Indoor Harvest Corp - Annual Report: 2014 (Form 10-K)

 

 

(Name of registrant as specified in our charter)

 

 

 

Issuer's telephone number: 713-410-7903.

Securities registered pursuant to Section 12(b) of the Act: None

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND INFORMATION

 

This Annual Report on Form 10-K, the other reports, statements, and information that we have previously filed or that we may subsequently file with the Securities and Exchange Commission, or SEC, and public announcements that we have previously made or may subsequently make include, may include, incorporate by reference or may incorporate by reference certain statements that may be deemed to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and are intended to enjoy the benefits of that act. Unless the context is otherwise, the forward-looking statements included or incorporated by reference in this Form 10-K and those reports, statements, information and announcements address activities, events or developments that Indoor Harvest, Corp. (hereinafter referred to as "we," "us," "our," "our Company" or "Indoor Harvest") expects or anticipates, will or may occur in the future. Any statements in this document about expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as "may," "should," "could," "predict," "potential," "believe," "will likely result," "expect," "will continue," "anticipate," "seek," "estimate," "intend," "plan," "projection," "would" and "outlook," and similar expressions. Accordingly, these statements involve estimates, assumptions and uncertainties, which could cause actual results to differ materially from those expressed in them. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this document. All forward-looking statements concerning economic conditions, rates of growth, rates of income or values as may be included in this document are based on information available to us on the dates noted, and we assume no obligation to update any such forward-looking statements. It is important to note that our actual results may differ materially from those in such forward-looking statements due to fluctuations in interest rates, inflation, government regulations, economic conditions and competitive product and pricing pressures in the geographic and business areas in which we conduct operations, including our plans, objectives, expectations and intentions and other factors discussed elsewhere in this Report.

 

---

Item 1. DESCRIPTION OF BUSINESS

 

 

Indoor Harvest Corp., or the "Company," is a Texas corporation formed on November 23, 2011. Our principal executive office is located at 5300A East Freeway Houston, Texas 77020.

 

Indoor Harvest, Corp., through its brand name Indoor Harvest™ is a development stage company that seeks to become an equipment design, developer, marketer and direct-seller of commercial grade aeroponic fixtures, vertical farm fixtures and supporting systems for use in urban controlled environment agriculture ("CEA") and Building Integrated Agriculture ("BIA").

CEA is the process of manipulating any agricultural technology to allow the farmer an ability to manipulate a crop's environment to desired conditions. Technologies include greenhouse production, hydroponics, aquaculture, aquaponics and aeroponics. Controlled variables may include temperature, lighting, humidity, pH and nutrient analysis.

BIA is the process of locating CEA methods on, or in, mixed use buildings to provide synergy with the buildings infrastructure and the agriculture process. Earliest examples of BIA include the use of hydroponics, aeroponics and aquaponics, where waste heat is captured through the buildings existing heating, ventilation and air conditioning system as well as the combined use of solar, rainwater collection and evaporative systems. Current operating examples include such buildings as Eli Zabar's rooftop greenhouse, The Sun Works Center for Environmental Studies, Gotham Greens, Sky Vegetables, Top Sprouts, Cityscape Farms, Dongtan, Masdar City, AeroFarms, Solar 2, Lufa Farms, BrightFarms, FarmedHere, Green Sense Farms, Green Spirit Farms and Big Box Farms. The term building-integrated agriculture was coined by Dr. Ted Caplow in a paper delivered at the 2007 Passive and Low Energy Cooling Conference in Crete, Greece.

 

Aeroponics is the process of growing plants in an air or mist environment without the use of soil or an aggregate medium (known as geoponics). Aeroponic culture differs from both conventional hydroponics and in-vitro (plant tissue culture) growing. Unlike hydroponics, which uses water as growing medium and essential minerals to sustain plant growth, aeroponics is conducted without a growing medium. Because water is used in aeroponics to transmit nutrients, it is sometimes considered a type of hydroponics.

Our vertical farm framing fixtures and patent pending aeroponic fixtures are based upon a modular concept in which primary components are interchangeable providing a level of customization we believe based upon our knowledge of the industry is not currently offered by other vertical farming system manufactures. We are developing our aeroponic and vertical farm framing fixtures and systems for use by both horticulture enthusiasts and commercial operators who seek to utilize aeroponic and hydroponic vertical farming methods within a controlled indoor environment.

Our products are designed for the production of aeroponic and hydroponic leafy greens, micro-greens, fruiting plants and herbs. Our fixtures and systems can also be adapted for a variety of other uses such as horticulture research, medicinal plant production, pharmaceutical plant production, plant cloning and hardwood propagation.

 

There are currently several different growing technologies being deployed in urban vertical farming operations. The most common of these technologies include; nutrient film technology, ebb and flow systems, drip irrigation, water culture systems, aquaponic raft systems and aeroponic systems. Our company has chosen to focus on the development of aeroponic and vertical farm framing fixtures and supporting systems for the urban vertical farming industry. Aeroponics is a method of growing plants in a sealed environment by suspending plant roots in an automated atomized liquid nutrient environment. Hydroponics is a subset of hydroculture and is a method of growing plants using mineral nutrient solutions, in water, without soil.

The aeroponic environment being free from pests and disease, we believe plants grow healthier and more quickly than plants grown in a medium. We believe that CEA and BIA advances plant development, health, growth, flowering and fruiting for any given plant species and cultivars. There are two types of aeroponics commonly used and they are described as follows:

·

Low Pressure Aeroponics ("LPA") - LPA systems utilize high volume, low-pressure pumps and low pressure misting, or spray nozzles. Low-pressure nozzles require large orifices to disperse the nutrient solution resulting in increased water usage. Due to the large amount of water used, the majority of LPA systems recirculate the nutrient solution to minimize water and fertilizer usage.

 

·

High Pressure Aeroponics ("HPA") - HPA systems utilize a low volume, high-pressure pump and high pressure misting, or fog nozzles. The higher pressures when used with an appropriate nozzle create an atomized mist or fog. Unlike LPA designs, HPA can utilize drain to waste configurations for easier operation due to minimal water usage. Average nutrient solution particle size is 50-80 microns.

 

---

 

The Indoor Harvest™ Modular Aeroponic System is based around seven primary fixture components. These fixtures consist of an Aeroponic Growth Tray, Aeroponic Growth Lid, Aeroponic Spray Manifold, Aeroponic Pressure Manifold, Nutrient Delivery System, Recirculating System and Lift Station. The individual fixtures are combined to create a variety of aeroponic system configurations and allow for modular system construction. As of December 31, 2014, the Company had completed three prototype system tests. The chart below briefly describes the development status of our seven primary fixture components.

We anticipate being ready to begin production and sales of our aeroponic fixtures in the second quarter of 2015. We need no additional funding to begin manufacturing.

The following is a description of our seven primary aeroponic fixture categories:

Aeroponic Growth Tray ("AGT") 

 

 

Aeroponic Growth Lid ("AGL")

 

 

---

 

Aeroponic Pressure Manifold ("APM")

 

 

Nutrient Delivery System ("NDS") 

 

 

Recirculating System ("RS") 

 

The RS system is used when it is desired to recycle the nutrient run-off from the system. The RS consists of a collection tank and pump. The collected run off is then pumped back to the NDS for re-use when using multiple trays or is pumped directly to the ASM when using a single fixture.

Lift Station ("LS") 

 

The LS is used to remove waste from the aeroponic system when a drain is not readily accessible nearby. The LS collects waste and then pumps it to a different location.

 

Since our inception in 2011, we have been innovating, simplifying, and integrating our proprietary patent pending technologies and inventions into a family of modular aeroponic system components.

 

In addition to our line of aeroponic system fixtures, we also intend to offer private labeled supporting systems for large commercial installations for CEA and BIA farming. These include both wall mount and frame mount reverse osmosis ("R/O") systems ranging in size from 250 gallons per day to over 19,000 gallons per day from Applied Membranes, Inc.. We also intend to offer private labeled inline and drop in chillers ranging from 1/5 HP to 1/2 HP from Trade Wind Chillers.

The use of a R/O system within an aeroponic system can dramatically reduce the potential for maintenance issues such as the clogging of nozzles, solenoids and pumps by filtering incoming system water to below 20 parts per million. Both inline and drop in chillers can also be added to an aeroponic system to chill the nutrient solution thereby increasing dissolved oxygen content of the nutrients and lowering the temperature of a plants root zone. Higher dissolved oxygen and cooler root temperatures promote faster plant growth.

 

---

We have developed a modular framing system that can be used with our aeroponic fixtures or can be used for hydroponic vertical farm installations such as deep water culture, flood and drain or nutrient film technique using third party products. The framing system is based upon the Unistrut framing platform which will make it very versatile in how it is installed and incorporated into mechanical systems.  The design uses an open slot face which will allow precise leveling no matter how uneven the floor is. We have designed the frames to use the Illumitex® brand ES-1 and ES-2 fixtures out of the box without modifications or custom electrical fabrication. The framing is designed to work with any style 4' X 8' hydroponic tray. The system allows for the vertical installation of aeroponic or hydroponic production systems.

We anticipate being ready to manufacture and begin sales of our vertical farm framing system in the second quarter of 2015. We currently do not require any additional funding to begin manufacturing and sales. Depending on a client's location and order size, we can manufacture our frames in-house or we may sub contract to third party manufactures. We currently do not have any agreements with third party manufacturers.

Since our inception, we have engaged in the following significant operational activities:

On November 26, 2011, we began construction of a facility to conduct research and development in order to provide proof of concept on our prototype fixture designs. Construction was completed in June 2012. Our CEO and sole Founder, Chad Sykes, provided space within his garage, at his personal residence at 14830 Forest Lodge Dr, Houston Texas 77070, at no charge to the Company, which was renovated to provide a controlled environment for research and development prototyping of our aeroponic system designs. The Company recorded $8,475 in renovation improvements, which included electrical, plumbing and partition walls to support research and development and expensed this amount under research and development as the improvements were temporary in nature. These transactions were considered temporary in nature as the facility being built was a temporary location until the Company would be able to lease commercial space and expand subsequent to the raising of funds. Once the Company raised additional funds, a lease was entered into and the garage build out was no longer being used for business operations. Our CEO and sole Founder, Chad Sykes, has demolished the previous construction, and returned the garage to its original state, at no charge to the Company.

For the period of our inception to December 31, 2014, $36,080, or 8% of our total operational costs, were incurred for research and development expenses towards the development of our aeroponic and vertical farm framing fixture designs. See Research and Development below for additional information.

On January 11, 2012, we acquired the domain name indoorharvest.com from the original domain name registrant for $2,000 cash and recorded it as an indefinite-lived intangible asset. We also registered the domain name aerofarmer.com for future use.

As of December 31, 2014, we capitalized $18,309 in tooling equipment for our product line. Tooling equipment includes two molds for our Aeroponic Growth Tray ("AGT") fixtures and one mold for our Aeroponic Growth Lid ("AGL") fixtures and two 4X2 thermoforming molds.

On September 18, 2013, the Company entered into a material transfer agreement with the Massachusetts Institute of Technology's Media Lab ("MIT Media Lab") to provide aeroponic system components and fixtures to be used for the purpose of developing a wall facade aeroponic system as part of MIT Media Lab's Changing Places research. The project, MITCityFarm, will focus on urban mobility networks, decentralized energy infrastructure and transformable housing units to advance urban agricultural systems. Indoor Harvest, Corp. will be responsible for providing technical assistance and materials as a "Technical Systems Adviser" to the MITCityFarm project. This is a demonstration project only. The equipment may only be used for education or not for profit purposes.  The Agreement provides that we are providing our equipment at no cost.

---

On February 20, 2014, we entered into a 62 month lease with Daniel R. Davis, commencing on March 1, 2014 through April 30, 2019, for a total of 10,000 sqft. of warehouse and office space located at 5300A East Freeway, Houston, Texas 77020. The monthly base rent is $4,200 increasing 6% every two years for the term of the lease. The property is adequate for all of the Company's currently planned activities.

On March 1, 2014, we relocated our equipment to this leased space and ceased operations at our original research and development facility.

As of July 15, 2014, the Company had purchased $114,786 in manufacturing equipment in order to develop in-house manufacturing for its products. These purchases included a Bel-O-Vac Model BV E Class 72"X120" heavy gauge vacuum former, welding equipment and fabrication tools, a commercial powder coating system, table and panel saws, plastic fabrication, a cold saw, and a 5,000 lbs Fork Lift.

On July 3, 2014, the Company entered into a presentation and design agreement with Curran & Connors for the development of presentations for the Company. Total anticipated cost of $5,500 with a one-third due upon acceptance, one-third due upon design approval and remainder due 10 days after the project has been completed. A total of $1,800 has been billed under this Agreement as of the date of this filing. We have temporarily placed completion of this presentation on hold pending results of our pilot with Tweed Marijuana, Inc.

As of December 31, 2015, we have invested $52,616 in the construction of lab equipment to test various crop types and record production data. During the same period, we have also invested $33,778 in lease hold improvements to our property in order to provide a controlled environment for our lab equipment.

Indoor Harvest will be provided exclusive manufacturing rights for a period of 10 years on the New IP developed under the agreement. All equipment manufactured by Indoor Harvest will be provided to Tweed by way of a "cost plus agreement" not to exceed 15% allowable for profit.

 

Both parties are responsible for the costs associated with meeting their obligations outlined in this Agreement. Under no circumstance, do Tweed's costs exceed those associated with the cost of plants, labor and general costs of production including water and electricity. However, any costs related to third party laboratory analysis and testing of phytocannabinoids will be shared equally by both parties.

We currently depend on five firms to manufacture our aeroponic and vertical farm framing systems, from or with which we have supply arrangements with and/or with which we private label, distribute and purchase from these five firms, respectively, on a purchase order basis, two in Texas, two in California and one in Florida to produce, our aeroponic system components. We have only verbal agreements with suppliers and purchase our products on a purchase order basis from the suppliers, but we believe we could easily find alternative suppliers for each of these suppliers and/or users of our tooling, even for those such as Freeman which is located a significant distance from our offices, at no significant increase in price and with no or no significant interruption in our production process. These firms and what they do for us are as follows:

 

·	Freeman Engineered Products, located in Burnet Texas, currently provides us with our high-density polyethylene ("HDPE") products using tooling that we own. Although they are holding our tooling at no charge to us, we are free to remove our tooling to another location or to another rotational molding company at any time. This could be made more difficult because one of our suppliers, Freedman Engineered Products both holds our tooling and is located a significant distance from our office. Accordingly, we might experience some production logistic products if we had to remove our tooling to another location or to another rotational molding company at any time, but as described below do not believe the effect would be significant.
·	Illumitex, located in Austin Texas, provides us with LED lighting systems. We have a verbal agreement with Illumitex to provide us with wholesale pricing and to be listed as a "vendor partner" on our website.
·	Applied Membranes, located in Vista California, provides us with our reverse osmosis ("R/O") products. We have a verbal agreement with Applied Membranes to provide us with private label components and to be listed as a "vendor partner" on our website.
·	Dosatron, located in Clearwater Florida, provides us with water injection technologies. We have a verbal agreement with Dosatron to use their products in our systems, act as a distributor and be listed on our web site as a "vendor partner".
·	We have a verbal agreement from Trade Wind Chillers in Escondido California to provide private labeled chillers ranging in size from 1/5 HP through 1/2 HP.

 

We have no formal written agreements with any of these five companies.

Any change in suppliers/manufacturers or problems with our existing suppliers/manufacturers could disrupt or delay our ability to fulfill orders for our aeroponics systems while we search for alternative supply sources, provide specifications, and test initial production. However, based upon management's knowledge of the industry, we believe we could locate alternative firms without any significant difficulty or increase in prices, even with firms such as Freeman which is located a significant distance from our office. If we needed to change suppliers/manufacturers and there were to occur any significant time delay in locating alternative firms, which we do not currently anticipate, our business prospects, results of operations and financial condition could be materially and adversely affected.

---

The company has engaged in significant research and development activities as described below.

On September 14, 2012, the company began research and development on its prototype designs. The Company has incurred $36,080 in research and development expenses for the period from inception to December 31, 2014. Chad Sykes, our sole Founder and CEO, was responsible for the development of our prototype designs and providing the space required to complete our proof of concept prototyping which was done within his garage, at his personal residence at 14830 Forest Lodge Dr, Houston Texas 77070, at no charge to the Company, which was renovated to provide a controlled environment for R&D and prototyping of our aeroponic system designs.

From September 18, 2012 through October 31, 2012, we completed an initial prototype system test by growing 110 basil plants. The test resulted in an average 1.7 lbs of basil per square foot in 30 days using under 2 gallons of water per plant drain to waste. Upon completion of the test, we made design changes to our lid system and nutrient dispensing system prototypes.

From March 8, 2013 through April 8, 2013, we completed a second prototype system test by growing 110 heads of leafy lettuce to include three types of lettuce, bibb lettuce, buttercrunch lettuce and romaine lettuce. The test resulted in an average head weight of 1/4 lbs in 28 days and water use of under 3 gallons per head drain to waste. Upon completion of the test, we made design changes to our lighting system, updated the framing system and put two prototype grow trays into vertical operation.

From July 13, 2013 through August 22, 2013, we completed a third prototype system test by growing 220 heads of leafy lettuce to include four types of lettuce, bibb lettuce, buttercrunch lettuce, romaine lettuce and ruby red lettuce. The test resulted in average head weight of 1/4 lbs in 30 days and 1/2 lbs in 40 days. During this period the Company also conducted research and development of lighting and controls, comparing the performance of LED lighting and T5 fluorescent lighting. Also during this period the Company tested its second nutrient dispensing prototype running two vertically stacked grow trays simultaneously.

In January 2015, we began construction of a controlled environment testing facility. The facility will be used to test production yields for a variety of cultivars using both our aeroponic and vertical farm framing designs. This data will then be used to develop business plans and marketing materials for our product and services. As of the date of this report, we had completed the walls and partitions, area drainage and flooring. We expect to begin installing the ventilation, climate controls and research platforms in the second quarter of 2015.

From February 19 through March 7, 2015, the Company completed installation of three mobile research labs at Tweed's Smith Falls Canada location per a Cannabis Production Pilot Agreement between the two Companies. The research will record the growth rate, phytocannabinoid production, water usage, fertilizer usage and labor of producing cannabis using aeroponic methods. We expect initial data from the research in April, 2015 which we will use towards developing a cannabis specific cultivation platform using aeroponic technology.

Our plan of expanded operations for the next 12 months, assuming we secure the necessary funding, are set forth in "Plan of Operations" below. The company's long-term strategy is to direct sale, license and franchise their patented technologies and methods.

We believe, based on our own formal and informal research that our products appeal to three distinct markets. Those markets include horticulture enthusiasts, commercial growers and horticulture researchers who are currently using areoponics or other indoor growing technologies. We intend to market our products to these markets simultaneously. The following is a description of these markets.

Horticulture Enthusiasts - The horticulture enthusiast consists of hobbyists, gardeners and those individuals seeking to utilize advanced horticulture technologies to grow at home, indoors in urban city environments where land availability is limited. We believe that our indoor aeroponic products offer both expert and novice horticulture enthusiasts several major benefits not readily available through traditional gardening methods. The Indoor Harvest™ system provides the user the ability to aeroponically grow fresh herbs, leafy greens, micro-greens, vegetables and medicinal plants year-round, regardless of seasonal weather conditions.

Commercial Growers - Commercial agriculture is beginning to migrate to CEA and BIA. We believe that our aeroponic products provide an affordable vertical farming solution for urban commercial growers who produce for local restaurants, hotels, wholesale and retail markets. Our systems can also be used in re-forestation projects or other revitalization projects through the system's ability to clone and propagate a variety of plant cuttings and hardwood cuttings.

Horticulture Researchers - The modular nature of our system design allows for numerous configurations from the same system. Our platform provides a variety of aeroponic delivery methods and plant support structures from the same system. This provides maximum flexibility to researchers who are experimenting with different plant species and are attempting to keep costs down.

---

We believe that cannabis has the potential to be a large market for our equipment. We are currently developing products which could be specifically used in the production of cannabis under our agreement with Tweed in Canada, where cannabis is legal throughout the country. We will only directly enter that market outside the U.S. where cannabis is legal, such as in Canada, and in the U.S. only in jurisdictions where cannabis is legal and only then if we do not believe there is any material likelihood that we could be found in violation of federal law in the U. S. through the sale of our products.  See "Government Regulation and Certification," below.

In addition to selling aeroponic and vertical farm framing systems, in the future we also expect to offer design build services to commercial operators who are seeking consulting, custom equipment design, and project management of CEA and BIA construction projects. The company will act as a general contractor by providing project management in connection with the sub-contracted work of mechanical, electrical and general construction contractors who will install our fixtures for client companies. The company will identify sub-contractors based on project location and responses to solicitations for bid on projects the company will manage. We currently have no contracts, agreements or commitments for any subcontractors.

 

 

The company intends to offer its products to retail markets through distributors or retailers as well as offering direct commercial sales from our website. As of the date of this filing, we have one oral or written agreements with distributors or retailers.

We are currently developing our marketing plan, which may include some or all of the following marketing methods:

Direct Mail - The use of direct mail allows us to reach a wide audience within a targeted market. A direct mail campaign may consist of a letter of introduction and a brochure featuring the products and services provided by the Company.

Internet Marketing - The Company intends to utilize social networks such as YouTube and Facebook as well as reaching out to industry bloggers and news sites in order to reach potential customers. The company can also sponsor, or advertise with hydroponic and other related horticulture online forums, social networks and online magazines. The Company, in the future, plans to offer its products for sale via the internet. The Company has not launched its online sales as of the date of this report.

The company intends to launch a social media network under the domain name aerofarmer.com. The company intends to host forums, articles and blogs related specifically to aeroponic indoor farming while also offering a retail sales point for its products and services.

Trade Shows and Special Events - The Company intends to participate in industry trade shows and events in order to create market awareness for its brand of aeroponic fixtures and systems.

We intend to market our products to customers desiring to grow all varieties of agricultural products. We do not intend to exclude the growers of any agricultural products, including cannabis, from our marketing efforts. As of the date of this report, we are developing fixtures specifically for cannabis production in Canada under our agreement with Tweed. All of our current fixtures can be adapted for use by cannabis growers. In the future we may develop additional fixtures, or be contracted to design additional systems, specifically for cannabis production. Marketing our products in the U.S. in state and local jurisdictions where marijuana is legal is still uncertain due to the uncertain legal status of the growth, sale and use of cannabis due to conflicting laws under which what is illegal federally is to varying extents legal under certain state laws to the contrary [and even greater uncertainty as to what would constitute ancillary illegal activities such as aiding or abetting if any such direct actions are deemed illegal; and even if direct illegality laws were enforced, whether any ancillary related laws such as aiding and abetting would, if ever, be enforced]. We believe that if the cannabis industry were to become fully legal under both U.S. federal and state law, then this industry may well be where the most advances in technology related to our products could come from. Even our current marketing efforts reflect these uncertainties as, for example, although we are members of the National Cannabis Industry Association, as part of our broader-based marketing efforts, we are also currently members of the Association of Vertical Farming, a non-cannabis organization, focused on food production, and are collaborating with the Massachusetts Institute of Technology's Media Lab project on advancing agricultural food technology under the MITCityFarm project, as well. We are also working on developing cannabis-specific products in Canada under our agreement with Tweed.  Thus, it is not unreasonable, but is not certain, to assume that the cannabis industry will become the biggest market for the type of equipment that we manufacture.

  

There are three main manufacturers that currently manufacture high pressure aeroponic systems. They are Agrihouse™, Aerofarms™ and Blue Sphere Industries™. These companies are currently engaged in the manufacture and sales of commercial aeroponic vertical farming systems. These systems can only be used in a single mode with high pressure aeroponics and offer limited sizing options. Our system is capable of operating in dual modes, both LPA and HPA, and our AGT fixture is available in optional sizes that our competitors currently do not offer.

---

There are also companies such as general Hydroponics® and Botanicare® that manufacture aeroponic and hydroponic growing systems for the hobbyist. These systems are only available in low pressure aeroponics and require individual reservoirs. They also are offered in limited sizes and are not designed for vertical operation. These systems only provide a single mode of operation.

Our fixture based aeroponic system is designed to operate under both low pressure or LPA and high pressure or HPA configurations, as described in "Business - Our Products," above, we also offer custom sized applications and our systems can operate both drain to waste and recirculating.

We will be a small competitor in the industry. Many of our competitors have substantially greater financial, marketing, personnel and other resources than we do.

We believe based upon management's knowledge of the industry that we are the first company to develop and offer a fixture based commercial aeroponic system. Instead of relying on a complete engineered system, we have developed aeroponic fixtures that can be used in whole, or in part, to create a modular vertical farming system of any scale, or size. By breaking our aeroponic system down into individual, independent fixtures, we offer a level of custom ability that currently is not offered by our competitors.

Our fixtures can be used individually, or incorporated into do-it-yourself designed systems that many smaller commercial operators chose to build. This allows us to not only compete for sales to commercial growers who are developing their own systems, but also with growers who are looking for a complete system. We believe this will allow us to increases our market share and allows us to benefit from both commercial and retail sales. We believe that our approach can help create standardization for CEA and BIA aeroponic operations.

We will source our products and accessories from third party manufacturing companies that manufacture products in part using tooling we own, in accordance with our specifications, and subject to our patent pending intellectual property rights, until we are capable of manufacturing these products in-house.

We currently depend on two manufacturers in Texas, two in California and one in Florida to produce our aeroponic and vertical farm framing system components. Freeman Engineered Products, located in Burnet Texas, currently provides us rotational molding of our high-density polyethylene ("HDPE") products using tooling that we own. Illumitex, located in Austin Texas, provides us with LED lighting systems. We have a verbal agreement with Illumitex to provide us with wholesale pricing and to be listed as a "vendor partner" on our website. Applied Membranes, located in Vista California, provides us with our reverse osmosis ("R/O") products. We have a verbal agreement with Applied Membranes to provide us with private label components and to be listed as a "vendor partner" on our website. Dosatron, located in Clearwater Florida, provides us with water injection technologies. We have a verbal agreement with Dosatron to use their products in our systems, act as a distributor and be listed on our web site as a "vendor partner". We have a verbal agreement from Trade Wind Chillers in Escondido California to provide private labeled chillers ranging in size from 1/5 HP through 1/2 HP. We have no formal written agreements with any of these six companies. We private label, distribute and purchase from these six firms, respectively, on a purchase order basis.

We currently have the capacity to obtain parts and assemble, sell and ship in any one month period the following products in the following amounts for each in any given month based upon our current tooling:

We currently own tooling to produce our AGT line made from HDPE in 48"X96"X12" and 48"X96"X24" sizes through a process known as rotational molding. We also own tooling to produce thermoformed molds in 24"X48" for ABS plastic. We currently out-source our rotational molding to Freeman Engineered Products. In the future, if and when we obtain sufficient funding, we anticipate in the future spending approximately $25,000 towards additional tooling which will allow us to add the following sizes to our portfolio: 48"X48"X12", 48"X48"X24", 24"X48"X12" and 24"X48"X24." We currently do not have the funds for this tooling, but will budget $25,000 for additional tooling when we have the available funds. We are currently capable of manufacturing our vertical farm framing systems in-house, though we may choose to sub contract to third parties depending on project location and number of fixtures purchased. We currently have no agreements with third parties to manufacture our vertical farm framing systems. We are capable of producing up to 800 frames per month currently in -house.

---

As of July 15, 2014, the Company had purchased $114,786 in manufacturing equipment in order to develop in-house manufacturing for some of its products. These purchases included a Bel-O-Vac Model BV E Class 72"X120" heavy gauge vacuum former, welding equipment and fabrication tools, a commercial powder coating system, table and panel saws, plastic fabrication tools, a cold saw, and a 5,000 lbs Fork Lift.

Our products will be combined and assembled based on customer requirements by us at our current location. We currently have one member of management and four salaried shop employees. We intend to hire temporary contract labor to assemble our products based on client demand. We believe the use of non-salaried personnel allows us to expend our capital resources as a variable cost as opposed to a fixed cost of operations. In other words, if we have insufficient revenues or cash available, we are in a better position to only utilize those services required to generate revenues as opposed to having additional salaried employees. In order to substantially grow our revenue base we will require additional personnel. These personnel will be added when funds are available. The company utilizes American manufacturing where possible. We have no contracts with any manufacturing firms; we anticipate our products will be manufactured as needed and based on demand.

 

We do not need any further internal funding to get parts produced each month in the amount set forth above. This is because we will not order these parts needed to begin the assembly of our product until we have received a purchase order from a client which has been paid in full. Only then will we submit purchase orders to these suppliers, using the money that our customer has already paid for the product to pay these parts suppliers/manufacturers. The capacity limits are those of our suppliers/manufacturers, not of ours. So if we have more orders that these supplier/manufactures can supply parts and/or complete third party manufacturing in any month, we will advise our client of a delay in the delivery time. We intend to offer our products through distributors and retailers, as disclosed above, while beginning assembly of our products only upon having received full payment for those products as follows: We intend only to drop ship products directly to a customer if ordered through a third party retailer/distributor. A customer would be advised as to the time frame for delivery after placing an order through a third party retailer/distributor and making full payment in advance. Our distributors/dealers would not stock inventory.

 

We rely on a combination of patent law, trademark laws, trade secrets, confidentiality provisions and other contractual provisions to protect our proprietary rights, which are primarily our brand names, product designs and marks.

On December 6, 2011, a U.S. federal trademark registration was filed for Indoor Harvest (Serial Number 85488194) and the United States Patent and Trademark Office ("USPTO") granted a first 6 month extension for use on January 5, 2013 and were granted a fifth extension for use on January 8, 2015.

On May 15, 2013 the Company filed a provisional application for patent on a "modular aeroponic system and related methods" (Serial Number 61/823,330) with the USPTO. The inventor was recorded as Chad Sykes, our CEO and sole Founder and Indoor Harvest Corp was named as the assignee. In order to obtain our patent, the Company will need to convert its provisional application for patent, into a non-provisional application for patent. On May 15, 2014, the Company converted its provisional patent into a non-provisional patent and recorded an expense of $1,730. We do not currently have a patent, the USPTO will conduct a review our patent application and provide us with comments. We must satisfy all comments before the USPTO will grant us a patent. There is no guarantee that a patent will be granted. While our patent application is under review, we may use the term "patent pending" on all published materials regarding our process applied for patent.

 

We are not aware of any governmental regulations or approvals for any of our products or services.

 

As the possession and use of cannabis is illegal under the Federal Controlled Substances Act, we could be deemed to be aiding and abetting illegal activities through the equipment we intend to sell in the U.S. if such equipment is used by customers who intend to purchase and use our aeroponic and vertical farm framing systems to grow cannabis. Under Federal law, and more specifically the Federal Controlled Substances Act, the possession, use, cultivation, and transfer of cannabis is illegal. Our equipment could be used by persons or entities engaged in the business of possession, use, cultivation, and/or transfer of cannabis. As a result, law enforcement authorities, in their attempt to regulate the illegal use of cannabis, could seek to bring an action or actions against us, including, but not limited, to a claim of aiding and abetting another's criminal activities. The Federal aiding and abetting statute provides that anyone who "commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal." 18 U.S.C. §2(a). However, we do not believe that the Company's current and intended business as described in this report violates federal law and believe we would prevail if any such action were brought against us.

---

●	we would not be able to pay our debts as they become due in the usual course of business; or

●	our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of stockholders who have preferential rights superior to those receiving the distribution, unless otherwise permitted under our articles of incorporation.

14

 

---

Although the forward-looking statements in this Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

Indoor Harvest, Corp., through its brand name Indoor Harvest™ is a development stage company that seeks to become an equipment design, developer, marketer and direct-seller of commercial grade aeroponic fixtures, vertical farm framing fixtures and supporting systems for use in urban controlled environment agriculture ("CEA") and Building Integrated Agriculture ("BIA").

CEA is the process of manipulating any agricultural technology to allow the farmer an ability to manipulate a crop's environment to desired conditions. Technologies include greenhouse production, hydroponics, aquaculture, aquaponics and aeroponics. Controlled variables may include temperature, lighting, humidity, pH and nutrient analysis.

BIA is the process of locating CEA methods on, or in, mixed use buildings to provide synergy with the buildings infrastructure and the agriculture process. Earliest examples of BIA include the use of hydroponics, aeroponics and aquaponics, where waste heat is captured through the buildings existing heating, ventilation and air conditioning system as well as the combined use of solar, rainwater collection and evaporative systems. Current operating examples include such buildings as Eli Zabar's rooftop greenhouse, The Sun Works Center for Environmental Studies, Gotham Greens, Sky Vegetables, Top Sprouts, Cityscape Farms, Dongtan, Masdar City, AeroFarms, Solar 2, Lufa Farms, BrightFarms, FarmedHere, Green Sense Farms, Green Spirit Farms and Big Box Farms. The term building-integrated agriculture was coined by Dr. Ted Caplow in a paper delivered at the 2007 Passive and Low Energy Cooling Conference in Crete, Greece.

 

Aeroponics is the process of growing plants in an air or mist environment without the use of soil or an aggregate medium (known as geoponics). Aeroponic culture differs from both conventional hydroponics and in-vitro (plant tissue culture) growing. Unlike hydroponics, which uses water as growing medium and essential minerals to sustain plant growth, aeroponics is conducted without a growing medium. Because water is used in aeroponics to transmit nutrients, it is sometimes considered a type of hydroponics.

Our vertical farm framing fixtures and patent pending aeroponic fixtures are based upon a modular concept in which primary components are interchangeable providing a level of customization we believe based upon our knowledge of the industry is not currently offered by other vertical farming system manufactures. We are developing our aeroponic and vertical farm framing fixtures and systems for use by both horticulture enthusiasts and commercial operators who seek to utilize aeroponic vertical farming methods within a controlled indoor environment.

Our products are designed for the production of aeroponic and hydroponic leafy greens, micro-greens, fruiting plants and herbs. Our fixtures and systems can also be adapted for a variety of other uses such as horticulture research, medicinal plant production, pharmaceutical plant production, plant cloning and hardwood propagation.

We are an "emerging growth company" ("EGC") that is exempt from certain financial disclosure and governance requirements for up to five years as defined in the Jumpstart Our Business Startups Act ("the JOBS Act"), that eases restrictions on the sale of securities; and increases the number of shareholders a company must have before becoming subject to the U.S. Securities and Exchange Commission's (SEC's) reporting and disclosure rules (See "Emerging Growth Companies" section above). We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the Jobs Act, that allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.

Our operational expenditures are primarily related to developing our line of productions, developing our in-house manufacturing and fabrication facilities and the costs related to being a fully reporting company with the Securities and Exchange Commission.

We are in the process of developing our products and services. Consequently, we have not generated revenues as of the date of this report. We have an accumulated deficit and have incurred operating losses since our inception and expect losses to continue during 2015. Our auditor has indicated in their Report that these conditions raise substantial doubt about our ability to continue as a going concern. 

---

We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including the financial risks associated with the limited capital resources currently available to us for the implementation of our business strategies. To become profitable and competitive, we must develop the business plan and execute the plan.

We are unable to provide a timeline for the generation of revenues which casts substantial doubt on the viability of our business and our ability to continue as a going concern.

For the fiscal year ended December 31, 2014 and December 31, 2013, we incurred $443,540 and $186,913, respectively, in operating expenses. The increase in our operating expenses are due to increases in costs related to research and development, additional payroll costs, building lease, and professional expenses related to the filing of our registration statement and costs associated with becoming a publicly traded Company.

Our expenses related to research and development for the fiscal year ended December 31, 2014 and December 31, 2013 were $36,080 and $12,823, respectively. The increase in research and development expenses was due to increased costs supporting our collaboration with MITCityFarm as well as continued product development.

As of December 31, 2014 we had total liabilities of $21,245, while at December 31, 2013, we had total liabilities of $6,181. The increase was the result of accrued payroll expenses from hiring new employees, accounts payable and accrued expenses and deferred rent on our building lease.

Deferred rent payable at December 31, 2014 was $9,026. Deferred rent payable is the sum of the difference between the monthly rent payment and the straight-line monthly rent expense of an operating lease that contains escalated payments in future periods.

We anticipate taking the following steps to implement our business plan in the next 12 months. Our capital requirements for implementation of these steps are estimated at $350,000 as set forth in the table below. During the next 12 months, we anticipate engaging in the following operational activities, although we may vary our plans depending upon operational conditions and available funding:

The total estimated costs of our short-term operational plans for the next 12 months is $294,144 to maintain minimal operational activities during the next 12 months, plus an estimated $75,000 in maintaining public company reporting requirements, as set forth below. In order to fully implement our Plan of Operations for the next 12 months, we will need an additional $350,000. If we are unable to raise additional funds through private placements, registered offerings, debt financing or other sources we may need to postpone the development of our business plan. Without additional funding, we may only be partially successful or completely unsuccessful in implementing our business plan. This does not include the additional funding if, and when, we sign a definitive agreement based upon our LOI with the City of Pasadena Texas for the development of a vertical farming facility and education center, as described below.  

 

Management has no written or oral agreement to advance additional funds. If we do not secure additional funds either from operational cash flow when we begin to sell our products and services or additional debt or equity financing, the implementation of our planned future business development activities will be delayed. We currently expect to be in a position to begin selling some of our products and offering design build services by Q2 2015, although there is no assurance we will not encounter unexpected delays. We anticipate that our current cash on hand plus cash flow we expect to start generating during the next 12 months will enable us to maintain minimum operations and working capital requirements for at least the next twelve months.

---

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

For a discussion of our accounting policies and related items, please see the Notes to the Financial Statements, included in Item 8.

 

Item 8. Financial Statements

18

To the Board of Directors and Stockholders of Indoor Harvest Corp

We have audited the accompanying financial statements of Indoor Harvest Corp, which comprise the balance sheets as of December 31, 2014 and 2013, and the related statements of operations, changes in shareholders' equity and cash flows for the years then ended, and the related notes to the financial statements. Indoor Harvest Corp's management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Indoor Harvest Corp as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the years ended December 31, 2014 and 2013 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that Indoor Harvest Corp will continue as a going concern. As discussed in Note 2 to the financial statements, the Company's significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter.

/S/ RBSM, LLP

RBSM, LLP

Sugar Land, TX

 

 

 

March 31, 2015

19

 

The Accompanying Notes are an Integral Part of these Financial Statements

 

---

21

22

 

The Accompanying Notes are an Integral Part of these Financial Statements

 

---

Nature of operations and organization

 

Indoor Harvest Corp., or the "Company," is a Texas corporation formed on November 23, 2011.  Indoor Harvest, Corp., through its brand name Indoor Harvest™, is a company specializing in equipment design, development, marketing and direct-selling of commercial grade aeroponics fixtures and supporting systems for use in urban Controlled Environment Agriculture ("CEA") and Building Integrated Agriculture ("BIA").

 

Basis of presentation

The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (GAAP).

 

Use of estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("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 estimated useful lives of equipment for purposes of depreciation and the valuation of common shares issued for services, equipment and the liquidation of liabilities.

  

Cash and Cash Equivalents

 

The Company considers all highly liquid instruments with a maturity of three months or less to be cash and cash equivalents.

 

Stock-based Compensation

 

The Company follows ASC 718-10, Stock Compensation, which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions).

 

Loss per Share

Basic earnings per share amounts are calculated based on the weighted average number of shares of common stock outstanding during each period. Diluted earnings per share is based on the weighted average numbers of shares of common stock outstanding for the periods, including dilutive effects of stock options, warrants granted and convertible preferred stock. Dilutive options and warrants that are issued during a period or that expire or are canceled during a period are reflected in the computations for the time they were outstanding during the periods being reported. Since Indoor Harvest has incurred losses for all periods, the impact of the common stock equivalents would be anti-dilutive and therefore are not included in the calculation.

 

Fair Value of Financial Instruments

 

The Company's financial instruments consisted primarily of cash and accrued expenses. The carrying amounts of the Company's financial instruments generally approximate their fair values as of December 31, 2014 and December 31, 2013, respectively, due to the short-term nature of these instruments.

Income Taxes

The Company accounts for income taxes pursuant to FASB ASC 740—Income Taxes, which requires recognition of deferred income tax liabilities and assets for the expected future tax consequences of events that have been recognized in the financial statements or tax returns. The Company provides for deferred taxes on temporary differences between the financial statements and tax basis of assets using the enacted tax rates that are expected to apply to taxable income when the temporary differences are expected to reverse.

FASB ASC 740 establishes a more-likely-than-not threshold for recognizing the benefits of tax return positions in the financial statements. Also, the statement implements a process for measuring those tax positions that meet the recognition threshold of being ultimately sustained upon examination by the taxing authorities. There are no uncertain tax positions taken by the Company on its tax returns. The Company files tax returns in the U.S. and states in which it has operations and is subject to taxation. Tax years subsequent to 2008 remain open to examination by U.S. federal and state tax jurisdictions.

---

		Years Ended
		December 31, 2014				December 31, 2013
Research and development expense		$	36,080			$	12,823

		Years Ended
		December 31, 2014				December 31, 2013
Advertising expense		$	7,241			$	1,230

---

 

Property and equipment consist of the following at December 31, 2014 and December 31, 2013:

 

		December 31, 2014				December 31, 2013
Furniture and equipment		$	84,551			$	33,179
Software			1,023				1,023
Tooling equipment			18,309				9,692
Leasehold improvements			33,778
Computer equipment			4,780				-
Research and development lab			52,616				-
Total			195,057				43,894
Less: accumulated depreciation and amortization			(24,603	)			(7,888	)
Property & equipment, Net		$	170,454			$	36,006

 

---

Depreciation expense for the years ended December 31, 2014 and 2013, totaled $16,715 and $6,115, respectively.

During the year ended December 31, 2014, the Company paid deposits and or acquired equipment totaling $68,083 which has not been placed in service as of December 31, 2014 and is included in Other Assets as of December 31, 2014.

Rent expense for the periods noted is as follows:

At December 31, 2014, rental commitments are as follows:

 

Year		Amount
2015		$	50,400
2016			52,416
2017			53,424
2018			54,492
2019			19,944
		$	230,676

 

On September 18, 2013, the Company entered into a material transfer agreement with the Massachusetts Institute of Technology's Media Lab ("MIT") to provide aeroponics system components and fixtures to be used for the purpose of developing a wall facade aeroponics system as part of MIT Media Lab's Changing Places research. The Company is responsible for providing technical assistance and materials.  In connection with this agreement, MIT has agreed to reimburse the Company $12,242 in costs incurred as of December 31, 2014; the Company has recorded this reimbursement as Other Assets as of December 31, 2014 and a reduction in research and development expense.

---

In July of 2014, the Company entered into a presentation and design agreement for the development of presentations for the Company. Total anticipated cost of $5,500 with a one-third due upon acceptance, one-third due upon design approval and remainder due 10 days after the project has been completed.

On December 31, 2013, the Company had accrued payroll to a related party, Chad Sykes, our CEO of $6,181. Additionally, for the year ended December 31, 2013, we issued shares for services to related parties amounting to $82,552. There were no related party transactions in 2014.

Indoor Harvest operates in the United States; accordingly, federal and state income taxes have been provided based upon the tax laws and rates of the U.S. The Company has incurred losses since inception and, accordingly has a net operating loss carry forward as of December 31, 2014 of $565,586. This loss carry forward expires according to the following schedule:

The income tax provision differs from the amount of income tax determined by applying the federal income tax rate to pre-tax income from continuing operations for the years ended December 31, 2014 and 2013, due to the following:

 

Deferred tax assets at December 31, 2014 and 2013 are comprised of net operating loss carry forwards. Deferred tax liabilities consist primarily of the difference between book and tax basis depreciation.

 

COMMON STOCK

During the year ended December 31, 2013, the Company issued a total of 1,551,173 shares for cash at prices ranging from $0.15 per share to $0.25 per share for cash totaling $237,038.

 

In June of 2013, the Company entered into a website development costs for a total cost of $2,500 and common stock valued at $20,000 based on the Company's recent private placements which totaled 80,000 shares. The agreement shall remain in effect until all obligations have been properly completed the construction of a web site that shall conform to the specifications provided by the Company.

 

In December of 2013, the Company entered into four advisory agreements where the advisors agrees to act as mentors or advisors to the Company and provide advice and assistance ranging from attending quarterly meetings to providing feedback on Company strategy to making introductions and assisting in acquisitions. During the year ended December 31, 2013, the Company issued 250,208 common shares in connection with these agreements and value the share issuance for services at the most recent price per share for cash sales of the Company's stock or $0.25 per share.

In January of 2014, the Company entered into an advisory agreement where the advisor agreed to act as a mentor or advisor to the Company and provide advice and assistance ranging from attending quarterly meetings to providing feedback on Company strategy to making introductions and assisting in acquisitions. The Company issued 65,552 common shares in connection with this agreement with a valuation of $16,388 ($0.25/share). All shares to be issued per this agreement have been issued.

---

In January of 2014, the Company issued 207,455 shares of Common stock to the Company's legal counsel as part of legal fees with a valuation of $51,864 ($0.25/share).

During the year ended December 31, 2014, the company issued a total of 2,474,000 shares of common stock ($0.25-0.50/share) for cash totaling $864,750 and a subscription receivable of $10,000.

 

In January of 2015, the Company issued 144,000 shares of Common stock to the Company's legal counsel as part of legal fees with a valuation of $72,000 ($0.50/share) at the most recent price per share for cash sales of the Company's stock.

On March 1, 2015, we entered into a Director Agreement with William Jamieson. The Company will reimburse the Director for reasonable travel and other incidental expenses incurred by the Director in performing his services and attending meetings as approved in advance by the Company. The Company shall award to the Director 166,560 shares of Common Stock pursuant to the Company's 2015 Stock Incentive over a two year period as directed in the Director Agreement

On March 13, 2015, we entered into a Director Agreement with John Choo. The Company will reimburse the Director for reasonable travel and other incidental expenses incurred by the Director in performing his services and attending meetings as approved in advance by the Company. The Company shall award to the Director 166,560 shares of Common Stock pursuant to the Company's 2015 Stock Incentive over a two year period as directed in the Director Agreement

From January 5, 2015 through March 19, 2015, the Company issued a total of 536,000 shares of Common stock at $0.50 per share for cash totaling $268,000.

 

On March 23, 2015 we entered into a consulting agreement with Smallcapvoice.com to provide public and investor relations services for a period of 30 days starting on March 31, 2015. The Company paid $25,000 in cash plus issued 25,000 shares of restricted common stock for services rendered.

---

The following sets forth our officers and directors as of March 14, 2015.  The board of directors elects our executive officer annually. Our directors shall be elected for the term of one year, and until their successors are elected and qualified, or until their earlier resignation or removal. Our sole officer also shall be elected for the term of one year, and until his successor is elected and qualified, or until his earlier resignation or removal.  Our directors and executive officer are as follows:

 

 

 

 

 

The table below summarizes all compensation awarded to, earned by, or paid to each named executive officer for the Company's last two completed fiscal years for all services rendered to the Company. 

 

Name and principal    position	Year	Salary				Bonus				Stock Awards					Option Awards						Non-Equity Incentive Plan Compensation				Nonqualified Deferred Compensation Earnings				All Other Compensation				Total
Chad Sykes	2014		$	70,000			$	-			$	-				-		$	-			$	-			$	-			$	-			$	70,000
President, Chief Executive Officer	2013			19,124	[1]			-				-				-							-				-				-				19,124

 

[1] This amount was determined in accordance with the Amendment to the Executive Employment Agreement effective as of December 31, 2013, as described below and filed as an exhibit to the Amendment to our Registration Statement filed on June 24, 2014.

 

We entered into an Executive Employment Agreement (the "Agreement") as of September 1, 2013, with Chad C. Sykes (the "Executive").  The principal terms of the Agreement are as follows:

(a) Position. Chief Executive Officer

(b) Duties. As may be assigned by the Board of Directors not inconsistent with the position.

(c) Dedication. Executive shall devote his full business time and best efforts to the business and affairs of the Company.

(a) Base Salary

(i) Salary. $70,000 per year ("Base Salary")

(ii)Adjustments. The Base Salary may be increased, or decreased, from time to time during the term of this Agreement in the sole discretion of the Board of Directors based on the Company's ability to pay.

(b) Incentive Compensation. During the term of employment, the Executive shall be eligible to participate in any equity-based incentive compensation plan or program adopted by the Board of Directors.

 

(a) Ownership. Executive agrees that  all copyrights, trademarks, patents, and other intellectual property rights to works or marks arising in from or in connection with the Executive's employment by Company are "work made for hire" within the definition of Section 101 of the Copyright Act (17 U.S.C. 101) and shall remain the sole and exclusive property of Company.

(c) Assignment of Interest. To the extent any work product is not deemed to be a work made for hire within the definition of the Copyright Act, Executive with effect from creation of any and all work product, hereby assigns, and agrees to assign, to Company all right, title and interest in and to such work product, including but not limited to copyright, all rights subsumed thereunder, and all other intellectual property rights, including all extensions and renewals thereof.

(d) Moral Rights. Executive also agrees to waive any and all moral rights relating to the work product, including but not limited to, any and all rights of identification of authorship and any and all rights of approval, restriction or limitation on use, and subsequent modifications.

(e) Assistance. Executive further agrees to provide all assistance reasonably requested by Company, both during and subsequent to the Term of this Agreement, in the establishment, preservation and enforcement of Company's rights in the work product.

(f) Return of Property. Upon the termination of this Agreement, Executive agrees to deliver promptly to Company all printed, electronic, audio-visual, and other tangible manifestations of work product, including all originals and copies thereof.

---

(a) Restrictions. During the term of this Agreement and for a period of 5 years immediately following the termination of this Agreement, Executive shall not, directly or indirectly, without the prior written consent Company, own, manage, operate, join, control, finance or participate in the ownership, management, operation, control or financing of, or be connected as an officer, director, employee, partner, principal, agent, representative, or consultant of any Entity engaged in the Restricted Business.

(b)  Exceptions. Executive shall not be deemed to be in contravention of the foregoing if Employee participates as a passive investor holding up to 1% of the equity securities of an Entity engaged in the Restricted Business, which securities are publicly traded.

Non-Solicitation.

During the term of this Agreement and for 5 years after any termination of this Agreement, Executive will not, without the prior written consent of the Company, either directly or indirectly, on Executives' own behalf or in the service or on behalf of others, solicit or attempt to solicit, divert or hire away any person employed by the Company, or any customer of the Company.

(a) Initial Term. The term of the Executive's employment under this Agreement shall commence on the Effective Date and continue until September 1st, 2014 (the "Term"), unless his employment is sooner terminated by the Board of Directors.

(b) Automatic Renewal. Commencing on September 1st and on each anniversary of that date thereafter, the Term shall be extended for an additional one year period.

(c) Notice Not to Renew. Either party may give notice of the intention not to extend the Term in writing at least 90 days prior to each such anniversary date.

(a) Termination Upon Death. This Agreement shall terminate automatically upon the death of the Executive.

(b) Automatic Termination Upon Disability. This Agreement shall terminate automatically upon Total Disability of the Executive.

Total Disability. Total Disability means the Executive is unable to perform the duties set forth in this Agreement for a period of twelve consecutive weeks, or 90 cumulative business days in any 12-month period, as a result of physical or mental illness or loss of legal capacity.

(c) Termination Upon Retirement. The Executive may voluntarily terminate this Agreement at any time by reason of Retirement. Retirement is the cessation by Executive of all full-time employment of any kind.

(d) Termination by the Company For Cause. The Company shall have the right to terminate Executive's employment under this Agreement at any time for Cause, which termination shall be effective immediately. Termination for "Cause" shall be as defined in the Agreement.

(e) Termination by the Company Without Cause. The Company may, upon a majority vote of the Board of Directors, terminate the Executive's employment under this Agreement without Cause at any time upon 90 days prior written notice to the Executive.

Indemnification.

The Company shall indemnify the Executive, to the maximum extent permitted by applicable law and by its certificate of incorporation, against all costs, charges and expenses incurred or sustained by the Executive in connection with any action, suit or proceeding to which he may be made a party by reason of being an officer, director or employee of the Company or of any subsidiary or affiliate of the Company or any other corporation for which the Executive serves in good faith as an officer, director, or employee at the Company's request.

---

As of December 31, 2014, the Employment Agreement was amended as follows:

Director Compensation

 

The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named directors by the Company during the year ended December 31, 2014.

 

DIRECTOR COMPENSATION TABLE

Name

Fees   Earned   or   Paid in   Cash   ($)

Stock   Awards   ($)

Option   Awards   ($)

Non-Equity   Incentive   Plan   Compensation   ($)

Non-   Qualified   Deferred   Compensation   Earnings   ($)

All   Other   Compensation   ($)

Total   ($)

Chad Sykes, Director

-

-

-

-

-

-

-

 

    A. Expenses. The Company will reimburse the Director for reasonable travel and other incidental expenses incurred by the Director in performing his services and attending meetings as approved in advance by the Company.

    B. Stock Awards. The Company shall award to the Director 166,560 shares of Common Stock pursuant to the Company's 2015 Stock Incentive. The table below sets forth the award date, amount and vesting date.

34

On March 13, 2015, we entered into a Director Agreement with John Choo.

The Agreement provides Mr. Choo will be compensated as follows:

    A. Expenses. The Company will reimburse the Director for reasonable travel and other       incidental expenses incurred by the Director in performing his services and attending meetings as approved in advance by the Company.

    B. Stock Awards. The Company shall award to the Director 166,560 shares of Common Stock pursuant to the Company's 2015 Stock Incentive. The table below sets forth the award date, amount and vesting date.

If the Director is a Director both at the Date of Award and Date of Vesting, the shares for each award in the Table above shall be fully vested, a certificate representing the shares shall be issued and shall be non-forfeitable. If the Director is not a Director at the Date of Award, the shares for each award in the Table above at that date and therafter shall not be awarded.  If the Director is a Director at the Date of Award and not at the Date of Vesting, the shares for each such award in the Table above shall be forfeited, no shares shall be issued thereafter and a certificate representing the shares shall not be issued.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following tables set forth the ownership, as of the date of this prospectus, of our common stock by each person known by us to be the beneficial owner of more than 5% of our outstanding common stock, our director, and our executive officer and director as a group.  To the best of our knowledge, the persons named have sole voting and investment power with respect to such shares, except as otherwise noted.  There are not any pending or anticipated arrangements that may cause a change in control.

 

The information presented below regarding beneficial ownership of our voting securities has been presented in accordance with the rules of the Securities and Exchange Commission and is not necessarily indicative of ownership for any other purpose. Under these rules, a person is deemed to be a "beneficial owner" of a security if that person has or shares the power to vote or direct the voting of the security or the power to dispose or direct the disposition of the security. A person is deemed to own beneficially any security as to which such person has the right to acquire sole or shared voting or investment power within 60 days through the conversion or exercise of any convertible security, warrant, option or other right. More than one person may be deemed to be a beneficial owner of the same securities. The percentage of beneficial ownership by any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person, which includes the number of shares as to which such person has the right to acquire voting or investment power within 60 days, by the sum of the number of shares outstanding as of such date plus the number of shares as to which such person has the right to acquire voting or investment power within 60 days. Consequently, the denominator used for calculating such percentage may be different for each beneficial owner. Except as otherwise indicated below and under applicable community property laws, we believe that the beneficial owners of our common stock listed below have sole voting and investment power with respect to the shares shown.  The business address of the shareholders is 5300A East Freeway, Houston, Texas 77020.

 

This table is based upon information derived from our stock records. Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, each of the shareholders named in this table has sole or shared voting and investment power with respect to the shares indicated as beneficially owned. Except as set forth above, applicable percentages are based upon 9,252,388 shares of common stock outstanding as of December 31, 2014.

---

Item 13. Certain Relationships and Related Transactions, and Director Independence.

During the year ended December 31, 2013, the Company had Accrued Payroll to a related party, Chad Sykes, our CEO of $6,181. There were no related party transactions in 2014.

The following table shows the fees paid or accrued by us for the audit and other services provided by our auditor for fiscal 2013 and 2014.

 

Consistent with the SEC's rules, the Audit Committee Charter requires that the Audit Committee review and pre-approve all audit services and permitted non-audit services provided by the independent auditors to us or any of our subsidiaries. The Audit Committee may delegate pre-approval authority to a member of the Audit Committee and if it does, the decisions of that member must be presented to the full Audit Committee at its next scheduled meeting.

 

* This exhibit shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 of the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

---

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.