Indoor Harvest Corp - Quarter Report: 2015 September (Form 10-Q)

Texas		45-5577364
(State or other jurisdiction of incorporation or organization)		IRS I.D.

5300 East Freeway Suite A Houston, Texas

(Address of principal executive offices)

713-410-7903

(Registrant's telephone number, including area code)

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller Reporting Company	☒

TABLE OF CONTENTS

 

 

 

 

INDOOR HARVEST CORP

BALANCE SHEETS

AS OF SEPTEMBER 30, 2015 AND DECEMBER 31, 2014

(UNAUDITED)

		September 30, 2015				December 31, 2014
ASSETS
Current assets:
Cash		$	122,098			$	411,669
Prepaid expenses			9,315				-
Total current assets			131,413				411,669
Furniture and equipment, net			207,533				170,454
Security deposit			12,600				12,600
Intangible asset			2,000				2,000
Other assets			53,372				68,083
Total assets		$	406,918			$	664,806
LIABILITIES
Current liabilities:
Accounts payable & accrued expenses		$	18,935			$	7,185
Accrued payroll			4,771				5,034
Deferred rent			9,590				9,026
Total current liabilities			33,296				21,245
Long term liabilities:
Note payable			34,699				-
Total Liabilities			67,995				21,245
Stockholders' equity:
Preferred stock: $0.01 par value, 5,000,000 shares authorized; none shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively			-				-
Common stock: $0.001 par value, 50,000,000 shares authorized; 10,585,048 and 9,252,388  shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively			10,584				9,251
Additional paid-in capital			1,954,871				1,299,389
Less: Stock subscription receivable			-				(10,000	)
Accumulated deficit			(1,626,532	)			(655,079	)
Total Stockholders' equity			338,923				643,561
Total liabilities and stockholders' equity		$	406,918			$	664,806

INDOOR HARVEST CORP

STATEMENTS OF SHAREHOLDERS' EQUITY

(UNAUDITED)

																		Additional Paid-in Capital												Total Stockholders' Equity (Deficit)
		Preferred Stock, $0.01 Par Value								Common Stock, $0.001 Par Value
		Shares				Amount				Shares				Amount								Accumulated Deficit				Subscription Receivable
Balances, December 31, 2013			-			-					6,505,381			$	6,505			$	359,134			$	(211,797	)		$	-			$	153,842
Issuance of common stock			-				-
For cash			-				-				2,474,000				2,474				872,276				-				(10,000	)			864,750
For services			-				-				273,007				272				67,979				-				-				68,251
Net loss			-				-				-				-				-				(443,282	)			-				(443,282	)
Balances, December 31, 2014			-				-				9,252,388				9,251				1,299,389				(655,079	)			(10,000	)			643,561
Issuance of common stock
For cash			-				-				536,000				536				267,464				-				-				268,000
For services			-				-				796,700				797				388,018				-				-				388,815
Collection of stock subscription receivable			-				-				-				-				-				-				10,000				10,000
Net loss			-				-				-				-				-				(971,453	)			-				(971,453	)
Balances, September 30, 2015			-				-				10,585,088			$	10,584			$	1,954,871			$	(1,626,532	)		$	-			$	338,923

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 May 31, 2015, the Company issued a total 20,820 shares of common stock with a valuation of $10,597 ($0.51/share) at the most recent trading price per share of the Company’s stock.  On August 31, 2015, the Company issued a total 20,820 shares of common stock with a valuation of $11,451 ($0.55/share) at the most recent trading price per share of the Company’s stock.

NOTE 6 - SUBSEQUENT EVENTS

Item 2. Management's Discussion and Analysis or Plan of Operation.

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes, and other financial information included in this Form 10-Q.

 

Our Management's Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are, by their very nature, uncertain and risky.  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 as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

Forward-Looking Statements

 

The following discussion of our financial condition and results of operations should be read in conjunction with our audited financial statements and the related notes, and other financial information included in our Form 10-K.

 

Our Management's Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking.  Forward-looking statements are, by their very nature, uncertain and risky.  These risks and uncertainties include international, national, and local general economic and market conditions; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; change in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; the risk of foreign currency exchange rate; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.

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 design-build contractor, developer, marketer and direct-seller of commercial grade aeroponic and hydroponic fixtures and supporting mechanical systems for use in urban Controlled Environment Agriculture ("CEA") and Building Integrated Agriculture ("BIA"). Indoor Harvest Corp was incorporated in the state of Texas on November 23, 2011. We did not generate revenue from operations during the period covered by this report, but have subsequently begun generating revenue as of October 21, 2015. Our independent registered public accounting firm has issued a going concern opinion. This means there is substantial doubt that we can continue as an on-going business unless we obtain additional capital to pay our ongoing operational costs. Accordingly, we must locate sources of capital to pay our operational costs.

We currently offer a vertical farm racking system with integrated LED lighting. Our vertical farm racking system was designed to be used for both aeroponic and hydroponic layered crop production within a CEA or BIA operation. Our racking system will work with any standard 48" X 96" or 24" X 48" third party flood table or aeroponic system. We also offer patent pending aeroponic fixtures that are compatible with our vertical farm racking system. We are developing our vertical farm racking system and aeroponic fixtures for use by both horticulture enthusiasts and commercial operators who seek to utilize vertical farming methods within a controlled indoor environment.

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 a 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.

 

 

See our concurrent press release filed as an exhibit to this Form 10-Q for additional information.

Tweed Design-Build Project

 

On December 18, 2014, Indoor Harvest entered into the Pilot Project Agreement with Canopy Growth, a TSX Venture Exchange listed company whose wholly-owned subsidiaries Tweed Inc. ("Tweed"), Tweed Farms Inc. ("Tweed Farms"), and Bedrocan Canada Inc. ("Bedrocan") which are federally licensed producers of medical cannabis in Canada. The principal activities of Canopy Growth’s subsidiaries are the production of cannabis at Tweed Farms’ facility in Niagara-on-the-Lake, Ontario and the production and sale of cannabis from Tweed Inc.'s facility in Smiths Falls, Ontario and Bedrocan’s facility in Toronto, Ontario as regulated by the Canadian Marihuana for Medical Purposes Regulations.

On April 20, 2015, we began our test pilot at Tweed's facility in Smith Falls, Ontario, by growing a sativa dominate strain from clone in order to collect certain production data. 8 plants were grown in a 4' X 8' X 2' system using a "Screen of Green" cultivation method, in which plants are cropped and trained to produce a higher yield from a single plant. The Company's patent pending aeroponic system showed a significant increase in growth rate during the vegetative stage, as compared to more traditional production methods such as drip irrigation using coco.

Fertilizer usage was reduced by as much as 68% with the system averaging 8 gallons a day under high pressure sodium and 9 gallons a day under LED, operating drain to waste. As tuning of the system progressed, average water use was reduced to approximately 5 gallons per day drain to waste. The Company believes that through additional tuning, more water savings for drain to waste and under recirculated operation can be achieved, and water use could be reduced by as much as 98% overall. Under 2,000 watts of high-pressure sodium lighting, the aeroponic system produced 3.1 pounds of dried flowers and under 1,040 watts of LED lighting produced 2.8 pounds of dried flowers in its initial test. The Company believes that with additional tuning, yield can be increased.

On September 28, 2015, the Company and Tweed mutually agreed to extend collaborative research and development for an additional two years. The Company is now in the process of providing specifications and costs to build out 5,000 square feet of aeroponic production space at the Tweed facility in Smiths Falls. As part of the design-build process, the Company will be incorporating prototype testing of our advanced racking system with integrated proprietary HVAC and LED lighting systems that incorporate the Company's patent pending aeroponic process.

CLARA Design-Build Project

On March 31, 2015 the Company announced the signing of a LOI with the City of Pasadena, Texas to fund the establishment and provisioning of an indoor agricultural facility (vertical farm) to be located in Pasadena, Texas. Under the LOI, the City was to provide Indoor Harvest, or a partner of their designation with City approval, with two facilities owned by the City for the sum of ten dollars ($10.00) per annum for a period not to exceed twenty (20) years as well as provide tax abatements on these properties for use in the construction of a Community Located Agricultural Research Area ("CLARA") project. In addition, the Pasadena Second Century Corp. (economic development entity for the City of Pasadena) has been asked by City officials to consider a budgetary proposal of $500,000 as seed money for the project's economic development portion in north Pasadena.

The CLARA project, based on current negotiations, is expected to be divided into two phases. Phase One will focus on developing the non-profit aspects of the project and is envisioned to include the construction of a 6,000 sq. ft. vertical farm R&D facility and 6,000 sq. ft. of classroom and office space. Phase Two is envisioned to support a commercial retail operation on approximately two acres of land and additional properties adjacent to the vertical farm and education centers.

The Phase One vertical farm facility is intended to serve dual roles, with Indoor Harvest using the facility as a demonstration farm and R&D facility and Harris County BUILD Partnership, a non-profit group, using the facility for educational and charitable purposes. It is anticipated that the crops grown will be donated, or sold at cost, to provide fresh produce to low income families in the North Pasadena area. The entire proposed campus area, almost two city blocks, will be designed and built to allow the flow of tourists without impacting operations. The City has been asked to develop a project overview to be presented in August to department heads at the Pasadena Independent School District's Kirk Lewis Career & Technical High School and the Continuing and Professional Development Department of San Jacinto College regarding academic curriculum development to be located at the CLARA campus.

 

Phase Two of the project is anticipated to be developed on two acres of land and additional buildings currently available adjacent to the existing properties being provided by the City. Indoor Harvest, as the primary developer of the campus, expects to be able to provide commercial operators who build on the CLARA campus a unique group of incentives and key advantages in regards to distribution, manufacturing intelligence and access to resourcing and key agricultural production talent. The City of Pasadena is currently working to secure additional land surrounding the CLARA campus for use by commercial partners.

 

In addition, City officials are currently considering creating a tax increment reinvestment zone (TIRZ) in the immediate area surrounding the CLARA campus.  A TIRZ is a public financing structure that Texas law allows to target tax revenue helping to support redevelopment in underserved areas. Such a zone, if created, could provide an additional economic incentive for tangential services to locate on the project site. As of now, the City is not obligated to create a TIRZ zone and no such zone may ever come to fruition.

We are currently in the final stages of negotiating terms with City Farms America, LLC and EB5 Solutions, LLC, to build commercial operations on the CLARA campus. EB5 Solutions would be responsible for providing investment capital to City Farms America for the construction with terms that include a multi-State expansion plan of the CLARA model. Indoor Harvest would act as the primary design-build contractor for both CLARA construction and future expansion plans. We are currently negotiating terms with City Farms America and EB5 Solutions in connections with the MOU for CLARA. As of the date of this Report, we do not yet have a binding agreement with these entities.

 

The unique multi-participant nature of the CLARA project has made the process of finalizing the necessary lease and economic development language of the agreement between the City of Pasadena and Indoor Harvest Corp. much more time consuming than originally anticipated. Not finding a previous agreement like this one to model meant each step required determining and defining the individual responsibilities of the City, Harris County, Pasadena Independent School System, San Jacinto College and Indoor Harvest Corp. and incorporating those responsibilities into the agreement in a way the City Attorney would recognize.

On April 15, 2015, the Company signed a LOI with PUE 1.0. Under the terms of the letter of intent, it is anticipated that a final agreement will include the following terms:  Indoor Harvest will be responsible for the design of a vertical farming system and its related systems. PUE 1.0 will be responsible for the design of a HVAC system to be used with Indoor Harvest's vertical farming design. Both parties have agreed to share any data during the development stage. PUE 1.0 will retain all rights to its intellectual property and any new intellectual property developed as part of the collaboration. Indoor Harvest will be provided exclusive rights to market and distribute the final design for a period to be determined by way of a memorandum of understanding, to be finalized in connection with the closing of terms outlined in our letter of intent with the City of Pasadena. During the development stage, all equipment to be provided by PUE 1.0 for the purpose of the technology and economic pilot to be constructed at the 112 N Walter property will be provided at cost.

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, engaging in projects to refine our products, negotiating agreements related to our business focus 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 September 30, 2015, although as described above we have begun to generate revenues thereafter.  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 anticipate taking the following steps to implement our business plan for the next 12 months. Our capital requirements for implementation of these steps are estimated at $5,000,000 as set forth in the table below. For 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 to maintain minimal operational activities during the next 12 months is $314,144, 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 $5,000,000. 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.

Management has no written or oral agreement to advance additional funds. If we do not secure additional funds either from operational cash flow and services or additional debt or equity financing, the implementation of our planned future business development activities will be delayed. We are currently working on projects to start generating cash flow.  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.

Our estimated day-to-day operational costs, exclusive of those costs in our Plan of Operations for the next 12 months, as set forth above, are estimated to be approximately $314,144 to maintain minimal operational activities during the next 12 months. Our minimal annual operating expenses include our previously executed employment agreement with our CEO and sole founder for a salary of $70,000 annually, non-management salaries and consultants of $170,144, our lease agreement for our 10,000 sq. ft. facility of $50,400 per year, our estimated annual utility expenses of $10,800 and $12,800 in miscellaneous operating expenses. In addition, we will have $75,000 in costs related to maintaining our publicly traded status over the next 12 months. However, as stated above, in order to implement our Plan of Operations for the next 12 months we will need to secure an additional $5,000,000 in funds. If we are unable to secure the necessary additional funds, we will not be able to undertake some or all of our planned business development activities. Accordingly, we anticipate, based upon the assumption of $389,144 in our minimal day-to-day operational and public company reporting costs during the next 12 months as set forth above, a minimum average monthly burn rate of no more than $32,428 during the next 12 months, which will be paid from our existing funds, plus cash flow we expect to start generating during the next 12 months.

 

 

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.

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 1.

 

Item 3. Quantitative and Qualitative Disclosure about Market Risk.

Not applicable.

 

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

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

 

The Company's management, consisting solely of the Company's Chief Executive Officer/Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer/Chief Financial Officer has concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective.

 

Changes in Internal Control over Financial Reporting

 

There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities Exchange Act) during the fiscal quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings.

None.

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

During the quarter ended September 30, 2015, the Company issued a total of 300,000 shares of Common stock at $0.50 per share to 1 U.S Investor for cash totaling $150,000.

We relied upon Section 4(2) of the Securities Act of 1933, as amended for the above issuance.  We believed that Section 4(2) of the Securities Act of 1933 was available because:

·

None of these issuances involved underwriters, underwriting discounts or commissions.

·

Restrictive legends were and will be placed on all certificates issued as described above or noted in our Transfer Agent records.

·

The distribution did not involve general solicitation or advertising.

·

The distributions were made only to investors who were sophisticated enough to evaluate the risks of the investment.

All of these investors had access to our SEC filings plus the opportunity to obtain additional information upon request.

Item 3. Defaults Upon Senior Securities.

 

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

 

Item 6. Exhibits.

 

 

 

____________

* 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.

 

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 

 

 

Indoor Harvest Corp, a Texas corporation

 

 

In accordance with the Exchange Act, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

 

 

 

 

 

 

 

 

19