NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2022
(UNAUDITED)
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature
of Operations and Organization
Indoor
Harvest Corp (the “Company” or “Indoor Harvest”) 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.
The
Company incorporates development of proprietary technology, mergers, acquisitions, strategic partnerships, and joint ventures as part
of a broad integration strategy. As a platform, Indoor Harvest Corp. cultivates synergistic partnerships within related industries, providing
an opportunity to be part of a more significant play, sharing intellectual capital, technology, access to new capital markets, and liquidity
for owners.
Basis
of Presentation
The
accompanying unaudited 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,
2021, 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.
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, 2022 and December 31, 2021, 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).
Recently
Adopted 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. The Company
has adopted the ASU as of January 1, 2022, there were no material impacts to the financial statements.
Reclassification
Certain
accounts from prior periods have been reclassified to conform to the current period presentation.
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, 2022, incurred losses from its operations and did not generate cash from its operation for the past two years
and nine months ended September 30, 2022. 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 – NOTES RECEIVABLE
During
the three months ended September 30, 2022, the Company granted loans of $100,000
and were issued by debtors the following three secured promissory notes that the Company intends to hold to maturity:
SCHEDULE
OF SECURED PROMISSORY NOTES
| | |
Principal | | |
| |
Interest | | |
Accrued | | |
September 30. | |
| Issuance date | |
Amount | | |
Maturity date | |
Rate | | |
Interest | | |
2022 | |
| 7/27/2022 | |
$ | 40,000 | | |
11/27/2022 | |
| 8.00 | % | |
$ | 568 | | |
$ | 40,568 | |
| 8/10/2022 | |
$ | 20,000 | | |
12/10/2022 | |
| 8.00 | % | |
$ | 222 | | |
| 20,222 | |
| 9/15/2022 | |
$ | 40,000 | | |
1/15/2023 | |
| 8.00 | % | |
$ | 129 | | |
| 40,129 | |
| | |
| |
| | | |
| | | |
$ | 100,919 | |
The
notes are secured by an interest in real property as set forth security agreements between the Company and borrower. During the
three-month and nine-month periods ended September 30, 2022, the Company recognized interest income of $919.
The Company’s management did not recognize any estimated credit loss for the notes; however, the management closely monitors
the liquidity of the debtors for changes in circumstances that may affect the carrying value of these notes. The notes are
considered level 3 financial instruments; however, as a result of the short terms to maturity, their amortized costs approximate
their fair values.
NOTE
4 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities on September 30, 2022 and December 31, 2021 are as follows:
SCHEDULE
OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| | |
September 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Accounts payable | |
$ | 83,746 | | |
$ | 78,413 | |
| Credit card | |
| 11,242 | | |
| 13,191 | |
| Accrued expenses | |
| 15,715 | | |
| 15,715 | |
| Accrued management fee | |
| 3,183 | | |
| 3,183 | |
| Accounts payable and accrued
liabilities | |
$ | 113,886 | | |
$ | 110,502 | |
NOTE
5 - SHAREHOLDERS’ EQUITY
On
May 11, 2020, the Company completed an increase in the authorized shares of the Company’s stock to a total number of 10,015,000,000,
allocated as follows among these classes and series of stock:
| |
● |
Common
Stock Class, par value $0.001 per share - 10,000,000,000 shares authorized. |
| |
● |
Preferred
Stock Class, Series A, par value $0.01 per share - 15,000,000 shares authorized. |
Series
A Convertible Preferred Stock
The
Company has designated 15,000,000 shares of Series A Preferred Stock with a par value of $0.01.
The
stated value of each issued share of Series A Convertible Preferred Stock shall be deemed to be $1.00, as the same may be equitably adjusted
whenever there may occur a stock dividend, stock split, combination, reclassification or similar event affecting the Series A Convertible
Preferred Stock. There are no dividends payable on the Series A Convertible Preferred Stock. Each holder of outstanding shares of Series
A Convertible Preferred Stock shall be entitled to cast the number of votes for the Series A Convertible Preferred Stock in an amount
equal to the number of whole shares of common stock into which the shares of Series A Convertible Preferred Stock held by such holder
are convertible as of the record date for determining stockholders entitled to vote on such matter
The
Series A Preferred Stock also had a “down-round” protection feature provided to the investors if the Company subsequently
issued or sold any shares of common stock, stock options, or convertible securities at a price less than the conversion price of $1.00
per common share. The conversion price would be automatically adjustable down to the price of the instrument being issued. As a result
of conversion during the year ended December 31, 2020, the Series A Preferred Stock conversion price was reset to $0.00006 per share.
Upon
any liquidation, dissolution or winding-up of the Company under Texas law, whether voluntary or involuntary, the holders of the shares
of Series A Convertible Preferred Stock shall be paid an amount equal to the aggregate stated value of their shares of Series A Convertible
Preferred Stock, before any payment shall be paid to the holders of common stock, or any other stock ranking on liquidation junior to
the Series A Convertible Preferred Stock, an amount for each share of Series A Convertible Preferred Stock held by such holder equal
to the sum of the Stated Value thereof.
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.
As
of September 30, 2022, and December 31, 2021, there were zero shares of Series A Convertible Preferred Stock issued and outstanding.
Common
Stock
Each
share of common stock entitles the holder as of the applicable record date to one vote, in person or by proxy, on any matter that is
submitted to a vote or for the consent of the stockholders of the Corporation.
On
February 16, 2022 and March 16, 2022, the Company initiated a private placement offering for the sale of up to 150,000,000 shares of
the Company’s common stock, at price of $0.006 per share, for total consideration to the Company of $900,000. The issuance price
was updated during the three months ending June 30, 2022 to $0.005 per share.
During
the three months ended March 31, 2022, the Company issued 12,500,000 shares of common stock at $0.006 per share for cash of $75,000.
Upon the change of the share price for the private placement, an additional 2,500,000 common shares were issued during the three months
ended June 30, 2022.
During
the three months ended June 30, 2022, the Company issued 89,600,000 shares of common stock at $0.005 per share for cash of $448,000. An equal number of Warrants (104,600,000) were issued during this period
as part of the private placement with an exercise price of $0.01 and a 5-year expiration.
On
August 12, 2022, the Company initiated a private placement offering and entered into subscription agreements with certain accredited
investors for the sale of 153,846,154 common shares of the Company’s common stock at $0.0065 per share, and an equal number of
Warrants with an exercise price of $0.013 for a total consideration to the Company of $1,000,000. During the three months ended September
30, 2022, the Company issued 7,846,154 shares of common stock at $0.0065 per share for cash of $51,000.
The
total shares issued during the nine months ending September 30, 2022 for the private placements was 112,446,154 common shares at $0.005
and $0.0065 per share for total cash of $574,000.
As
of September 30, 2022, and December 31, 2021, there were 2,689,190,084 and 2,575,909,930 shares of Common Stock issued and outstanding,
respectively.
Shares to be Issued
During
the three months ended September 30,2022, in connection to mentioned private placement offering on August 12, 2022, the Company
received $250,000 in cash proceeds.
As of September 30, 2022, and up to the date of this report, the shares have not been issued. The Shares will be restricted
securities and subject to required holding periods under Rule 144.
Additional
paid in capital
Stock
Options
On
August 4, 2021, in order to recognize the substantive efforts of Leslie Bocskor, Benjamin Rote and Dennis Forchic for their contributions
to the company without compensation for the period between May 2020 and August 2021 for Mr. Bocskor and between August 2020 and August
2021 for Messrs. Rote and Forchic, the Board voted to formalize employment agreements with Messrs. Bocskor and Rote, and an advisory
agreement with Mr. Forchic. Pursuant to their respective employment agreements, Mr. Bocskor was granted the option to purchase 150 million
shares of common stock in the Company and Mr. Rote was granted the option to purchase 100 million shares of common stock of the Company
at a conversion price of $0.01. Pursuant to his advisory agreement, Mr. Forchic was granted the option to purchase 150 million shares
of common stock of the Company at a conversion price of $0.01 per share of common stock. The options granted to each of Messrs. Bocskor,
Rote and Forchic vested immediately upon the granting of such options. On the one-year anniversary of their respective agreements, additional
options will be granted to each of Messrs. Bocskor, Rote and Forchic to purchase up to 150 million, 100 million and 150 million shares
of common stock, respectively, at a conversion price of $0.015 per share of common stock.
In
addition, the Board, consisting of Directors Rick Gutshall and Lang Coleman, having not received any consideration over the past two
years, will each be granted the option to purchase up to 5 million shares of common stock at a price of $0.01 per share of common stock.
Such options will vest immediately upon the grant date. The company’s legal counsel will be granted the option to purchase 10 million
shares of common stock of the Company at a price of $0.01 per share of common stock, which option will vest immediately upon grant, under
the same terms as the options granted to the Board.
In
June 2022, board members Keith Crouch and Michael Blicharski were each granted the option to purchase up to 10 million shares of common
stock, for a total of 20 million shares, at a price of $0.01 per share of common stock. Such options will vest quarterly with the first
quarter vesting upon the grant date.
Valuation
The
Company utilizes the Black-Scholes model to value its stock options. The Company utilized the following assumptions:
SCHEDULE OF STOCK OPTIONS ASSUMPTIONS
| | |
Nine months ended | | |
Year ended | |
| | |
September 30, 2022 | | |
December 31, 2021 | |
| Expected term | |
| 5.19 years | | |
| 5.00 - 5.50 years | |
| Expected average volatility | |
| 192 | % | |
| 198 - 203% | |
| Expected dividend yield | |
| - | | |
| - | |
| Risk-free interest rate | |
| 3.14 | % | |
| 0.67 | % |
During
the year ended December 31, 2021, the Company granted 820,000,000 common stock options valued at $8,004,855. During the nine months ended
September 30, 2022, the Company recognized stock option expense of $2,377,538, of which $2,372,538 was to related parties, and as of
September 30, 2022, $96,380 remains unamortized, of which $96,380 is with related parties. The intrinsic value of the 840,000,000 options
outstanding as of September 30, 2022, was $220,000.
The
following is a summary of stock option activity during the nine months ended September 30, 2022:
SCHEDULE
OF STOCK OPTION
| | |
Options Outstanding | | |
Weighted Average | |
| | |
Number of | | |
Weighted Average | | |
Remaining life | |
| | |
Options | | |
Exercise Price | | |
(years) | |
| | |
| | |
| | |
| |
| Outstanding, December 31, 2021 | |
| 820,000,000 | | |
$ | 0.01 | | |
| 9.60 | |
| Granted | |
| 20,000,000 | | |
| 0.01 | | |
| 10.00 | |
| Exercised | |
| - | | |
| - | | |
| - | |
| Forfeited/canceled | |
| - | | |
| - | | |
| - | |
| Outstanding, September 30, 2022 | |
| 840,000,000 | | |
$ | 0.01 | | |
| 8.87 | |
| | |
| | | |
| | | |
| | |
| Exercisable options, September 30, 2022 | |
| 825,000,000 | | |
$ | 0.01 | | |
| 8.85 | |
Warrants
As
part of the February 16, 2022 private placement, the Company granted one warrant to purchase a common share for each common share purchased.
The warrants issued have an exercise price of $0.01 per warrant and expire five years from the date of grant. A total of 104,600,000
warrants were granted.
As
part of the August 12, 2022 private placement, the Company granted two warrants to purchase a common share for each common share purchased.
The warrants issued have an exercise price of $0.013 per warrant and expire five years from the date of grant. A total of 7,846,154 warrants
were granted.
Valuation
The
Company utilizes the Black-Scholes model to value its warrants. The Company utilized the following assumptions:
SCHEDULE
OF WARRANTS ASSUMPTIONS
| | |
| Nine months ended | |
| | |
| September 30, 2022 | |
| Term | |
| 5.00 years | |
| Expected average volatility | |
| 202 - 203% | |
| Expected dividend yield | |
| - | |
| Risk-free interest rate | |
| 1.96% - 3.01% | |
The
following is a summary of warrant activity during the nine months ended September 30, 2022:
SCHEDULE
OF WARRANTS ACTIVITY
| | |
Warrants Outstanding | | |
Weighted Average | |
| | |
Number of | | |
Weighted Average | | |
Remaining life | |
| | |
Warrants | | |
Exercise Price | | |
(years) | |
| Outstanding, December 31, 2021 | |
| - | | |
$ | - | | |
| - | |
| Granted | |
| 112,446,154 | | |
| 0.01 | | |
| 5.00 | |
| Exercised | |
| - | | |
| - | | |
| - | |
| Forfeited/canceled | |
| - | | |
| - | | |
| - | |
| Outstanding, September 30, 2022 | |
| 112,446,154 | | |
$ | 0.01 | | |
| 4.61 | |
The
warrants were valued at $701,477 and settled through additional paid in capital.
NOTE
6 - 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.
SCHEDULE
OF EARNINGS PER SHARE, BASIC AND DILUTED
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| | |
Three Months Ended | | |
Nine Months Ended | |
| | |
September 30, | | |
September 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Numerator: | |
| | | |
| | | |
| | | |
| | |
| Net income (loss) | |
$ | (573,116 | ) | |
$ | 116,422,813 | | |
$ | (2,923,739 | ) | |
$ | 39,052,316 | |
| Gain on change in fair value of derivatives | |
| - | | |
| (121,194,219 | ) | |
| - | | |
| (43,879,414 | ) |
| Interest on convertible debt | |
| - | | |
| 608 | | |
| - | | |
| 1,104 | |
| Net loss - diluted | |
$ | (573,116 | ) | |
$ | (4,770,798 | ) | |
$ | (2,923,739 | ) | |
$ | (4,825,994 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Denominator: | |
| | | |
| | | |
| | | |
| | |
| Weighted average common shares outstanding | |
| 2,685,608,144 | | |
| 2,433,482,998 | | |
| 2,636,228,346 | | |
| 2,412,209,228 | |
| Effect of dilutive shares | |
| - | | |
| 207,748,451 | | |
| - | | |
| 643,116,261 | |
| Diluted | |
| 2,685,608,144 | | |
| 2,641,231,449 | | |
| 2,636,228,346 | | |
| 3,055,325,489 | |
| | |
| | | |
| | | |
| | | |
| | |
| Net income (loss) per common share: | |
| | | |
| | | |
| | | |
| | |
| Basic | |
$ | (0.00 | ) | |
$ | 0.05 | | |
$ | (0.00 | ) | |
$ | 0.02 | |
| Diluted | |
$ | (0.00 | ) | |
$ | (0.00 | ) | |
$ | (0.00 | ) | |
$ | (0.00 | ) |
For
the three and nine months ended September 30, 2022, the convertible instruments are anti-dilutive and therefore, have been excluded from
earnings (loss) per share.
NOTE
7- RELATED PARTY TRANSACTIONS
On
February 8, 2022, the Company entered an assets acquisition Letter of Intent (“LOI”) with an entity under common control
with the Company. During the nine months ended September 30, 2022, in connection with the LOI, the Company paid advance of $130,000
for acquisition of assets.
During
the nine months ended September 30, 2022 and 2021, the Company paid consulting fees of $307,000 and $0, communication and technology services
of $95,194 and $0, late charge of $508 and $15,980 to an entity under common control of the Company, respectively.
During
the nine months ended September 30, 2022 and 2021, the Company recognized stock option expense for related parties of $2,372,538 and
$4,753,205, respectively. The stock option-based compensation recognized in additional paid-in-capital.
As
of September 30, 2022, and December 31, 2021, the Company was obligated to a related party, for an unsecured, non-interest-bearing
demand with balance of $0 and $33,902, respectively.
NOTE
8- COMMITMENTS AND CONTINGENCIES
On
March 24, 2022, the Company entered into an agreement with F.E.A. Strategies Group, LLC. as advisory assistance on suitable investment
strategies to raise growth capital for the Company. The Company agreed to settle 50% of the advisory fee with 834,000 shares of common
stock valued at $5,000. As of September 30, 2022, the company had issued the 834,000 shares of common stock.
NOTE
9- SUBSEQUENT EVENTS
Management
has evaluated subsequent events through the date these financial statements were available to be issued. Based on our evaluation no material
events have occurred that require disclosure.
On November 1, due to increased interest from
certain accredited investors the Company extended the duration of the August private placement offering to December 31, 2022 and
increased the maximum funding amount to $1,300,000.
On November 1 and 8, 2022, the Company granted two
loans of $25,000 and $20,000,
respectively, receiving secured Promissory Notes with an annual interest rate of 8%
maturing in 120
days.
