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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 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: 2,483,396,041 common shares issued and outstanding as of September 30, 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)

 

    September 30,     December 31,  
    2021     2020  
ASSETS                
Current Assets:                
Cash   $ 191,224     $ 1,207  
Prepaid expenses and other receivable     2,220       1,876  
Total Current Assets     193,444       3,083  
                 
TOTAL ASSETS   $ 193,444     $ 3,083  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
Current Liabilities:                
Accounts payable and accrued liabilities   $ 282,554     $ 354,596  
Convertible notes payable, net of debt discount of $0     24,444       123,200  
Derivative liabilities     420,313       44,274,727  
Total Current Liabilities     727,311       44,752,523  
                 
Total Liabilities     727,311       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; 2,483,396,041 and 2,401,396,041 shares issued and outstanding, respectively     2,483,396       2,401,396  
Additional paid in capital     19,095,581       14,014,324  
Accumulated deficit     (22,120,344 )     (61,172,660 )
Total Stockholders’ Deficit     (533,867 )     (44,749,440 )
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT   $ 193,444     $ 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     Nine Months Ended  
    September 30,     September 30,  
    2021     2020     2021     2020  
                         
Revenue   $ -     $ -     $ -     $ -  
                                 
Operating Expenses                                
Professional fees     130,982       19,987       172,139       181,649  
General and administrative     4,696,798       69       4,707,703       10,289  
Total Operating Expenses     4,827,780       20,056       4,879,842       191,938  
                                 
Loss from operations     (4,827,780 )     (20,056 )     (4,879,842 )     (191,938 )
                                 
Other Income (Expense)                                
Interest expense     (28,090 )     (370,342 )     (31,720 )     (492,162 )
Change in fair value of derivative liability     121,194,219       25,835,130       43,879,414       (23,849,072 )
Gain on settlement of debt     84,464       -       84,464       -  
Total other income (loss)     121,250,593       25,464,788       43,932,158       (24,341,234 )
                                 
Income (loss) before income taxes     116,422,813       25,444,732       39,052,316       (24,533,172 )
                                 
Provision for income taxes     -       -       -       -  
                                 
Net income (loss)   $ 116,422,813     $ 25,444,732     $ 39,052,316     $ (24,533,172 )
                                 
Comprehensive income (Loss)   $ 116,422,813     $ 25,444,732     $ 39,052,316     $ (24,533,172 )
                                 
Basic and diluted income (loss) per common share                                
Basic   $ 0.05     $ 0.03     $ 0.02     $ (0.05 )
Diluted   $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.05 )
                                 
Weighted average number of common shares outstanding                                
Basic     2,433,482,998       818,037,754       2,412,209,228       513,135,724  
Diluted     2,641,231,449       13,757,956,821       3,055,325,489       513,135,724  

 

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 Nine months Ended September 30, 2021

 

                                                 
    Series A Convertible                                  
    Preferred Stock     Common Stock     Additional             Total  
    Number of
Shares 		    Amount     Number of Shares     Amount    

Paid in

Capital

    Stock
Payable 		    Accumulated
Deficit 		    Stockholders’
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 )
                                                                 
Stock payable     -       -       -       -       -       40,000       -       40,000  
Net income     -       -       -       -       -       -       26,258,621       26,258,621  
Balance - June 30, 2021     750,000     $ 7,500       2,401,396,041     $ 2,401,396     $ 14,014,324     $ 40,000     $ (138,543,157 )   $ (122,079,937 )
                                                                 
Common stock issued for cash     -       -       82,000,000       82,000       328,000       (40,000 )     -       370,000  
Stock based compensation     -       -       -       -       4,753,205       -       -       4,753,205  
Write off due to related party     -       -       -       -       52       -       -       52  
Net income     -       -       -       -       -       -       116,422,813       116,422,813  
Balance - September 30, 2021     750,000     $ 7,500       2,483,396,041     $ 2,483,396     $ 19,095,581     $ -     $ (22,120,344 )   $ (533,867 )

  

For the Nine months Ended September 30, 2020

 

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

 

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)

 

             
    Nine Months Ended  
    September 30,  
    2021     2020  
             
Cash Flows from Operating Activities:                
Net loss   $ 39,052,316     $ (24,533,172 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization expense     -       7,305  
Amortization of debt discount     14,444       111,685  
Recognition and change in fair value of embedded derivative liability     (43,844,950 )     23,849,072  
Stock based compensation     4,753,205       72,920  
Gain on settlement of debt     (84,464 )     -  
Changes in operating assets and liabilities:                
Prepaid expenses and other receivable     (344 )     2,321  
Accounts payable and accrued expenses     (72,042 )     471,534  
Due to related party     52       -  
Net Cash used in Operating Activities     (181,783 )     (18,335 )
                 
Cash Flows from Financing Activities:                
Repayments of note payable     -       (2,760 )
Proceeds from issuance of convertible notes     25,000       10,000  
Repayments of convertible notes     (63,200 )     -  
Proceeds from issuance of common stock     410,000       -  
Net Cash provided by Financing Activities     371,800       7,240  
                 
Net change in cash     190,017       (11,095 )
Cash, beginning of period     1,207       12,353  
Cash, end of period   $ 191,224     $ 1,258  
                 
Supplemental Cash Flow Information                
Cash paid for interest   $ 16,800     $ -  
Cash paid for taxes   $ -     $ -  
                 
Non-Cash Investing and Financing Activities:                
Derivative liability recognized as debt discount   $ 25,000     $ 87,901  
Conversion of convertible note into common shares   $ -     $ 1,158,103  
Derivative liability reclassified to paid-in capital   $ -     $ 3,728,979  
Write off due to related party   $ 52     $ 100  

 

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, and such address is used in the interim. We are in the process of establishing new offices.

 

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.

 

F-5
 

 

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.

 

Earnings (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 cancelled during a period are reflected in the computations for the time they were outstanding during the periods being reported. Since Indoor Harvest has incurred losses for all periods, the impact of the common stock equivalents would be anti- dilutive and therefore are not included in the calculation.

 

Derivative Liability

 

The Company accounts for derivative instruments in accordance with ASC 815, which establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts and requires recognition of all derivatives on the balance sheet at fair value, regardless of hedging relationship designation. Accounting for changes in fair value of the derivative instruments depends on whether the derivatives qualify as hedge relationships and the types of relationships designated are based on the exposures hedged. At September 30, 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).

 

F-6
 

 

The following table summarizes fair value measurements by level at September 30, 2021 and December 31, 2020, measured at fair value on a recurring basis:

 

 

September 30, 2021   Level 1     Level 2     Level 3     Total  
Assets                                
None   $ -     $ -     $ -     $ -  
                                 
Liabilities                                
Derivative liabilities   $ -     $ -     $ 420,313     $ 420,313  

 

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

 

Recently Issued Accounting Pronouncements

 

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

 

NOTE 2 - GOING CONCERN

 

The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. The Company had minimal cash as of September 30, 2021, incurred losses from its operations and did not generate cash from its operation for past two years and the nine months ended September 30, 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 September 30, 2021 and December 31, 2020 are as follows:

 

 

    September 30,     December 31,  
    2021     2020  
Accounts payable   $ 248,649     $ 283,357  
Credit card     13,645       16,570  
Accrued expenses     15,715       15,714  
Accrued management fee     3,183       3,605  
Accrued interest     1,362       35,350  
Accounts payable and accrued liabilities   $ 282,554     $ 354,596  

 

F-7
 

 

NOTE 4 - CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable at September 30, 2021 and December 31, 2020 are as follows:

 

 

    September 30,     December 31,  
    2021     2020  
Note 1   $ -     $ 50,000  
Note 2     -       25,200  
Note 3     -       38,000  
Note 4 - related party     10,000       10,000  
Note 5     25,000       -  
Total convertible notes payable     35,000       123,200  
                 
Less: Unamortized debt discount     (10,556 )     -  
Total convertible notes     24,444       123,200  
                 
Less: current portion of convertible notes     24,444       123,200  
Long-term convertible notes   $ -     $ -  

 

During the nine months ended September 30, 2021 and 2020, the Company recorded interest expense of $31,720 and $492,162, and amortization of discount of $14,444 and $111,685, respectively. As of September 30, 2021 and December 31, 2020, the Company had accrued interest of $1,362 and $35,350, respectively.

 

Repayment

 

The Company had a dispute with 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. During nine months ended September 30, 2021, the Company repaid $80,000 to Power Up for Note 2 and 3 and accrued interest. As a result, the Company recorded loss on settlement of debt of $4,987.

 

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%. During nine months ended September 30, 2021, the note was fully forgiven and the Company recorded gain on settlement of debt of $89,451.

 

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.

 

F-8
 

 

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.

 

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.

 

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 9, 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.

 

At September 30, 2021, the estimated fair values of the liabilities measured on a recurring basis are as follows:

 

    Nine months ended  
    September 30, 2021  
Expected term      0.10 - 0.25  
Expected average volatility     165% - 191 %
Expected dividend yield     -  
Risk-free interest rate     0.07 %

 

The following schedule shows the change in fair value of the derivative liabilities at September 30, 2021:

 

 

Fair Value Measurements Using Significant Observable Inputs (Level 3)
Balance - December 31, 2020   $ 44,274,727  
Addition of new derivatives recognized as debt discounts     25,000  
Addition of new derivatives recognized as loss on derivatives     96,923  
Loss on change in fair value of the derivative     (43,976,337 )
Balance - September 30, 2021   $ 420,313  

 

The aggregate (gain) loss on derivatives during the nine months ended September 30, 2021 and 2020 was ($43,976,337) and $23,849,072, respectively. The Company values these derivative liabilities using Black-Scholes model or 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.

 

F-9
 

 

NOTE 6 - SHAREHOLDERS’ EQUITY

 

Series A Convertible Preferred Stock

 

As of September 30, 2021 and December 31, 2020, there were 750,000 shares of Series A Convertible Preferred Stock issued and outstanding.

 

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.

 

Common Stock

 

During the nine months ended September 30, 2021, there were no share issuances.

 

On August 26, 2021, the Company entered into subscription agreements, with certain accredited investors for the sale of 82,000,000 shares of the Company’s common stock, par value of $0.001 per share, for a total consideration to the Company of $410,000.

 

As of September 30, 2021 and December 31, 2020, there were 2,483,396,041 and 2,401,396,041 shares of Common Stock issued and outstanding.

 

Additional paid in capital

 

During the nine months ended September 30, 2021, the amount due to related party of $52 was forgiven and the Company recorded additional paid in capital.

 

Stock Options

 

On August 4, 2021, 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 1-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.

 

In addition, 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 vesting immediately. The company’s legal counsel will be receiving 10 million options at a price of $0.01 vesting immediately, under the same terms as the Board, in recognition of their valuable work and support.

 

F-10
 

 

Valuation

 

The Company utilizes the Black-Scholes model to value its stock options. The Company utilized the following assumptions:

 

    Nine months ended  
    September 30, 2021  
Expected term     5.00 - 5.50 years  
Expected average volatility     198 - 203 %
Expected dividend yield     -  
Risk-free interest rate     0.67 %

 

During the nine months ended September 30, 2021, the Company granted 820,000,000 options valued at $8,004,855. During the nine months ended September 30, 2021, the Company recognized stock option expense of $4,753,205, of which $4,655,518 was to related parties, and as of September 30, 2021, $2,763,902 remains unamortized, of which $2,763,902 is with related parties. The intrinsic value of the 820,000,000 options outstanding as of September 30, 2021 is $9,398,000.

 

The following is a summary of stock option activity during the nine months ended September 30, 2021:

 

 

    Options Outstanding     Weighted  
    Number of     Weighted
Average 		    Average
Remaining life 		 
    Options     Exercise Price     (years)  
                   
Outstanding, December 31, 2020     -     $ -       -  
Granted     820,000,000       0.01       10.00  
Exercised     -       -       -  
Forfeited/canceled     -       -       -  
Outstanding, September 30, 2021     820,000,000     $ 0.01       9.85  
                         
Exercisable options, September 30, 2021     420,000,000     $ 0.01     9.85  

 

NOTE 7 - NET INCOME (LOSS) PER COMMON SHARE

 

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

 

 

    2021     2020     2021     2020  
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2021     2020     2021     2020  
Numerator:                        
Net income (loss)   $ 116,422,813     $ 25,444,732     $ 39,052,316     $ (24,533,172 )
(Gain) on change in fair value of derivatives     (121,194,219 )     (25,835,130 )     (43,879,414 )     -  
Interest on convertible debt     608       329,453       1,104       -  
Net income (loss) - diluted   $ (4,770,798 )   $ (60,945 )   $ (4,825,994 )   $ (24,533,172 )
                                 
Denominator:                                
Weighted average common shares outstanding     2,433,482,998       818,037,754       2,412,209,228       513,135,724  
Effect of dilutive shares     207,748,451       12,939,919,067       643,116,261       -  
Diluted     2,641,231,449       13,757,956,821       3,055,325,489       513,135,724  
                                 
Net income (loss) per common share:                                
Basic   $ 0.05     $ 0.03     $ 0.02     $ (0.05 )
Diluted   $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.05 )

 

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

 

NOTE 8 - SUBSEQUENT EVENTS

 

The Company evaluates subsequent events that have occurred after the balance sheet date of September 30, 2021, and up through November 15, 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.

 

On October 1, the Company converted the Electrum Partners outstanding Convertible Promissory Note of $10,000 issued September 28, 2021 into 5,125,000 restricted common shares of the Company.

 

On November 8, 2021, the Company finalized a Supplemental agreement with the Series A Preferred shareholders to convert their holdings into common shares of the Company at $0.0125 in alignment and support of the current management team’s initiatives with the goal of benefiting shareholders. This agreement 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.

 

Pursuant to the Preferred Shareholder’s Supplemental Agreement dated November 8, 2021 (the “Supplemental Agreement”) by and between the Company and holders of its Series A Preferred shares, under which holders of the Series A Preferred shares agreed to convert all of the Series A Preferred shares into common shares of the Company effective November 8, 2021, the Company has issued an aggregate of sixty (60) million restricted common shares. The restricted common shares issued are subject to Rule 144 required holding periods.

 

On November 8, 2021, the Company entered into subscription agreements with certain accredited investors for the sale of Sixteen Million (16,000,000) common shares of the Company, par value of $0.001 per share, for a total consideration to the Company of Two Hundred Thousand ($200,000) Dollars. The issued shares will be restricted under Rule 144 required holding periods. The Company intends to use the net proceeds from the sale for general corporate purposes and working capital.

 

On November 9, the Company converted the $25,000 10% Fixed Convertible Promissory Note, including interest, issued on August 9, 2021 into 11,388,889 common shares.  The issued shares will be restricted under Rule 144 required holding periods.

 

F-11
 

 

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

 

Results of Operations

 

The following tables presents our operating results for the three and nine months ended September 30, 2021 compared to September 30, 2020:

 

Three months ended September 30, 2021 compared to three months ended September 30, 2020

 

    Three Months Ended              
    September 30,              
    2021     2020     Change     %  
Revenue   $ -     $ -     $ -       -  
Operating expenses                                
Depreciation and amortization expense     -       -                  
Professional fees     130,982       19,987       110,995       555 %
General and administrative expenses     4,696,798       69       4,696,729     6806854 %
Total operating expenses     4,827,780       20,056       4,807,724     23972 %
Loss from operations     (4,827,780 )     (20,056 )     (4,807,724 )     23972 %
Other expense                                
Other income (expense)             -       -          
Interest income (expense)     (28,090 )     (370,342 )     342,252       92 %
Amortization of debt discount     -                          
Change in fair value of embedded derivative liability     121,194,219       25,835,130    

95,359,089

      369 %
Gain on settlement of debt     84,464       -       84,464        %
                                 
Total other income (expense)     121,250,593       25,464,788    

95,785,805

      376 %
                                 
Net loss   $ 116,422,813     $ 25,444,732   $

90,978,081

     

358

%

 

Nine months ended September 30, 2021 compared to nine months ended September 30, 2020

 

    Nine Months Ended              
    September 30,              
    2021     2020     Change     %  
Revenue   $ -     $ -     $ -       -  
Operating expenses                                
Depreciation and amortization expense                                
Professional fees     172,139       181,649       (9,510 )     5 %
General and administrative expenses     4,707,703       10,289       4,767,414       46335 %
Total operating expenses     4,879,842       191,938       4,687,904       2479 %
Loss from operations     (4,879,842 )     (191,938 )     (4,687,904 )     2479 %
Other expense                                
Interest expense     (31,720 )     (492,162 )     460,442       (94 )%
Amortization of debt discount                                
Change in fair value of embedded derivative liability     43,879,414       (23,849,072 )     67,728,486       (284 )%
Gain on settlement of debt     84,464       -       84,464       100 %
Total other income (expense)     43,932,158       (24,341,234 )     (68,188,928 )     280 %
                                 
Net loss   $ 39,052,316     $ (24,533,172 )   $ 63,585,488       259 %

 

Revenues

 

During the nine months ended September 30, 2021 and 2020, the Company generated no revenue.

 

Operating Expenses

 

Total operating expenses for the nine months ended September 30, 2021 and 2020 were $4,879,842 and $191,938, respectively, for an aggregate increase of $4,687,904 or 2442%. The aggregate increase was primarily driven by an increase in general and administrative expenses of $4,707,703 or 46335% associated with executive stock options compensation.

 

Other Income (Expense)

 

Total other income (expense) for the nine months ended September 30, 2021 and 2020 were $43,932,158 and ($24,341,234), respectively. The decrease in other expense is primarily related to the change in the fair value of the embedded derivative liability from ($23,849,072) to $43,879,414 .

 

4

 

 

Net Loss

 

As a result of the factors discussed above, net income for the nine months ended September 30, 2021 and 2020 was $39,052,316 and ($24,533,172), respectively, for an increase of $63,585,488 or 259%.

 

Liquidity and Capital Resources

 

The following table provides selected financial data about our Company as of September 30, 2021 and December 31, 2020, respectively.

 

Working Capital

 

   

September 30,

2021

   

December 31,

2020

    Change     %  
Current assets   $ 193,444     $ 3,083     $ 190,361       6,175 %
Current liabilities   $ 727,311     $ 44,752,523     $ (44,025,212 )     (98 )%
Working capital deficiency   $ (533,867 )   $ (44,749,440 )   $ (44,215.573 )     (99 )%

 

Cash Flows

 

    Nine Months Ended              
    September 30, 2021              
    2021     2020     Change     %  
Cash used in operating activities   $ (181,783 )   $ (18,335 )   $ (163,448 )     891 %
Cash provided by financing activities   $ 371,800     $ 7,240     $ 364,560 )     5035 %
Net Change in Cash During Period   $ 190,017     $ (11,095 )   $ 201,112       (1813 )%

 

As of September 30, 2021, our Company’s cash balance was $191,224 and total assets were $193,444. As of December 31, 2020, our Company’s cash balance was $1,207 and total assets were $3,083.

 

As of September 30, 2021, our Company had total liabilities of $727,311 compared with total liabilities of $44,752,523 as at December 31, 2020.

 

As of September 30, 2021, our Company had a working capital deficiency of $533,867 compared with a working capital deficiency of $44,749,440 as of December 31, 2020. The decrease in working capital deficiency was primarily attributed to a decrease in derivative liabilities.

 

Cash Flow from Operating Activities

 

Net cash used in operating activities for the nine months ended September 30, 2021 and 2020 were $181,783 and $18,335 respectively, for an increase of $163,448. The increase in net cash used in operating activities is primarily related to retirement of outstanding debt, payments on accounts payables and accrued liabilities, and payment for vendor services

 

Cash Flow from Investing Activities

 

For the nine months ended September 30, 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 nine months ended September 30, 2021 and 2020 were $371,800 and $7,240, respectively. During the nine months ended September 30, 2021, our Company repaid convertible notes of $63,200.

 

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 September 30, 2020, the Company’s disclosure controls and procedures were not effective because of the following internal control over financial reporting deficiencies:

 

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

 

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

 

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

 

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

 

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

 

Changes in Internal Controls

 

There have been no changes in our internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of Securities Exchange Act Rule 13a-15 or Rule 15d-15 that occurred in the quarter ended September 30, 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            
*   Inline XBRL Instance Document            
*   Inline XBRL Taxonomy Extension Schema Document            
*   Inline XBRL Taxonomy Extension Calculation Linkbase Document            
*   Inline XBRL Taxonomy Extension Definition Linkbase Document            
*   Inline XBRL Taxonomy Extension Label Linkbase Document            
*   Inline XBRL Taxonomy Extension Presentation Linkbase Document            
104   Cover Page Interactive Data File (embedded within the Inline XBRL 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: November 15, 2021 /s/ Leslie Bocskor
  Leslie Bocskor
  Chief Executive Officer, Chief Financial Officer
  (Principal Executive Officer)(Principal Financial Officer)

 

8

 

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