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

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

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

For the quarterly period ended March 31, 2015

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

 

For the transition period from ______________ to ______________

Commission File Number:

(Exact name of registrant as specified in its charter)

 

 

 

 

(Former name, former address and former phone number, if changed since last report)

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and 2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No  ☒

 

As of May 13, 2015 there were 9,957,388 shares issued and outstanding of the registrant's common stock.

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PART I — FINANCIAL INFORMATION

 

UNAUDITED

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

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

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INDOOR HARVEST CORP

NOTES TO FINANCIAL STATEMENTS

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INDOOR HARVEST CORP

NOTES TO FINANCIAL STATEMENTS

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INDOOR HARVEST CORP

NOTES TO FINANCIAL STATEMENTS

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The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Property and equipment consist of the following at March 31, 2015 and December 31, 2014:

Depreciation expense for the three months ended March 31, 2015 and 2014, totaled $10,013 and $1,948, 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.  During the three months ended March 31, 2015, the Company sold some of the equipment for $10,050 with a cost of 19,300 and recorded a loss on the sale of $9,250.  As of March 31, 2015 $48,783 is included in the Other Assets.

 

A Cannabis Production Pilot Agreement ("Agreement") was entered into as of the 18th day of December 2014 by and between Indoor Harvest Corp. ("Indoor Harvest"), a Texas Corporation, and Tweed Marijuana Inc. ("Tweed"), a Canadian company.

Tweed Marijuana Inc. is a TSX Venture Exchange listed company. Its wholly owned subsidiaries Tweed Inc. and Tweed Farms Inc. (formerly Prime1 Construction Services Corp.) are licensed producers of medical cannabis in Canada. The principal activities of Tweed are the production and sale of cannabis through its wholly owned subsidiaries out of Tweed Inc.'s facility in Smiths Falls, Ontario and Tweed Farms Inc.'s facility in Niagara-on-the-Lake, Ontario as regulated by the Marihuana for Medical Purposes Regulations.

 

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.

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On February 20, 2014 the Company signed a 60 month lease on a 10,000 sqft. office/warehouse facility and paid a deposit of $12,600. 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. 

 

Deferred rent payable at March 31, 2015 was $9,216. 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.

 

Rent expense for the periods noted is as follows:

At March 31, 2015, rental commitments are as follows:

 

 

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 for the year ended December 31, 2014 or the quarter ended March 31, 2015.

 

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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.

During the quarter ended March 31, 2015, the Company issued a total of 536,000 shares of Common stock at $0.50 per share for cash totaling $268,000.

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.  As of March 31, 2015, the shares have not been issued and have not vested and no compensation expense was recorded on the books

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.  As of March 31, 2015, the shares have not been issued and have not vested and no compensation expense was recorded on the books.

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 with a valuation of $25,000 ($1.00/share) based on the most recent closing price per share of our common stock traded on the OTCQB.  For the three months ended March 31, 2015, the Company recorded $25,000 paid in cash and 25,000 shares of common stock as a prepaid expense.

 

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Our products are designed for the production of leafy greens, micro-greens, fruiting plants and herbs. Our products 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.

 

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The total estimated costs of our short-term operational plans for the next 12 months is $314,144 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 above in the overview section.

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.

As of May 12, 2015, we had $345,698 in our bank account and had a credit line of $5,000 of which $4,827 was available for use.

 

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 $350,000 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.

 

Based upon the assumption of our monthly burn rate exclusive of those costs in our Plan of Operations for the next 12 months as set forth above, the Company currently has sufficient funds to meet our current estimated day-to-day operations, plus SEC filing costs for the next 10 months. Assuming the burn rate continues for the first quarter of fiscal year 2016, we will need to secure additional funds of $43,446 either through capital raise or operating revenues to meet our minimal operating requirements for the next 12 months. There is no assurance we will obtain these funds and thus if we don't, and we don't take other measures such as cutting back operational activities, we may not have sufficient funds to continue operations for the next 12 months.

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.

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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

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We relied upon Regulation S of the Securities Act of 1933, as amended for the above issuances to non US citizens or residents.

We believed that Regulation S was available because:

·None of these issuances involved underwriters, underwriting discounts or commissions;

·We placed Regulation S required restrictive legends on all certificates issued;

·No offers or sales of stock under the Regulation S offering were made to persons in the United States;

·No direct selling efforts of the Regulation S offering were made in the United States.

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

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 issued 25,000 shares of common stock with a valuation of $12,500 ($1.00/share) based on the most recent closing price per share of our common stock traded on the OTCQB. For the three months ended March 31, 2015, the Company recorded $25,000 paid in cash and 25,000 shares of common stock as a prepaid expense.  We relied upon Section 4(2) of the Securities Act of 1933, as amended for this issuance as it was to a single service provider familiar with our business. 

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XBRL Instance Document**

XBRL Taxonomy Extension Schema Document**

XBRL Taxonomy Extension Calculation Linkbase Document**

XBRL Taxonomy Extension Definition Linkbase Document**

XBRL Taxonomy Extension Label Linkbase Document**

XBRL Taxonomy Extension Presentation Linkbase Document**

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* 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.

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