UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended March 31, 2021  

 

or

 

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

 

For the transition period from   to    

 

Commission File Number 000-55594  

 

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

 

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

 

7401 W. Slaughter Lane #5078

Austin, Texas

  78739
(Address of principal executive offices)   (Zip Code)

 

512-309-1776
(Registrant’s telephone number, including area code)

 

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

 

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

 

Title of each class  

Trading Symbol(s)

  Name of each exchange on which registered
         

 

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

 

☒ YES ☐ NO

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

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

 

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

 

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

 

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

 

☐ YES ☒ NO

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 2,401,396,041 common shares issued and outstanding as of March 31, 2021.

 

 

 

 
 

 

TABLE OF CONTENTS

 

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

 

2
 

 

FORWARD-LOOKING STATEMENTS

 

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

 

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

 

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

 

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

 

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

 

3
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

INDOOR HARVEST CORP

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

    March 31,     December 31,  
    2021     2020  
ASSETS                
Current Assets:                
Cash   $ 26,157     $ 1,207  
Prepaid expenses and other receivable     835       1,876  
Total Current Assets     26,992       3,083  
                 
TOTAL ASSETS   $ 26,992     $ 3,083  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
Current Liabilities:                
Accounts payable and accrued liabilities   $ 378,035     $ 354,596  
Convertible notes payable     148,200       123,200  
Derivative liabilities     147,879,315       44,274,727  
Total Current Liabilities     148,405,550       44,752,523  
                 
Total Liabilities     148,405,550       44,752,523  
                 
Commitments and contingencies     -       -  
                 
Stockholders’ Deficit                
Preferred stock: 15,000,000 authorized; $0.01 par value;
Series A Convertible Preferred stock: 15,000,000 designated,
750,000 shares issued and outstanding
    7,500       7,500  
Common stock: 10,000,000,000 authorized; $0.001 par value;
2,401,396,041 shares issued and outstanding
    2,401,396       2,401,396  
Additional paid in capital     14,014,324       14,014,324  
Accumulated deficit     (164,801,778 )     (61,172,660 )
Total Stockholders’ Deficit     (148,378,558 )     (44,749,440 )
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT   $ 26,992     $ 3,083  

 

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

 

F- 1
 

 

INDOOR HARVEST CORP

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

    Three Months Ended  
    March 31,  
    2021     2020  
             
Revenue   $ -     $ -  
                 
Operating Expenses                
Professional fees     17,500       127,150  
General and administrative     5,225       4,679  
Total Operating Expenses     22,725       131,829  
                 
Loss from operations     (22,725 )     (131,829 )
                 
Other Income (Expense)                
Interest expense     (1,805 )     (41,165 )
Change in fair value of derivative liability     (103,604,588 )     (1,560,959 )
Total other loss     (103,606,393 )     (1,602,124 )
                 
Loss before income taxes     (103,629,118 )     (1,733,953 )
                 
Provision for income taxes     -       -  
                 
Net loss   $ (103,629,118 )   $ (1,733,953 )
                 
Comprehensive loss   $

(103,629,118

)   $

(1,733,953

)
                 
Basic and diluted loss per common share   $ (0.04 )   $ (0.01 )
                 
Weighted average number of common shares outstanding     2,401,396,041       208,233,694  

 

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

 

F- 2
 

 

INDOOR HARVEST CORP

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(UNAUDITED)

 

For the Three months Ended March 31, 2021

 

    Series A Convertible                 Additional           Total  
    Preferred Stock     Common Stock     Paid in     Accumulated     Stockholders’  
    Number of
Shares
    Amount     Number of Shares     Amount     Capital     Deficit     Deficit  
                                           
Balance - December 31, 2020     750,000     $ 7,500       2,401,396,041     $ 2,401,396     $ 14,014,324     $ (61,172,660 )   $ (44,749,440 )
                                                         
Net loss     -       -       -       -       -       (103,629,118 )     (103,629,118 )
Balance - March 31, 2021     750,000     $ 7,500       2,401,396,041     $ 2,401,396     $ 14,014,324     $ (164,801,778 )   $ (148,378,558 )

 

For the Three months Ended March 31, 2020

 

    Series A Convertible                          
    Preferred Stock     Common Stock                
   

Number

of

Shares

    Amount    

Number

of

Shares

    Amount    

Additional

Paid in Capital

    Accumulated Deficit     Total
Stockholders’ Deficit
 
                                           
Balance - December 31, 2019     750,000     $ 7,500       201,037,304     $ 201,038     $ 10,377,256     $ (14,891,885 )   $ (4,306,091 )
                                                         
Common stock issued for services - third party     -       -       2,021,006       2,021       70,899       -       72,920  
Common stock issued for services - related party     -       -       -       -       -       -       -  
Convertible debt converted into common stock     -       -       70,264,956       70,265       (49,088 )     -       21,177  
Derivative liability     -       -       -       -       38,999       -       38,999  
Net loss     -       -       -       -       -       (1,733,953 )     (1,733,953 )
Balance - March 31, 2020     750,000     $ 7,500       273,323,266     $ 273,324     $ 10,438,066     $ (16,625,838 )   $ (5,906,948 )

 

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

 

F- 3
 

 

INDOOR HARVEST CORP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

    Three Months Ended  
    March 31,  
    2021     2020  
             
Cash Flows from Operating Activities:                
Net loss   $ (103,629,118 )   $ (1,733,953 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization expense     -       1,940  
Amortization of debt discount     -       17,697  
Change in fair value of embedded derivative liability     103,604,588       1,560,959  
Stock issued for services - third party     -       72,920  
Changes in operating assets and liabilities:                
Prepaid expenses and other receivable     1,041       5,331  
Accounts payable and accrued expenses     23,439       67,268  
Net Cash used in Operating Activities     (50 )     (7,838 )
                 
Cash Flows from Financing Activities:                
Repayments of note payable     -       (1,663 )
Proceeds from convertible notes     25,000       -  
Net Cash provided by Financing Activities     25,000       (1,663 )
                 
Net change in cash     24,950       (9,501 )
Cash, beginning of period     1,207       12,353  
Cash, end of period   $ 26,157     $ 2,852  
                 
Supplemental Cash Flow Information                
Cash paid for interest   $ -     $ -  
Cash paid for taxes   $ -     $ -  
                 
Non-Cash Investing and Financing Activities:                
Conversion of convertible note into common shares   $ -     $ 21,177  
Derivative liability reclassified to paid-in capital   $ -     $ 38,999  

 

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

 

F- 4
 

 

INDOOR HARVEST CORP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Operations and Organization

 

Indoor Harvest Corp (the “Company,”) is a Texas corporation formed on November 23, 2011. Our principal executive office was located at 7401 W. Slaughter Lane #5078, Austin, Texas 78739.

 

On August 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 September 30, 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.

 

Interim Financial Statements

 

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) applicable to interim financial information and the requirements of Form 10-Q and Rule 8-03 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they may not include all of the information and disclosure required by accounting principles generally accepted in the United States of America for complete financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included. These interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2020, as not all disclosures required by generally accepted accounting principles for annual financial statements may be presented. The interim financial statements follow the same accounting policies and methods of computations as the audited financial statements for the year ended December 31, 2020.

 

Basis of Presentation

 

The accompanying condensed consolidated 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”) and the requirements of Form 10-Q and Rule 8-03 of Regulation S-X of the U.S. Securities and Exchange Commission. Accordingly, they may not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included. These interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2020, as not all disclosures required by generally accepted accounting principles for annual financial statements may be presented.

 

Use of Estimates

 

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

 

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

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant inter-company accounts and transactions have been eliminated in consolidation.

 

F- 5
 

 

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 three months ended March 31, 2021 and 2020, 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.

 

    Three months ended  
    March 31,  
    2021     2020  
    (shares)     (shares)  
             
Series A Preferred Stock     12,500,000,000       2,884,615,385  
Convertible notes     32,270,029       4,157,725,282  
      12,532,270,029       7,042,340,667  

 

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 March 31, 2021 and December 31, 2020, the Company did not have any derivative instruments that were designated as hedges.

 

Fair Value of Financial Instruments

 

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

 

The following table summarizes fair value measurements by level at March 31, 2021 and December 31, 2020, measured at fair value on a recurring basis:

 

March 31, 2021   Level 1     Level 2     Level 3     Total  
Assets                                
None   $ -     $ -     $ -     $ -  
                                 
Liabilities                                
Derivative liabilities   $ -     $ -     $ 147,879,315     $ 147,879,315  

 

December 31, 2020   Level 1     Level 2     Level 3     Total  
Assets                                
None   $ -     $ -     $ -     $ -  
                                 
Liabilities                                
Derivative liabilities   $ -     $ -     $ 44,274,727     $ 44,274,727  

 

F- 6
 

 

Recently Issued Accounting Pronouncements

 

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

 

NOTE 2 - GOING CONCERN

 

The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. The Company had minimal cash as of March 31, 2021, incurred losses from its operations and did not generate cash from its operation for past two years and the three months ended March 31, 2021. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

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

 

NOTE 3 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

Accounts payable and accrued liabilities at March 31, 2021 and December 31, 2020 are as follows:

 

    March 31,     December 31,  
    2021     2020  
Accounts payable   $ 305,966     $ 283,357  
Credit card     15,595       16,570  
Accrued expenses     15,714       15,714  
Accrued management fee     3,605       3,605  
Accrued interest     37,155       35,350  
    $ 378,035     $ 354,596  

 

F- 7
 

 

NOTE 4 - CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable at March 31, 2021 and December 31, 2020 are as follows:

 

    March 31,     December 31,  
    2021     2020  
Note 1   $ 50,000     $ 50,000  
Note 2     25,200       25,200  
Note 3     38,000       38,000  
Note 4 - related party     10,000       10,000  
Note 5     25,000       -  
Total convertible notes payable     148,200       123,200  
                 
Less: Unamortized debt discount     -       -  
Total convertible notes     148,200       123,200  
                 
Less: current portion of convertible notes     148,200       123,200  
Long-term convertible notes   $ -     $ -  

 

During the three months ended March 31, 2021 and 2020, the Company recorded interest expense (income) of $1,805 and ($41,165), and amortization of discount of $0 and $17,697, respectively. As of March 31, 2021 and December 31, 2020, the Company had accrued interest of $37,155 and $35,350, respectively.

 

Note 1

 

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 1”) maturity date is May 12, 2018. The principal amount due under Note 1 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 1 as the event in which Note 1 is not retired prior to its maturity date, Tangiers’ conversion rights under Note 1 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%. The note is currently in default.

 

Note 2

 

On October 22, 2019, the Company issued and sold an 10% Fixed Convertible Promissory Note (“Note 2”) to Power Up Lending Group Ltd. (“Power Up”), in the principal amount of $48,000, which includes a $3,000 original issue discount. Note 2 is convertible into shares of the Company’s common stock one hundred eighty (180) days from October 22, 2019. Note 2 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 2. The note is currently in default.

 

Note 3

 

On December 19, 2019, the Company issued and sold an 10% Fixed Convertible Promissory Note (“Note 3”) to Power Up Lending Group Ltd. (“Power Up”), in the principal amount of $38,000, which includes a $3,000 original issue discount. Note 3 is convertible into shares of the Company’s common stock one hundred eighty (180) days from December 22, 2019. Note 3 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 3. The note is currently in default.

 

Note 4 – related party

 

On September 28, 2020, the Company issued and sold an 10% Fixed Convertible Promissory Note (“Note 4”) to a related party, in the principal amount of $10,000. Note 4 is convertible into shares of the Company’s common stock ninety (90) days from September 28, 2020. Note 4 is convertible at the lower conversion price of $0.002 or 65% of the lowest trading prices of the Company’s common stock during the fifteen (15) consecutive trading days prior to the date of on which a noteholder elects to convert all or part of the Note 4. The note is currently in default.

 

F- 8
 

 

Note 5

 

In 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. The advance has non-interest bearing.

 

On August 9, 2021, the Company issued and sold an 10% Fixed Convertible Promissory Note (“Note 5”), in the principal amount of $25,000. Note 5 is convertible into shares of the Company’s common stock sixty (60) days from August 29, 2021. Note 5 is convertible at the lower conversion price of $0.00225 or 65% of the lowest trading prices of the Company’s common stock during the fifteen (15) consecutive trading days prior to the date of on which a noteholder elects to convert all or part of the Note 5.

 

NOTE 5 - DERIVATIVE LIABILITIES

 

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

 

The following schedule shows the change in fair value of the derivative liabilities at March 31, 2021:

 

Fair Value Measurements Using Significant Observable Inputs (Level 3)
Balance - December 31, 2020   $ 44,274,727  
Loss on change in fair value of the derivative     103,604,588  
Balance - March 31, 2021   $ 147,879,315  

 

The aggregate loss on derivatives during the three months ended March 31, 2021 and 2020 was $103,604,588 and $1,560,959, respectively. The Company values these derivative liabilities using flexible the pricing models that include quantitative input such as the risk free rate, market volatility, time to maturity, conversion price, and other qualitative factors such as whether the underlying indexed security is in good standing or in default.

 

NOTE 6 - SHAREHOLDERS’ EQUITY

 

Series A Convertible Preferred Stock

 

As of March 31, 2021 and December 31, 2020, there were 750,000 shares of Series A Convertible Preferred Stock issued and outstanding.

 

Common Stock

 

During the three months ended March 31, 2021, there were no share issuance.

 

As of March 31, 2021 and December 31, 2020, there were 2,401,396,041 shares of Common Stock issued and outstanding.

 

Common Stock Warrants and Options

 

As of March 31, 2021, there were no warrants or options outstanding.

 

NOTE 7 - SUBSEQUENT EVENTS

 

The Company evaluates subsequent events that have occurred after the balance sheet date of March 31, 2021, and up through September 3, 2021, which is the date that these financial statements are available to be issued. There are two types of subsequent events: (i) recognized, or those that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, and (ii) non-recognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to that date.

 

The Company had a dispute with Power Up Lending Group, Ltd. (“Power Up”), 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 a suit. As part of the Company’s recovery efforts after COVID-19, it reached an amicable resolution with “Power Up”, in third quarter of 2021, whereby the Company and Power Up agreed on an amount of $80,000 to settlement this dispute in its entirety.

 

On August 26, 2021, 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 professional service providers, filing requirements, settlement of certain payables, and general working capital.

 

On August 27, 2021, the Company completed an initiative where it entered into a Modification Agreement (the “Modification”) with current Series A Convertible Preferred Stockholders to modify their conversion privileges to align and support the current management team’s initiatives with the goal of benefiting shareholders. The modification agreement provides the preferred stockholders the right to convert their preferred shares 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 was pursued for the benefit of the Company’s common shareholders to mitigate the potential risk of diluting their shareholding in the event that the Company undertakes additional financing transactions to fund the Company’s expansion initiatives.

 

F- 9
 

 

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

 

Results of Operations

 

Three months ended March 31, 2021 compared to three months ended March 31, 2020

 

The following table presents our operating results for the three months ended March 31, 2021 compared to December 31, 2020:

 

    Three Months Ended              
    March 31,              
    2021     2020     Change     %  
Revenue   $ -     $ -     $ -       -  
Operating expenses                                
Depreciation and amortization expense     -       -                  
Professional fees     17,500       127,150       (109,650 )     (86 )%
General and administrative expenses     5,225       4,679       546       11 %
Total operating expenses     22,725       131,829       109104       (83 )%
Loss from operations     (22,725 )     (131,829 )     109104       (83 )%
Other expense                                
Other income (expense)             -       -          
Interest income (expense)     (1,805 )     (41,165 )     39,360       (96 )%
Amortization of debt discount     -                          
Change in fair value of embedded derivative liability     (103,604,588 )     (1,560,959 )     (102,043,629 )     6,537 %
                                 
Total other income (expense)     (103,606,393 )     (1,602,124 )     (102,004,269 )     6,367 %
                                 
Net loss   $ (103,629,118 )   $ (1,733,953 )   $ (101,895,165 )     5,876 %
                                 
Comprehesive loss   $

(103,629,118

)   $

(1,733,953

)   $

(101,895,165

)    

5,876

%

 

Revenues

 

During the three months ended March 31, 2021 and 2020, the Company did not generate any revenues.

 

Operating Expenses

 

Total operating expenses for the three months ended March 31, 2021 and 2020 were $22,725 and $131,829, respectively, for an aggregate decrease of $109,104 or 83%. The aggregate decrease is related to a decrease in professional fees of $109,650 or 86% which is associated with the general decline in corporate activity resulting from the negative impact brought on by Covid-19 global pandemic.

 

Other Income (Expense)

 

Total other income (expense) for the three months ended March 31, 2021 and 2020 were ($103,606,393) and ($1,602,124), respectively. The increase in other expense is primarily related to the change in the fair value of the embedded derivative liability from ($1,560,959) to ($103,604,588).

 

4
 

 

Net Loss

 

As a result of the factors discussed above, net loss for the three months ended March 31, 2021 and 2020 was 103,629,118 and $1,733,953, respectively, for an increase of $101,895,165 or 5,876%.

 

Liquidity and Capital Resources

 

The following table provides selected financial data about our Company as of March 31, 2021 and December 31, 2020, respectively.

 

Working Capital

 

    March 31,
2021
    December 31,
2020
    Change     %  
Current assets   $ 26,992     $ 3,083     $ 23,909       775 %
Current liabilities   $ 148,405,550     $ 44,752,523     $ 103,653,027       232 %
Working capital deficiency   $ (148,378,558 )   $ (44,749,440 )   $ 103,629,118       232 %

 

Cash Flows

 

    Three Months Ended              
    March 31, 2021              
    2021     2020     Change     %  
Cash used in operating activities   $ (50 )   $ (7,838 )   $ (7,788 )     (99 )%
Cash provided by financing activities   $ 25,000     $ (1,663 )   $ 26,663       1,603 %
Net Change in Cash During Period   $ 24,950     $ (9,501 )   $ 34,451       363 %

 

As of March 31, 2021, our Company’s cash balance was $26,157 and total assets were $26,992. As of December 31, 2020, our Company’s cash balance was $1,207 and total assets were $3,083.

 

As of March 31, 2021, our Company had total liabilities of $148,405,550 compared with total liabilities of $44,752,523 as at December 31, 2020.

 

As of March 31, 2021, our Company had a working capital deficiency of $148,378,558 compared with a working capital deficiency of $44,749,440 as at December 31, 2020. The increase in working capital deficiency was primarily attributed to an increase in derivative liabilities.

 

Cash Flow from Operating Activities

 

Net cash used in operating activities for the three months ended March 31, 2021 and 2020 were $50 and $7,838 respectively, for a decrease of $7,788. The improvement in net cash used in operating activities is primarily related to an increase in operating liabilities.

 

Cash Flow from Investing Activities

 

For the three months ended March 31, 2021 and 2020, our Company did not have any investing activities.

 

Cash Flow from Financing Activities

 

Net cash provided by (used in) financing activities for the three months ended March 31, 2021 and 2020 were $25,000 and ($1,663), respectively. The increase in cash from financing activities was the result of the Company’s receipt of cash proceeds from the issuance of convertible note to an investor.

 

5
 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

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

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

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

 

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

 

The Company’s management, consisting solely of the Company’s Chief Executive Officer, Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer has concluded that, as of March 31, 2021, the Company’s disclosure controls and procedures were not effective because of the following internal control over financial reporting deficiencies:

 

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

 

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

 

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

 

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

 

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

 

Changes in Internal Controls

 

There have been no changes in our internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of Securities Exchange Act Rule 13a-15 or Rule 15d-15 that occurred in the quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

6
 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time we may become involved in various legal proceedings that arise in the ordinary course of business. We are not currently a party to any material legal proceeding.

 

Item 1A. Risk Factors

 

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

 

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

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not Applicable.

 

Item 5. Other Information

 

(a) Not applicable.

 

(b) Not applicable.

 

Item 6. Exhibits

 

The following exhibits are included as part of this report:

 

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

 

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

 

7
 

 

SIGNATURES

 

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

 

  INDOOR HARVEST CORP.
  (Registrant)
   
Dated: September 3, 2021 /s/ Leslie Bocskor
  Leslie Bocskor
  Chief Executive Officer, Chief Financial Officer
  (Principal Executive Officer)(Principal Financial Officer)

 

8

 

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