
159,584,559
shares resulting from the conversion of debt valued at $367,128 (Note 6)
|
NOTE
10 - 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, 2020 and 2019 are as follows:
|
Description
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
1,681,907
|
|
|
$
|
1,549,505
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
Accelerated tax depreciation
|
|
|
-
|
|
|
|
19,183
|
|
|
Net deferred tax assets
|
|
|
1,681,907
|
|
|
|
1,568,688
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Valuation allowance
|
|
|
(1,681,907
|
)
|
|
|
(1,568,688
|
)
|
|
Net
|
|
$
|
-
|
|
|
$
|
-
|
|
At
December 31, 2020 and 2019, the Company has provided a full valuation allowance for the deferred tax assets. The Company’s accumulated
net operating loss as of December 31, 2020 of $5,856,768, 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.
NOTE
11 - COMMITMENTS & CONTINGENCIES
As
of December 31, 2020, the Company did not have any outstanding rental commitments; the Company incurred rent expense for the years ended
December 31, 2020 and 2019, totaling $0 and $17,050, respectively.
NOTE
12 - 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.
On August 26, 2021, Indoor Harvest Corp (the
“Company”) entered into subscription agreements, (the “Agreement”), with certain accredited investors for the
sale of Eighty-Two Million (82,000,000) Common Shares (the “Shares”) of the Company’s common stock, par value of $0.001
per share, for a total consideration to the Company of Four Hundred and Ten Thousand ($410,000) Dollars. The Shares will be restricted
and subject to compliant required holding periods under Rule 144.
The Company intends to use the net proceeds
from the sale of the Shares for general corporate purposes, such as payments for certain vendor services, filing requirements, settlement
of certain payables, working capital, etc.
On August 27, 2021, Indoor Harvest Corp (the
“Company”) completed an initiative when it entered into a Modification Agreement (the “Modification”) in cooperation
with the current Series A Preferred shareholders to modify their conversion privileges to align and support current management team initiatives
and shareholder interests. The modification agreement provides the Preferred shareholders the ability to convert into common shares
at a conversion price at the lower of $0.40 (per the original agreement), or the subsequent per share pricing of a future equity raise
greater than Five Hundred Thousand ($500,000) Dollars. This Modification is forecasted to support anti- dilutive measures potentially
to the benefit of our shareholders and may allow the Company to proceed with plans relating to funding needs.
The
company is subject to risks, statements herein include forecasts, actual events may be different, nothing herein is an offer or solicitation
of an offer for the sale or purchase of any security.