Indoor Harvest Corp - Quarter Report: 2018 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

or

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

[X] YES         [  ] NO

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

[  ] YES       [X] NO

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 33,548,008 common shares issued and outstanding as of November 15, 2018.

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

Except for any historical information contained herein, the matters discussed in this quarterly report on Form 10-Q contain certain “forward-looking statements’’ within the meaning of the federal securities laws. This includes statements regarding our future financial position, economic performance, results of operations, business strategy, budgets, projected costs, plans and objectives of management for future operations, and the information referred to under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

These forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may,’’ “will,’’ “expect,’’ “intend,’’ “estimate,’’ “anticipate,’’ “believe,’’ “continue’’ or similar terminology, although not all forward-looking statements contain these words. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, you are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Although we believe that the expectations reflected in such forward-looking statements are reasonable as of the date made, expectations may prove to have been materially different from the results expressed or implied by such forward-looking statements. Important factors that may cause actual results to differ from projections include, for example:

Unless otherwise required by law, we also disclaim any obligation to update our view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made in this quarterly report on Form 10-Q.

When considering these forward-looking statements, you should keep in mind the cautionary statements in this quarterly report on Form 10-Q and in our other filings with the SEC. We cannot assure you that the forward-looking statements in this quarterly report on Form 10-Q will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may prove to be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time-frame, or at all.

PART I - FINANCIAL INFORMATION

INDOOR HARVEST CORP

BALANCE SHEETS

(UNAUDITED)

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

INDOOR HARVEST CORP

STATEMENTS OF OPERATIONS

(UNAUDITED)

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

INDOOR HARVEST CORP

STATEMENTS OF STOCKHOLDERS’ DEFICIT

(UNAUDITED)

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

INDOOR HARVEST CORP

STATEMENTS OF CASH FLOWS

(UNAUDITED)

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

INDOOR HARVEST CORP

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Organization

Indoor Harvest Corp (the “Company,”) is a Texas corporation formed on November 23, 2011. Our principal executive office is located at 5300 East Freeway Suite A, Houston, Texas 77020. On August 3, 2017, we formed Alamo Acquisition, LLC, a wholly owned Texas limited liability company (“Alamo Acquisition Sub”). On August 4, 2017, we consummated a business acquisition (the “Alamo Acquisition”) pursuant to which Alamo Acquisition Sub acquired all of the outstanding member interests of Alamo CBD, LLC. (“Alamo CBD”), a Texas limited Liability Company. Upon closing of the Alamo Acquisition, the member interests of Alamo CBD were exchanged for 7,584,008 shares of Indoor Harvest’s common stock, the parent company of Alamo Acquisition Sub, and Alamo CBD continued as our surviving wholly-owned subsidiary, and Alamo Acquisition Sub ceased to exist. Pursuant to ASC 805 “Business Combinations,” the Company determined the Alamo Acquisition was an asset purchase.

From inception until August 4, 2017, the Company provided full service, state of the art design-build, engineering, procurement and construction services to the indoor and vertical farming industry. The Company provided production platforms, mechanical systems and complete custom designed build outs for both Controlled Environment Agriculture (“CEA”) and Building Integrated Agriculture (“BIA”), for two unique industries, produce and cannabis. In mid-2016, the Company began efforts to separate its produce and cannabis related operations due to ongoing feedback from both clients and potential institutional investors. It was determined that the Company’s involvement in the cannabis industry was creating conflicts for clients and potential institutional investors wishing to work with the Company from the produce industry due to the public perception and political issues surrounding the cannabis industry. By late-2016, the Company had decided to cease actively selling its products and services to the vertical farming industry and to focus on utilizing the Company’s developed technology and methods for the cannabis industry. On August 4, 2017, the Company ceased actively supporting business development of vertical farms for produce production.

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”).

It is management’s opinion, however, that all material adjustments (consisting of normal and recurring adjustments) have been made which are necessary for a fair financial statement presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates include, but are not limited to, the estimate of percentage of completion on construction contracts in progress at each reporting period which we rely on as a primary basis of revenue recognition, estimated useful lives of equipment for purposes of depreciation and the valuation of common shares issued for services, equipment and the liquidation of liabilities.

Reclassification

Certain expense items have been reclassified in the statement of operations for the nine months ended September 30, 2017, to conform to the reporting format adopted for the nine months ended September 30, 2018.

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 recognizes stock-based compensation in accordance with ASC 718-10, Stock Compensation. ASC 718-10 focuses on transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus in which an entity obtains employee services in stock-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

We adopted accounting guidance for financial and non-financial assets and liabilities (ASC 820). The adoption did not have a material impact on our results of operations, financial position or liquidity. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance does not apply to measurements related to share- based payments. This guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

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.

ASB 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 2017, 2016, 2015, 2014, and 2013, remain subject to examination by the IRS and respective states.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Reform Act”). We recognize the impact of tax legislation in the period in which the law is enacted. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, which addresses how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes in the Tax Reform Act. Consistent with that guidance, we recognized provisional amounts based upon our interpretation of the tax laws and estimates which require significant judgments. The actual impact of these tax laws may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in our interpretations and assumptions, additional guidance that may be issued by the government and actions we may take as a result of these enacted tax laws. Any adjustments recorded to the provisional amounts will be included in income from operations as an adjustment to tax expense.

Property and Equipment

Property and equipment is recorded at cost and depreciated or amortized using the straight-line method over the estimated useful life of the asset or the underlying lease term for leasehold improvements, whichever is shorter. The estimated useful life by asset description is noted in the following table:

* The shorter of 5 years or the life of the lease.

Additions are capitalized and maintenance and repairs are charged to expense as incurred. Gains and losses on dispositions of equipment are reflected in other income.

Intangible Assets

In accordance with ASC 350 Goodwill and Other Intangible Assets, indefinite-lived intangible assets are not amortized but are evaluated for impairment annually or more often if indicators of a potential impairment are present. Indefinite-lived intangible assets consist of the Company’s domain name. Finite-lived intangible assets include software and is amortized over a 3 to 5 year period.

Derivative Liability

The Company accounts for derivative instruments in accordance with ASC 815, which establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts and requires recognition of all derivatives on the balance sheet at fair value, regardless of hedging relationship designation. Accounting for changes in fair value of the derivative instruments depends on whether the derivatives qualify as hedge relationships and the types of relationships designated are based on the exposures hedged. At September 30, 2018 and December 31, 2017, the Company did not have any derivative instruments that were designated as hedges.

Beneficial Conversion Feature

For conventional convertible debt where the rate of conversion is below market value, the Company records a “beneficial conversion feature” (“BCF”) and related debt discount.

When the Company records a BCF, the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument. The discount is amortized to interest expense over the life of the debt.

Patent and Patent Application Expenses

Although the Company believes that its patent and underlying technology will have continuing value, the amount of future benefits to be derived from the patent is uncertain. Therefore, patent costs are expensed as incurred.

Research and Development

Research and development expenditures are charged to expense as incurred. Research and development expense for the nine months ended September 30, 2018 and 2017 are $0 and $1,625, respectively.

Advertising Expense

Advertising and promotional costs are expensed as incurred. Advertising expense for the nine months ended September 30, 2018 and 2017 are $837 and $16,185, respectively.

Recent Accounting Pronouncements

Management has evaluated subsequent events through the date these financial statements were available to be issued. Based on our evaluation no material events have occurred that require disclosure.

NOTE 2 - GOING CONCERN

As reflected in the accompanying financial statements, the Company had a net loss of $2,571,357, net cash used in operations of $568,954 and has an accumulated deficit of $10,980,179, for the nine months ended September 30, 2018. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

The ability of the Company to continue as a going concern is dependent on Management’s plans which include potential asset acquisitions, mergers or business combinations with other entities, further implementation of its business plan and continuing to raise funds through debt or equity financings. The Company will likely rely upon related party debt or equity financing in order to ensure the continuing existence of the business.

The business plan of the Company is to engage in the 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”). During the next twelve months, the Company’s strategy is to: complete ongoing product development; commence product marketing, product assembly and sales; construct a demonstration CEA and BIA farm; and offer design-build services. The Company’s long-term strategy is to direct sale, license and franchise their patented technologies and methods.

The accompanying 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.

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consist of the following as of September 30, 2018and December 31, 2017:

Depreciation expense for the nine months ended September 30, 2018 and 2017, totaled $7,785 and $37,765, respectively.

NOTE 4 – INTANGIBLE ASSETS

There were no impairment charges taken for the domain name during the nine months ended September 30, 2018 and 2017.

Intangible assets consist of the following as of September 30, 2018and December 31, 2017:

Amortization expense for the nine months ended September 30, 2018 and 2017, totaled $1,289 and $1,281, respectively.

NOTE 5 - COMMITMENTS & CONTINGENCIES

On February 20, 2014, the Company signed a 60-month lease on a 10,000 sq. ft. 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. On January 22, 2018, the Company entered into a 6-month sublease agreement for a portion of the 10,000 sq. ft. office/warehouse facility. The term of the sublease is February 1, 2018 through July 31, 2018 at $2,000 per month. The Company records the sublease income as a reduction of rent expense in the Statements of Operations within general and administrative expenses.

Deferred rent payable at September 30, 2018 was $3,195. 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, net of sublease payments received, for the nine months ended September 30, 2018 and 2017 were $34,831 and $39,763, respectively.

NOTE 6 - FAIR VALUE MEASUREMENTS

Carrying amounts reported on the balance sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value due to their relatively short maturity. Debt classified as Level 2 in the fair value hierarchy represent convertible notes payable of $831,076 and $455,459 at September 30, 2018 and December 31, 2017, respectively. Financial instruments classified as Level 3 in the fair value hierarchy represents derivative liability of $1,240,041 and $554,917 September 30, 2018 and December 31, 2017, respectively.

NOTE 7 - NOTE PAYABLE

On June 5, 2015, the Company entered into a five-year loan agreement totaling $36,100. The loan carries interest at a rate of 10.25%.

NOTE 8 - CONVERTIBLE NOTES PAYABLE

Convertible notes payable at September 30, 2018 and December 31, 2017 are as follows:

Note 1

On March 24, 2017, the Company entered into a securities purchase agreement with Tangiers Global, LLC (“Tangiers”) relating to the issuance and sale of notes (“Note 1”) in the aggregate principal amount of up to $550,000, which includes a 10% original issue discount. Note 1 is convertible into shares of common stock at a price equal to $0.30 per share; provided, however that if Note 1 is not retired on or before the maturity date, defined in Note 1 as a “Maturity Default” the conversion price shall be adjusted to be equal to the lower of: (i) $0.30 or (ii) 65% multiplied by the lowest trading price of the Company’s common stock in the fifteen (15) consecutive trading day period immediately preceding the date that the Company receives a notice of conversion. The Tangiers Note 1 carries interest on the unpaid principal amount at the rate of 8% per annum and is due and payable eight months from the effective date of each payment. As of September 30, 2018, the balance under Note 1 is $131,410, which includes $44,000 guaranteed interest. As of September 30, 2018, Note 1 can be converted into 4,264,243 shares of the Company’s common stock.

On October 12, 2017, the Company entered into an Investment Agreement with Tangiers. Pursuant to the terms of the Investment Agreement, Tangiers committed to purchase up to $2,000,000 of our common stock over a period of up to 36 months. From time to time during the 36-month period commencing from the effectiveness of the registration statement, we may deliver a put notice to Tangiers which states the dollar amount that we intend to sell to Tangiers on a date specified in the put notice. The maximum investment amount per notice must be no more than 200% of the average daily trading dollar volume of our common stock for the eight (8) consecutive trading days immediately prior to date of the applicable put notice and such amount must not exceed an accumulative amount of $250,000. The minimum put amount is $5,000. The purchase price per share to be paid by Tangiers will be the 80% of the of the average of the two lowest closing bid prices of the common stock during the pricing period applicable to the put notice, provided, however, an additional 10% will be added to the discount of each put if (i) we are not DWAC eligible and (ii) an additional 15% will be added to the discount of each put if we are under DTC “chill” status on the applicable date of the put notice.

On October 10, 2017, the Company executed Amendment #1 to the Tangiers Note 1 for a final draw of $250,000 payment plus a 10% original issue discount. Amendment #1 modified the maturity date for the Tangier Note from eight months to six months from the effective date of each payment. All other terms and conditions of the Tangiers Note 1 remain effective.

The execution of Amendment #1 to Note 1 on October 10, 2017 caused the Company to default on the first draw due under Note 1 due to the acceleration of the maturity date. The default allows Tangiers to demand payment in cash equal to 150% of the outstanding principal and interest, which is automatically added to the outstanding principle, and convert all or a portion of the outstanding principal into shares of common stock of the Company. The default conversion rate of Note 1 is now the lower of the conversion rate then in effect or 65% of the lowest trading price for the 15 days prior to Tangiers’ notice of conversion. As of May 1, 2018, Tangiers  has informed the Company that they have elected at this time not to enforce the default interest rate of 18% under Note 1 and also not to enforce the fees, reserving its rights to enforce the foregoing in their discretion.

Note 2

The Company issued a fixed convertible promissory note to Tangiers for the principal sum of $50,000 as a commitment fee for the Investment Agreement. The promissory note (“Note 2”) maturity date is May 12, 2018. The principal amount due under Note 2 can be converted by Tangiers any time, into shares of the Company’s common stock at a conversion price of $0.1666 per share. The promissory note is in a “Maturity Default,” which is defined in Note 2 as the event in which Note 2 is not retired prior to its maturity date, Tangiers’ conversion rights under Note 2 would be adjusted such that the conversion price would be the lower of (i) $0.1666 or (ii) b) 65% of the average of the two lowest trading prices of the Company’s common stock during the 10 consecutive trading days prior to the date on which Tangiers elects to convert all or part of the note. The default interest rate is 20%. As of September 30, 2018, the balance under Note 2 is $55,000, which includes $5,000 guaranteed interest. As of September 30, 2018, Note 2 can be converted into 1,677,009 shares of the Company’s common stock.

Note 3

On January 16, 2018, the Company issued and sold an 8% Fixed Convertible Promissory Note (“Note 3”) to Tangiers (the “Buyer”), in the aggregate principal amount of up to $550,000, which includes a 10% original issue discount. Note 3 is convertible into shares of the Company’s common stock at a conversion price of $0.30 per share. However, if Note 3 is not paid back on or before the maturity date, defined in Note 3 as a “Maturity Default”, the conversion price of Note 3 shall then be adjusted to be equal to the lower of: (i) $0.30 or (ii) 65% multiplied by the lowest trading price of the Company’s common stock in the fifteen (15) consecutive trading day period immediately preceding the trading day that the Company receives a notice of conversion of Note 3.

On February 13, 2018, April 17, 2018, June 13, 2018, and July 27, 2018, the Company executed Amendments #1, #2, #3, and #4 to the Tangiers Note 3 for draws of $132,000, $132,000, $101,750 and $101,750, respectively. All other terms and conditions of the Tangiers Note 3 remain effective. As of September 30, 2018, the balance under Note 3 is $594,000, which includes $44,000 guaranteed interest.

Note 4

On September 14, 2018, the Company issued and sold an 8% Fixed Convertible Promissory Note (“Note 4”) to Tangiers (the “Buyer”), in the aggregate principal amount of up to $550,000, which includes a 10% original issue discount. Note 4 is convertible into shares of the Company’s common stock at a conversion price of $0.08 per share. However, if Note 4 is not paid back on or before the maturity date, defined in Note 4 as a “Maturity Default”, the conversion price of Note 4 shall then be adjusted to be equal to the lower of: (i) $0.08 or (ii) 65% of the lowest trading price of the Company’s common stock during the 15 consecutive trading days prior to the date on which Buyer elects to convert all or part of the Note 4.

As of September 30, 2018 and December 31, 2017, the Company accrued $134,945 and $49,000, respectively, in interest expense related to the outstanding the notes.

Debt Discount and Original Issuance Costs for Convertible Note

The debt discount amount consists of debt discount due to beneficial conversion features, warrant, original issue costs, and debt issue costs. The debt discounts recorded in 2018 and 2017, pertain to beneficial conversion feature on the convertible notes. The notes are required to be bifurcated and reported at fair value on the date of grant.

During the nine months ended September 30, 2018 and for the year ended December 31, 2017, the Company amortized $125,957 and $466,862 to interest expense, respectively.

Debt Issuance Costs for Convertible Note

During the nine months ended September 30, 2018 and for the year ended December 31, 2017, the Company did not pay any debt issue costs.

NOTE 9 - DERIVATIVE LIABILITIES

The Company identified the conversion features embedded within its convertible debts as financial derivatives. The Company has determined that the embedded conversion option should be accounted for at fair value.

The following schedule shows the change in fair value of the derivative liabilities for the nine months ended September 30, 2018:

The following schedule shows the change in fair value of the derivative liabilities for the year ended December 31, 2017:

NOTE 10 - RELATED PARTY TRANSACTIONS

On January 15, 2018 Ms. Sandra Fowler, was appointed as the Chief Marketing Officer of the Company. Pursuant to the terms of the Fowler Employment Agreement, Ms. Fowler shall serve as Chief Marketing Officer of the Company. The initial term of the agreement will expire on January 15, 2019 and commencing on January 15, 2019 and on each anniversary of such date thereafter, the term of the Fowler Employment Agreement shall automatically renew for a one-year period, unless earlier terminated by either party pursuant to the terms of the Fowler Employment Agreement. In consideration for Ms. Fowler’s services, under the Fowler Employment Agreement, Ms. Fowler shall receive (i) an annual base salary of $48,000 and (ii) 200,000 shares of restricted common stock of the Company. Further, pursuant to the Fowler Employment Agreement, the Company agreed to revise the annual base compensation for Ms. Fowler to $65,000, after 90 days of the execution of the Fowler Employment Agreement, or after the Company raises not less than $1,000,000 from sales of its equity securities subsequent to the execution of the Fowler Employment Agreement, whichever may come first. In addition, Ms. Fowler shall be eligible to participate in any equity-based incentive compensation plan or programs adopted by the Company’s board of directors.

On February 5, 2018, Dr. Coleman and Benjamin Coleman voluntarily returned and canceled an aggregate of 3,280,470 common shares in order to prevent dilution to the shareholders during the Company’s efforts to secure new senior management, provide additional incentive equity and to form an advisory board. The return of common stock by Dr. Coleman and Benjamin Coleman was a non-cash transaction.

On February 20, 2018, Mr. Daniel Weadock was appointed Chief Executive Officer and Director of the Company. On February 20, 2018, the Company entered into an executive employment agreement with Mr. Weadock (the “Weadock Employment Agreement”), pursuant to which Mr. Weadock agreed to act as the Company’s chief executive officer. Pursuant to the terms of the Weadock Employment Agreement, Mr. Weadock initial will not receive a salary. However, effective on the business day after the date on which the Company achieves Capitalization (as hereinafter defined) of $2,000,000 or more, Mr. Weadock’s annual base salary will be $100,000. For purposes of the Weadock Employment Agreement, “Capitalization” means aggregate net cash proceeds received by the Company from (a) the Company’s sale of common stock pursuant to Puts (as such term is defined in the Investment Agreement dated as of October 12, 2017 by and between the Company and Tangiers Global, LLC (the “Investment Agreement”)) under the Investment Agreement, and/or (b) any other sale by the Company of common stock or preferred stock, whether in a public offering or a private placement. In addition, pursuant to the terms of the Weadock Employment Agreement, the Company agreed to grant Mr. Weadock (i) 300,000 shares of restricted stock as soon as administratively practicable following execution of the Weadock Employment Agreement, and (ii) 1,584,202 shares of restricted common stock, consistent with the grant and vesting schedule set forth in the agreement; provided, however, that no grant will be made and no shares will be issued with respect to any grant if Mr. Weadock is not employed by the Company as an executive on the respective Date of Grant as set forth in the agreement. The Weadock Employment Agreement has a term of one year, unless Mr. Weadock’s employment is terminated sooner by the board of directors, and the term will be extended for additional one-year periods unless the Company or Mr. Weadock gives the other party at least 30 days’ prior written notice of its intent not to renew. On February 20, 2018, the Company also entered into a compensation agreement with Mr. Weadock (the “Director Compensation Agreement”).Pursuant to the terms of the Director Compensation Agreement, the Company agreed to grant Mr. Weadock an aggregate of 240,000 shares of restricted common stock, consistent with the grant and vesting schedule set forth in the agreement; provided, however, that no grant will be made and no shares will be issued with respect to any grant, if Mr. Weadock is not a member of the Company’s board of directors on the respective Date of Grant as set forth in the agreement. If the Company is acquired by, or merged into and with, another entity prior to the last Date of Vesting set forth in the agreement (i.e. February 23, 2022), all shares issuable to Mr. Weadock under the Director Compensation Agreement will become fully vested and non-forfeitable. The Company also agreed to reimburse Mr. Weadock for all reasonable travel and incidental expenses incurred by Mr. Weadock in performing his services and attending meetings as approved in advance by the Company. Also, on February 20, 2018, the Company also entered into an indemnity agreement with Mr. Weadock (the “Weadock Indemnity Agreement”). Pursuant to the terms of the Indemnity Agreement, the Company agreed to use reasonable efforts to obtain and maintain in full force and effect directors’ and officers’ liability insurance (“D&O Insurance”) in reasonable amounts from established and reputable insurers; provided, however, the Company shall have no obligation to obtain or maintain D&O Insurance if the Company determines in good faith that such insurance is not reasonably available, the premium costs for such insurance are disproportionate to the amount of coverage provided, the coverage is reduced by exclusions so as to provide an insufficient benefit, or Mr. Weadock is covered by similar insurance maintained by a subsidiary of the Company. In addition the foregoing, the Company will indemnify Mr. Weadock from certain third party actions, derivative actions and actions where Mr. Weadock is decreased; provided, however, the Company shall not be obligated to indemnify Mr. Weadock for actions including, but not limited to, actions initiated by Mr. Weadock, for any action in which it is determined that the material assertions made by Mr. Weadock in such proceeding were not made in good faith or were frivolous, for any settlements not authorized by the Company, for any actions on the account of Mr. Weadock’s willful misconduct, and for any expenses and the payment of profits arising from the purchase and sale Mr. Weadock of securities in violation of Section 16(b) of the Securities Exchange Act, or any similar successor statute; provided, further that, that the Company shall not be obligated to indemnify Mr. Weadock for expenses or liabilities of any type whatsoever which have been paid directly to Mr. Weadock pursuant to the Company’s D&O Insurance policy.

NOTE 11 - STOCKHOLDERS’ DEFICIT

Series A Convertible Preferred Stock

As at September 30, 2018 and December 31, 2017, there were 750,000 shares of Series A Convertible Preferred Stock issued and outstanding.

Common Stock

On January 9, 2018, the Company issued 899,685 shares of its common stock to Tangiers pursuant to Tangiers’ conversion of $100,000 of Note 1 at a conversion price of $0.11.

On January 15, 2018, the Company issued 200,000 shares of common stock related to an Employment Agreement with Sandra Fowler, Chief Marketing Officer. The Company recorded a fair value of $66,000 ($0.33 per share) based upon the most current trading price of the Company’s stock.

On February 5, 2018, Dr. Coleman and Benjamin Coleman voluntarily returned and canceled an aggregate of 3,280,470 common shares in order to prevent dilution to the shareholders during the Company’s efforts to secure new senior management, provide additional incentive equity and to form an advisory board. The return of common stock by Dr. Coleman and Benjamin Coleman was a non-cash transaction and reduces the common stock outstanding as of March 31, 2018.

On February 20, 2018, the Company issued 43,387 shares of common stock related to an Employment Agreement with Daniel Weadock, Chief Executive Officer. The Company recorded a fair value of $7,810 ($0.18 per share) based upon the most current trading price of the Company’s stock.

On February 23, 2018, the Company issued 12,135 shares of common stock related to an Director Agreement with Daniel Weadock, Chief Executive Officer. The Company recorded a fair value of $2,063 ($0.17 per share) based upon the most current trading price of the Company’s stock.

On March 5, 2018, the Company issued 269,716 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $25,000 of Note 1 at a conversion price of $0.09.

On March 20, 2018, the Company issued 30,000 shares of its common stock to members of the Company’s Advisory Board. The Company recorded a fair value of $4,200 ($0.14 per share) based upon the most recent trading price of the Company’s stock.

On March 21, 2018, the Company issued 295,631 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $25,000 of Note 1 at a conversion price of $0.08 per share.

On April 13, 2018, the Company issued 769,231 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $50,000 of Note 1 at a conversion price of $0.065 per share.

On April 17, 2018, the Company issued 300,000 shares of common stock related to an Employment Agreement with Daniel Weadock, Chief Executive Officer. The Company recorded a fair value of $51,000 ($0.17 per share) based upon the most current trading price of the Company’s stock.

On May 20, 2018, the Company issued 99,012 shares of common stock related to an Employment Agreement with Daniel Weadock, Chief Executive Officer. The Company recorded a fair value of $16,832 ($0.17 per share) based upon the most current trading price of the Company’s stock.

On May 23, 2018, the Company issued 30,000 shares of common stock related to an Director Agreement with Daniel Weadock, Chief Executive Officer. The Company recorded a fair value of $5,100 ($0.17 per share) based upon the most current trading price of the Company’s stock.

On June 21, 2018, the Company issued 295,858 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $25,000 of Note 1 at a conversion price of $0.0845 per share.

On June 6, 2018, the Company issued 30,000 shares of its common stock to members of the Company’s Advisory Board. The Company recorded a fair value of $2,550 ($0.085 per share) based upon the most recent trading price of the Company’s stock.

On June 27, 2018, the Company issued 424,500 shares of common stock related to an advisory agreement with Electrum Partners, LLC. The Company recorded a fair value of $50,940 ($0.12 per share) based upon the most current trading price of the Company’s stock.

On July 2, 2018, the Company issued 244,755 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $17,500 of Note 1 at a conversion price of $.072.

On July 12, 2018, the Company issued 269,231 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $17,500 of Note 1 at a conversion price of $.065.

On August 1, 2018, the Company issued 50,000 shares of its common stock to Electrum Partners pursuant to an advisory agreement. The Company recorded fair value of $4,500 ($0.09 per share) based upon the most recent trading price per share of the Company’s stock.

On August 2, 2018, the Company issued 1,307,846 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $42,590 of Note 1 at a conversion price of $.031.

On August 13, 2018, the Company issued 460,617 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $15,000 of Note 1 at a conversion price of $.034.

On July 2, 2018, the Company issued 244,755 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $17,500 of Note 1 at a conversion price of $.07.

On July 12, 2018, the Company issued 269,231 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $17,500 of Note 1 at a conversion price of $.07.

On August 1, 2018, the Company issued 50,000 shares of its common stock to Electrum Partners pursuant to an advisory agreement. The Company recorded fair value of $4,500 ($0.09 per share) based upon the most recent trading price per share of the Company’s stock.

On August 2, 2018, the Company issued 1,307,846 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $42,590 of Note 1 at a conversion price of $.033.

On August 13, 2018, the Company issued 460,617 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $15,000 of Note 1 at a conversion price of $.033.

On August 22, 2018, the Company issued 583,333 shares of its common stock to Ideal Business Partners pursuant to an advisory agreement. The Company recorded fair value of $35,000 ($0.06 per share) based upon the most recent trading price per share of the Company’s stock.

On September 1, 2018, the Company issued 50,000 shares of its common stock to Electrum Partners pursuant to an advisory agreement. The Company recorded fair value of $3,000 ($0.06 per share) based upon the most recent trading price per share of the Company’s stock.

On September 20, 2018, the Company issued 30,000 shares of its common stock to members of the Company’s Advisory Board. The Company recorded a fair value of $1,800 ($0.06 per share) based upon the most recent trading price of the Company’s stock.

On September 24, 2018, the Company issued 569,801 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $20,000 of Note 1 at a conversion price of $.035.

On September 28, 2018, the Company issued 1,424,501 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $50,000 of Note 1 at a conversion price of $.035.

Common Stock Warrants

For the nine months ended September 30, 2018 and the year ended December 31, 2017, no warrants were outstanding.

NOTE 12 - SUBSEQUENT EVENTS

On October 8, 2018, the Company issued 2,621,083 shares of its common stock to Tangiers pursuant to Tangier’s conversion of $35,383 of Note 1 at a conversion price of $.0351.

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 filing. 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.

General Overview

We are a Texas corporation formed on November 23, 2011. Our principal executive office is located at 5300 East Freeway Suite A, Houston, Texas 77020. On August 3, 2017, we formed Alamo Acquisition, LLC, a wholly owned Texas limited liability company (“Alamo Acquisition Sub”).

On August 4, 2017, we consummated a business acquisition (the “Alamo Acquisition”) pursuant to which Alamo Acquisition Sub acquired all of the outstanding member interests of Alamo CBD, LLC. (“Alamo CBD”), a Texas limited Liability Company. Upon closing of the Alamo Acquisition, the member interests (“Alamo Survivor Members”) of Alamo CBD were exchanged for 7,584,008 shares of Indoor Harvest’s common stock, the parent company of Alamo Acquisition Sub, and Alamo CBD continued as our surviving wholly-owned subsidiary, and Alamo Acquisition Sub ceased to exist. For accounting purposes, the Alamo Acquisition is treated as an asset acquisition rather than a business combination.

Upon Alamo CBD being successfully awarded a provisional or full license to produce and dispense cannabis in the State of Texas, Indoor Harvest will issue to the individual Alamo Survivor Members, an additional Eight Million Five Hundred Thousand Dollars ($8,500,000) of newly-issued shares of common stock of Indoor Harvest, par value $0.001, based upon the three (3) day average closing price of the Company’s common stock, as quoted on the OTCQB, prior to the time of issuance.

Additionally, upon Alamo CBD successfully being registered and licensed by the DEA to produce and dispense cannabis under federal law, Indoor Harvest will issue to the individual Alamo Survivor Members, an additional Two Million Five Hundred Thousand Dollars ($2,500,000) cash payment, or newly-issued shares of common stock of Indoor Harvest, par value $0.001, based upon the three (3) day average closing price of the Company’s common stock, as quoted on the OTCQB, prior to the time of issuance, at the option of the individual Alamo Survivor Member. A combination of cash and common stock may be elected by Alamo Survivor Member individually.

Our Current Business

Indoor Harvest, through its brand name Indoor Harvest®, is a technology company focused on producing bio pharma grade cannabis for research and development and a provider of advanced cultivation methods and processes for the cannabis industry. We are seeking to use the proprietary technology we have developed to become a registered producer and seller under the federal Controlled Substances Act (“CSA”) of pharmaceutical grade cannabis for research and targeted treatment of specific medical symptoms by third parties.

We have developed a patent pending aeroponic process of growing cultivars in an air or mist environment without the use of soil or an aggregate growing medium. Aeroponic production 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. Our aeroponic process and production methods provide an ability to test the phenotypic plasticity of cannabis and to test and develop specific phenotypic response. Phenotypic plasticity refers to the changes in cannabis morphology and physiology due to its adaption to a unique environment and its impact on phytochemical production.

We, through Alamo CBD, have applied to produce and dispense low-tetrahydrocannabinol (“THC”) cannabis under the Texas Compassionate Use Program (“TCUP”). THC is a psychotropic cannabinoid and is the principal psychoactive constituent of cannabis.

Our operational expenditures are primarily related to further developing our technology, launching and completing test trials, developing research partnerships and collaborations related to perfecting precise expressions of personalized medicine and the costs related to being a fully reporting company with the SEC.

Current Operations

On July 10, 2017, we entered into a Cultivation Design Agreement with Bright Orchard Developments, Ltd. (“Bright Orchard”), for the design of an aeroponic cannabis production facility by a pending licensed producer in Canada. On July 25, 2018, we received formal cancelation of the agreement from Bright Orchard.

On October 11, 2017, we entered into a binding letter of intent (“LOI”) with Zoned Properties outlining three pending independent agreements to complete research and development projects for licensed medical cannabis facilities to be located in Tempe, Arizona, Parachute, Colorado and Stockdale, Texas or other location to be determined after approval of a provisional license under the TCUP. If the three independent agreements were not agreed to prior to January 9, 2018, the LOI would have automatically terminated. The parties extended the term of the LOI in January 2018. The extension expired in April 2018 resulting in the LOI being terminated and the parties having no further obligation to each other. We made total non-refundable payments of $50,000 to Zoned Properties.

The Company is currently exploring production and technology partnerships in Colorado and Massachusetts, in addition to its pending application to produce cannabis in Texas under the TCUP. There can be no assurance that any of these plans can occur as planned or at all. 

Texas Compassionate Use Program Applicant

We, through our wholly owned subsidiary Alamo CBD, have applied to produce and dispense low-THC cannabis under the TCUP. Our Company also expects to file an application with the DEA to register the facility under the CSA. Our Company expects to generate revenue through the production and sale of cannabis under the TCUP. There is no assurance that any or all of the agreements will be executed or that we will be successful in obtaining a license to produce cannabis in Texas or in registering the completed facility with the DEA.

In late 2016, the Department of Public Safety (“DPS”), modified its approach to restrict the number of licenses to three. This necessitated the development of a competitive review process, where three applicants were conditionally approved based on the review of the submitted application materials. Upon successful onsite inspection of their facilities, qualified applicants will be issued licenses. Because of this competitive review process, Alamo CBD placed 16th out of 43 applicants and its application is currently considered pending by the DPS. Our Company and other pending applicants have questioned the last minute modification in approach by the DPS and the lack of transparency in the reviewing process.

On September 29, 2017, the DPS published a Self-Evaluation Report (the “DPS Report”) which was submitted to the Sunset Advisory Commission (the “Sunset Commission”). The Sunset Commission is an agency of the Texas Legislature that evaluates state agencies and makes recommendations to the legislature on the need for, performance of, and improvements to agencies under review. The Sunset Commission On page 543 of the DPS Report, question (D), the report states that the DPS originally interpreted the Texas Compassionate Use Act, as requiring a market-based system by which the number and location of licensees are determined by market factors rather than by regulation – as not mandating or limiting the number of licensed distributors. It was originally understood that the applicants would be required to satisfy certain basic requirements prior to licensure, and the ability to maintain compliance with DPS guidelines will be evaluated through on-going audits and inspections.

Our Company is a member of and is working with the Medical Cannabis Association of Texas and expects both lobbying and legislative efforts currently being undertaken to result in the program being expanded, additional permits being awarded, and new legislation being introduced in 2019 to allow for a separate permitting process to conduct cannabis research in line with the CSA. There is no guarantee that these efforts will result in our Company obtaining a license or permit to produce cannabis in Texas or that legislation will be adopted allowing a separate licensing or permitting process for research purposes.

There can be no assurance that any of the foregoing plans can occur as planned or at all.

Results of Operations

The following summary of our operations should be read in conjunction with our unaudited financial statements for the three and nine months ended September 30, 2018 and 2017.

Three months ended September 30, 2018 compared to three months ended September 30, 2017.

We earned no revenues for the three months ended September 30, 2018 and $4,245 for the three months ended September 30, 2017.

Total operating expenses for the three months ended September 30, 2018 and September 30, 2017 were $246,566 and $1,619,452. The decrease is primarily related to a one-time impairment charge in 2017 of $1,440,961. During the three months ended September 30, 2018 operating expenses, excluding impairment charge, increased approximately $68,000 due primarily from an increase in professional fees of $73,610 and a reduction in depreciation expense of $9,773, as compared to 2017. Our general and administrative expenses were relatively unchanged increasing by approximately $4,200 in 2018 from the same period in 2017.

Total other expense for the three months ended September 30, 2018 was $1,144,250 and total other expense for the three months ended September 30, 2017 was $44,150, for an increase in loss of $1,100,100. The increase in 2018 is primarily related to embedded derivative liability related to the Tangiers convertible notes payable discussed in Notes 8 and 9 to our unaudited financial statements.

As a result of the factors discussed above, net loss for the three months ended September 30, 2018 and September 30, 2017 was $1,390,816 and $1,660,522, respectively, for an decrease in net loss of $269,706 or 16%.

Nine months ended September 30, 2018 compared to nine months ended September 30, 2017.

We earned no revenues for the nine months ended September 30, 2018 and $4,245 for the nine months ended September 30, 2017.

Total operating expenses for the nine months ended September 30, 2018 and September 30, 2017 were $830,601 and $2,766,739. The decrease is primarily related to a one-time impairment charge in 2017 of $1,440,961. During the nine months ended September 30, 2018 operating expenses, excluding impairment charge, decreased approximately $495,000 due primarily to a decrease in professional fees of $179,951 and general and administrative expenses of $283,529, as compared to 2017.

Total other expense for the nine months ended September 30, 2018 was $1,740,666 and total other expense for the nine months ended September 30, 2017 was $663,069, for an increase of $1,077,597 or 163%. The increase in 2018, is primarily related to embedded derivative liability related to the Tangiers convertible notes payable discussed in Notes 8 and 9 to our unaudited financial statements.

As a result of the factors discussed above, net loss for the nine months ended September 30, 2018 and September 30, 2017 was $2,571,357 and $3,441,157 respectively, for a decrease in net loss of $869,800 or 25%.

Liquidity and Capital Resources

The following table provides selected financial data about our Company as of September 30, 2018 and December 31, 2017, respectively.

Working Capital

Cash Flows

As at September 30, 2018 our Company’s cash balance was $113,933 and total assets were $214,474. As at December 31, 2017, our Company’s cash balance was $35,453 and total assets were $133,020.

As at September 30, 2018, our Company had total liabilities of $2,281,308, compared with total liabilities of $1,132,644 as at December 31, 2017.

As at September 30, 2018, our Company had a working capital deficiency of $2,094,216 compared with aworking capital deficiency of $1,029,916 as at December 31, 2017. The increase in working capital deficiency was primarily attributed to an increase in convertible notes payable, accounts payable and derivative liabilities.

Cash Flow from Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2018 and September 30, 2017 were $568,954 and $1,40,864, respectively, for a decrease of $471,911. The improvement in net cash used in operating activities is primarily related to a decrease in operating expenses, from reductions in professional fees and general and administrative expenses.

Cash Flow from Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2018 and September 30, 2017 were $0 and $550, respectively.

Cash Flow from Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2018 and September 30, 2017 were $647,434 and $968,474, respectively, for a decrease of $321,041. For 2018, the Company received $653,000 from convertible notes and repaid $5,566 in a note payable. For 2017, the Company received $250,000 from convertible notes, $300,001 form the issuance of preferred stock, $824,000 from the issuance of common stock and repaid a note payable $230,526 and a convertible note for $175,000.

Existing Cash and Operational Cash Flow

During the next twelve months, we anticipate that we will incur a minimum of approximately $560,000 of general and administrative expenses. We must obtain additional financing to continue our operations. We may not be able to obtain additional funding on terms that are favorable to us or at all. We may not be able to obtain sufficient funding to continue our operations, or if we do receive funding, to generate adequate revenues in the future or to operate profitably in the future. These conditions raise substantial doubt about our ability to continue as a going concern.

Meeting Cash Requirements

Based upon the assumption of our monthly current operational burn rate remaining unchanged during the fiscal year, our Company will need to raise additional funds to implement its business plans. There is no assurance we will obtain the anticipated funds from our sources of funding. If we do not obtain additional funding, and we do not take other measures such as cutting back operational activities, we may not have sufficient funds to continue operations for the next 12 months or to grow our business. During the first half of 2018, our Company laid off two employees.

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 continue to execute our business plan as described above.

We have an accumulated deficit and have incurred operating losses since our inception and expect losses to continue during 2018.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

As a “smaller reporting company”, we are not required to provide the information required by this Item.

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

The Company’s management, consisting solely of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer has concluded that, as of September 30, 2018, the Company’s disclosure controls and procedures were not effective because of the following internal control over financial reporting deficiencies:

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

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

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

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

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

Changes in Internal Controls

There have been no changes in our internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of Securities Exchange Act Rule 13a-15 or Rule 15d-15 that occurred in the quarter ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

From time to time we may become involved in various legal proceedings that arise in the ordinary course of business, including actions related to our intellectual property. Although the outcomes of these legal proceedings cannot be predicted with certainty, other than as previously disclosed, we are currently not aware of any such legal proceedings or claims that we believe, either individually or in the aggregate, will have a material adverse effect on our business, financial condition or results of operations.

As a “smaller reporting company”, we are not required to provide the information required by this Item.

On July 2, 2018, we issued 244,755 shares of our common stock to Tangiers pursuant to Tangier’s conversion of $17,500 of Note 1 at a conversion price of $.072 per share. The issuance of the above securities was exempt from the registration requirements of the Securities Act in reliance upon Section 4(a)(2) of the Securities Act.

On July 12, 2018, we issued 269,231 shares of our common stock to Tangiers pursuant to Tangier’s conversion of $17,500 of Note 1 at a conversion price of $.065 per share. The issuance of the above securities was exempt from the registration requirements of the Securities Act in reliance upon Section 4(a)(2) of the Securities Act.

On August 1, 2018, we issued 50,000 shares of our common stock to Electrum Partners pursuant to an advisory agreement. We recorded fair value of $4,500 ($0.09 per share) based upon the most recent trading price per share of our Company’s stock. The securities were issued pursuant to exemptions from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and Rule 506 of Regulation D promulgated thereunder.

On August 2, 2018, we issued 1,307,846 shares of our common stock to Tangiers pursuant to Tangier’s conversion of $42,590 of Note 1 at a conversion price of $.031 per share. The issuance of the above securities was exempt from the registration requirements of the Securities Act in reliance upon Section 4(a)(2) of the Securities Act.

On August 13, 2018, we issued 460,617 shares of our common stock to Tangiers pursuant to Tangier’s conversion of $15,000 of Note 1 at a conversion price of $.034 per share. The issuance of the above securities was exempt from the registration requirements of the Securities Act in reliance upon Section 4(a)(2) of the Securities Act.

On July 2, 2018, we issued 244,755 shares of our common stock to Tangiers pursuant to Tangier’s conversion of $17,500 of Note 1 at a conversion price of $0.07 per share. The issuance of the above securities was exempt from the registration requirements of the Securities Act in reliance upon Section 4(a)(2) of the Securities Act.

On July 12, 2018, we issued 269,231 shares of our common stock to Tangiers pursuant to Tangier’s conversion of $17,500 of Note 1 at a conversion price of $0.07 per share. The issuance of the above securities was exempt from the registration requirements of the Securities Act in reliance upon Section 4(a)(2) of the Securities Act.

On August 1, 2018, we issued 50,000 shares of our common stock to Electrum Partners pursuant to an advisory agreement. We recorded fair value of $4,500 ($0.09 per share) based upon the most recent trading price per share of our Company’s stock. The securities were issued pursuant to exemptions from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and Rule 506 of Regulation D promulgated thereunder.

On August 2, 2018, we issued 1,307,846 shares of our common stock to Tangiers pursuant to Tangier’s conversion of $42,590 of Note 1 at a conversion price of $.033 per share. The issuance of the above securities was exempt from the registration requirements of the Securities Act in reliance upon Section 4(a)(2) of the Securities Act.

On August 13, 2018, we issued 460,617 shares of our common stock to Tangiers pursuant to Tangier’s conversion of $15,000 of Note 1 at a conversion price of $.033 per share. The issuance of the above securities was exempt from the registration requirements of the Securities Act in reliance upon Section 4(a)(2) of the Securities Act.

On August 22, 2018, we issued 583,333 shares of our common stock to Ideal Business Partners pursuant to an advisory agreement. We recorded fair value of $35,000 ($0.06 per share) based upon the most recent trading price per share of our Company’s stock. The securities were issued pursuant to exemptions from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and Rule 506 of Regulation D promulgated thereunder.

On September 1, 2018, we issued 50,000 shares of our common stock to Electrum Partners pursuant to an advisory agreement. We recorded fair value of $3,000 ($0.06 per share) based upon the most recent trading price per share of our Company’s stock. The securities were issued pursuant to exemptions from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and Rule 506 of Regulation D promulgated thereunder.

On September 20, 2018, we issued 30,000 shares of our common stock to members of our Company’s Advisory Board. We recorded a fair value of $1,800 ($0.06 per share) based upon the most recent trading price of our Company’s stock. The securities were issued pursuant to exemptions from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and Rule 506 of Regulation D promulgated thereunder.

On September 24, 2018, we issued 569,801 shares of our common stock to Tangiers pursuant to Tangier’s conversion of $20,000 of Note 1 at a conversion price of $.035 per share. The issuance of the above securities was exempt from the registration requirements of the Securities Act in reliance upon Section 4(a)(2) of the Securities Act.

On September 28, 2018, we issued 1,424,501 shares of our common stock to Tangiers pursuant to Tangier’s conversion of $50,000 of Note 1 at a conversion price of $.035 per share. The issuance of the above securities was exempt from the registration requirements of the Securities Act in reliance upon Section 4(a)(2) of the Securities Act.

None.

Not Applicable.

(a) Not applicable.

(b) Not applicable.

The following exhibits are included as part of this report:

* Filed herewith. In addition, in accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.