UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period endedJuneSeptember 30, 2022 

 

or

 

☐TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to  

 

Commission File Number000-55594 

 

INDOOR HARVEST CORP
(Exact name of registrant as specified in its charter)

INDOOR HARVEST CORP

(Exact name of registrant as specified in its charter)

 

Texas 45-5577364

(State or other jurisdiction

of incorporation or organization)

 

(IRS Employer

Identification No.)

 

7401 W. Slaughter Lane #5078

Austin,Texas

 78739
(Address of principal executive offices) (Zip Code)

 

512-309-1776
(Registrant’s telephone number, including area code)

512-309-1776

(Registrant’s telephone number, including area code)

 

N/A
(Former name, former address and former fiscal year, if changed since last report)

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
     

 

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.

 

☒ 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 (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ 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.

 

Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☐(Do not check if a smaller reporting company)Smaller reporting company☒
   Emerging growth company☒

 

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 ☒ NO

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 2,681,343,930 anddate 2,575,909,9302,689,190,084 common shares issued and outstanding respectively, as of JuneSeptember 30, 2022.

 

 

 

 

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATIONF-1
   
Item 1.Financial StatementsF-1
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operation4
Item 3.Quantitative and Qualitative Disclosures About Market Risk6
Item 4.Controls and Procedures6
   
PART II - OTHER INFORMATION7
  
Item 1.Legal Proceedings7
Item 1A.Risk Factors7
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds7
Item 3.Defaults Upon Senior Securities7
Item 4.Mine Safety Disclosures7
Item 5.Other Information7
Item 6.Exhibits7
SIGNATURES8

 

2

 

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:

 

 ●the success or failure of management’s efforts to implement our business plan;
 ●our ability to fund our operating expenses;
 ●our ability to compete with other companies that have a similar business plan;
 ●the effect of changing economic conditions impacting our plan of operation; and
 ●our ability to meet the other risks as may be described in future filings with the Securities and Exchange Commission (the “SEC”).

 

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.

 

3

 

PART I - FINANCIAL INFORMATION

Item 1.Financial Statements

Item 1.Financial Statements

 

INDOOR HARVEST CORP

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

        
 June 30, December 31,  September 30, December 31, 
 2022  2021  2022 2021 
ASSETS             
Current Assets:                
Cash $297,965  $232,850  $191,869  $232,850 
Notes receivable, net  100,919   - 
Prepaid expenses and other receivable  78,077   2,751   60,719   2,751 
Total Current Assets  376,042   235,601   353,507   235,601 
                
Prepayment for acquisitions - related party  

130,000

   

-

 
TOTAL ASSETS $376,042  $235,601  $483,507  $235,601 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current Liabilities:                
Accounts payable and accrued liabilities $107,659  $144,404  $113,886  $110,502 
Salary payable  625   -   625   - 
Due to related party  -   33,902 
Total Current Liabilities  108,284   144,404   114,511   144,404 
                
Total Liabilities  108,284   144,404   114,511   144,404 
                
Commitments and contingencies  -   -   -   - 
                
Stockholders’ Equity                
Preferred stock: 15,000,000 authorized; $0.01 par value; Series A Convertible Preferred stock: 15,000,000 designated,0 shares issued and outstanding  -   -   -   - 
Common stock: 10,000,000,000 authorized; $0.001 par value; 2,681,343,930 and 2,575,909,930 shares issued and outstanding, respectively  2,681,344   2,575,910 
Common stock: 10,000,000,000 authorized; $0.001 par value; 2,689,190,084 and 2,575,909,930 shares issued and outstanding, respectively  2,689,190   2,575,910 
Additional paid in capital  23,632,471   21,210,721   24,048,979   21,210,721 
Shares to be issued  250,000   - 
Accumulated deficit  (26,046,057)  (23,695,434)  (26,619,173)  (23,695,434)
Total Stockholders’ Equity  267,758   91,197   368,996   91,197 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $376,042  $235,601  $483,507  $235,601 

 

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

 

F-1

INDOOR HARVEST CORP

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

                                
 Three Months Ended Six Months Ended  Three Months Ended Nine Months Ended 
 June 30,  June 30,  September 30, September 30, 
 2022  2021  2022  2021  2022 2021 2022 2021 
                  
Revenue $-  $-  $-  $-  $-  $-  $-  $- 
                                
Operating Expenses                                
Professional fees  584,574   23,657   1,018,204   41,157   251,468   130,982   1,269,672   172,139 
General and administrative  699,788   5,680   1,332,419   10,905   323,505   4,696,798   1,655,924   4,707,703 
Total Operating Expenses  1,284,362   29,337   2,350,623   52,062   574,973   4,827,780   2,925,596   4,879,842 
                                
Loss from operations  (1,284,362)  (29,337)  (2,350,623)  (52,062)  (574,973)  (4,827,780)  (2,925,596)  (4,879,842)
                                
Other Income (Expense)                                
Interest expense  -   (1,825)  -   (3,630)  -   (28,090)  -   (31,720)
Interest income  1,857   -   1,857   - 
Change in fair value of derivative liability  -   26,289,783   -   (77,314,805)  -   121,194,219   -   43,879,414 
Total other income (expenses)  -   26,287,958   -   (77,318,435)
Gain on settlement of debt  -   84,464   -   84,464 
Total other income  1,857   121,250,593   1,857   43,932,158 
                                
Income (loss) before income taxes  (1,284,362)  26,258,621   (2,350,623)  (77,370,497)  (573,116)  116,422,813   (2,923,739)  39,052,316 
                                
Provision for income taxes  -   -   -   -   -   -   -   - 
                                
Net income (loss) $(1,284,362) $26,258,621  $(2,350,623) $(77,370,497) $(573,116) $116,422,813  $(2,923,739) $39,052,316 
                                
Comprehensive income (Loss) $(1,284,362) $26,258,621  $(2,350,623) $(77,370,497) $(573,116) $116,422,813  $(2,923,739) $39,052,316 
                                
Basic and diluted income (loss) per common share                                
Basic $(0.00) $0.01  $(0.00) $(0.03) $(0.00) $0.05  $(0.00) $0.02 
Diluted $(0.00) $(0.00) $(0.00) $(0.00) $(0.00) $(0.00) $(0.00) $(0.00)
                                
Weighted average number of common shares outstanding                                
Basic  2,643,076,875   2,401,396,041   2,611,129,223   2,401,396,041   2,685,608,144   2,433,482,998   2,636,228,346   2,412,209,228 
Diluted  2,643,076,875   14,936,399,181   2,611,129,223   2,401,396,041   2,685,608,144   2,641,231,449   2,636,228,346   3,055,325,489 

 

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

 

F-2

 

INDOOR HARVEST CORP

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

 

For the SixNine months Ended JuneSeptember 30, 2022

 Number of
Shares		  Amount  Number of
Shares		  Amount  Paid in
Capital		  Stock
Payable		  Accumulated
Deficit		  Stockholders’ Equity 
 Series A Convertible                  Number of
Shares		  Amount  Number of
Shares		  Amount  Paid in
Capital		  Stock
Payable		  Accumulated
Deficit		  Stockholders’ Equity 
 Preferred Stock  Common Stock  Additional         Total  Series A Convertible Preferred Stock Common Stock Additional Shares    
 Number of
Shares		  Amount  Number of
Shares		  Amount  Paid in
Capital		  Stock
Payable		  Accumulated
Deficit		  Stockholders’ Equity  

Number of Shares

 Amount 

Number

of Shares

 Amount Paid in Capital to be Issued Accumulated Deficit Stockholders’ Equity 
                                  
Balance - December 31, 2021  -  $-   2,575,909,930  $2,575,910  $21,210,721  $-  $(23,695,434) $91,197            -  $-   2,575,909,930  $2,575,910  $21,210,721  $-  $(23,695,434) $91,197 
                                                                
Common stock issued for cash  -   -   12,500,000   12,500   62,500   -   -   75,000 
Common stock issued for cash and warrant  -   -    12,500,000   12,500   62,500   -   -   75,000 
Stock based compensation  -   -   -   -   975,496   -   -   975,496   -   -   -   -   975,496   -   -   975,496 
Net loss  -   -   -   -   -   -   (1,066,261)  (1,066,261)  -   -   -   -   -   -   (1,066,261)  (1,066,261)
Balance - March 31, 2022  -   -   2,588,409,930   2,588,410   22,248,717   -   (24,761,695)  75,432   -   -   2,588,409,930   2,588,410   22,248,717   -   (24,761,695)  75,432 
                                                                
Common stock issued for cash  -   -   89,600,000   89,600   358,400   -   -   448,000 
Common stock issued for cash and warrant  -   -   89,600,000   89,600   358,400   -   -   448,000 
Common stock issued for cash -adjusted offering price related to 1st quarter  -   -   2,500,000   2,500   (2,500)  -   -   -   -   -   2,500,000   2,500   (2,500)  -   -   - 
Common stock issued for services  -   -   834,000   834   4,166   -   -   5,000   -   -   834,000   834   4,166   -   -   5,000 
Stock based compensation  -   -   -   -   1,023,688   -   -   1,023,688   -   -   -   -   1,023,688   -   -   1,023,688 
Net loss  -   -   -   -   -   -   (1,284,362)  (1,284,362)  -   -   -   -   -   -   (1,284,362)  (1,284,362)
Balance - June 30, 2022  -  $-   2,681,343,930  $2,681,344  $23,632,471  $-  $(26,046,057) $267,758   -   -      2,681,343,930      2,681,344       23,632,471   -        (26,046,057) $267,758 
                                
Common stock issued for cash and warrant  -   -   7,846,154   7,846   43,154   -   -   51,000 
Stock based compensation  -   -   -   -   373,354   -   -   373,354 
Proceeds received shares to be issued  -   -   -   -   -   250,000   -   250,000 
Net loss  -   -   -   -   -   -   (573,116)  (573,116)
Balance - September 30, 2022  -  $-   2,689,190,084  $2,689,190  $24,048,979  $250,000  $(26,619,173) $368,996 

F-3

 

For the SixNine months Ended JuneSeptember 30, 2021

  Series A Convertible Preferred Stock  Common Stock  Additional        Total 
  

Number of Shares

  Amount  

Number of Shares

  Amount  

Paid in

Capital

  Stock
Payable		  Accumulated
Deficit		  Stockholders’
Deficit		 
                         
Balance - December 31, 2020  750,000  $7,500   2,401,396,041  $2,401,396  $14,014,324  $-  $(61,172,660) $(44,749,440)
                                 
Net loss  -   -   -   -   -   -   (103,629,118)  (103,629,118)
Balance - March 31, 2021  750,000  $7,500   2,401,396,041  $2,401,396  $14,014,324  $-  $(164,801,778) $(148,378,558)
                                 
Proceeds received shares to be issued  -   -   -   -   -   40,000   -   40,000 
Subscription Stock payable  -   -   -   -   -   40,000   -   40,000 
Net income  -   -   -   -   -   -   26,258,621   26,258,621 
Balance - June 30, 2021  750,000  $7,500   2,401,396,041  $2,401,396  $14,014,324  $40,000  $   (138,543,157) $(122,079,937)
Beginning balance  750,000  $7,500   2,401,396,041  $2,401,396  $14,014,324  $40,000  $   (138,543,157) $(122,079,937)
                                 
Common stock issued for cash  -   -   82,000,000   82,000   328,000   (40,000)  -   370,000 
Stock based compensation  -   -   -   -   4,753,205   -   -   4,753,205 
Write off due to related party  -   -   -   -   52   -   -   52 
Net income  -   -   -   -   -   -   116,422,813   116,422,813 
Net income (loss)  -   -   -   -   -   -   116,422,813   116,422,813 
Balance - September 30, 2021  750,000  $7,500       2,483,396,041  $   2,483,396  $   19,095,581  $-  $(22,120,344) $(533,867)
Ending Balance  750,000  $7,500       2,483,396,041  $   2,483,396  $   19,095,581  $-  $(22,120,344) $(533,867)

 

  Number of
Shares		  Amount  Number of
Shares		  Amount  Paid in
Capital		  Stock
Payable		  Accumulated
Deficit		  Stockholders’ Equity 
  Series A Convertible                   
  Preferred Stock  Common Stock  Additional        Total 
  Number of
Shares		  Amount  Number of
Shares		  Amount  Paid in
Capital		  Stock
Payable		  Accumulated
Deficit		  Stockholders’ Equity 
                         
Balance - December 31, 2020  750,000  $7,500   2,401,396,041  $2,401,396  $14,014,324  $-  $(61,172,660) $(44,749,440)
                                 
Net loss  -   -   -   -   -   -   (103,629,118)  (103,629,118)
Balance - March 31, 2021  750,000  $7,500   2,401,396,041  $2,401,396  $14,014,324  $-  $(164,801,778) $(148,378,558)
Beginning Balance  750,000  $7,500   2,401,396,041  $2,401,396  $14,014,324  $-  $(164,801,778) $(148,378,558)
                                 
Stock payable  -   -   -   -   -   40,000   -   40,000 
Net income  -   -   -   -   -   -   26,258,621   26,258,621 
Net income(loss)  -   -   -   -   -   -   26,258,621   26,258,621 
Balance - June 30, 2021  750,000  $7,500   2,401,396,041  $2,401,396  $14,014,324  $40,000  $(138,543,157) $(122,079,937)
Ending Balance 750,000  $7,500   2,401,396,041  $2,401,396  $14,014,324  $40,000  $(138,543,157) $(122,079,937)

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

F-3F-4

INDOOR HARVEST CORP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

                
 Six Months Ended  Nine Months Ended 
 June 30,  September 30, 
 2022  2021  2022 2021 
          
Cash Flows from Operating Activities:        
Net loss $(2,350,623) $(77,370,497)
Cash Flows used in Operating Activities:        
Net income (loss) $(2,923,739) $39,052,316 
Adjustments to reconcile net loss to net cash used in operating activities:                
Accrued interest - notes receivable  (919)  - 
Amortization of debt discount  -   14,444 
Change in fair value of embedded derivative liability  -   77,314,805   -   (43,844,950)
Stock based compensation  2,004,184   -   2,377,538   4,753,205 
Gain on settlement of debt  -   (84,464)
Changes in operating assets and liabilities:                
Prepaid expenses and other receivable  (75,326)  1,876   (57,968)  (344)
Accounts payable and accrued expenses  (36,120)  28,393   4,009   5,502 
Due to related party  (33,902)  (77,492)
Net Cash used in Operating Activities  (457,885)  (25,423)  (634,981)  (181,783)
                
Cash Flows from Financing Activities:        
Cash Flows used in Investing Activities:        
Investment in short term notes  

(100,000

)  - 
Prepayments for acquisition - related party  

(130,000

)  - 
Net Cash used in Investing Activities  

(230,000

)  - 
        
Cash Flows provided by Financing Activities:        
Proceeds from convertible notes  -   25,000   -   25,000 
Repayments of convertible notes  -   -   -   (63,200)
Proceeds from shares of common stock to be issued  -   40,000 
Proceeds from issuance of common stock  523,000   - 
Proceeds from issuance of common stock and warrant  574,000   410,000 
Proceeds from stock subscriptions for shares to be issued  

250,000

   - 
Net Cash provided by Financing Activities  523,000   65,000   824,000   371,800 
                
Net change in cash  65,115   39,577   (40,981)  190,017 
Cash, beginning of period  232,850   1,207   232,850   1,207 
Cash, end of period $297,965  $40,784  $191,869  $191,224 
                
Supplemental Cash Flow Information                
Cash paid for interest $-  $-  $-  $16,800 
Cash paid for taxes $-  $-  $-  $- 
                
Non-Cash Investing and Financing Activities:                
Derivative liability reclassified to paid-in capital $975,496  $- 
Derivative liability recognized as debt discount $-  $25,000 
Write off due to related party $-  $52 

 

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

 

F-4F-5

 

INDOOR HARVEST CORP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNESEPTEMBER 30, 2022

(UNAUDITED)

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Operations and Organization

 

Indoor Harvest Corp (the “Company,”“Company” or “Indoor Harvest”) is a Texas corporation formed on November 23, 2011. Our principal executive office was located at 7401 W. Slaughter Lane #5078, Austin, Texas 78739, and such address is used in the interim. We are in the process of establishing new offices.

 

On August 14, 2019, the Company established a wholly owned subsidiary, IHC Consulting, Inc. (“IHC”), in the State of New York of the United States of America. IHC Consulting will provide consulting and other services to the Company and others on a contracted basis.

 

COVID-19T

A novel strainhe Company incorporates development of coronavirus (COVID-19) was first identified in December 2019,proprietary technology, mergers, acquisitions, strategic partnerships, and subsequently declaredjoint ventures as part of a global pandemic by the World Health Organization on March 11, 2020.broad integration strategy. As a resultplatform, Indoor Harvest Corp. cultivates synergistic partnerships within related industries, providing an opportunity to be part of the outbreak, many companies have experienced disruptions in their operationsa more significant play, sharing intellectual capital, technology, access to new capital markets, and in markets served. The Company has instituted some and may take additional temporary precautionary measures intended to help ensure the well-being of its managers and minimize business disruption. The Company considered the impact of COVID-19 on the assumptions and estimates used and determined that there were no material adverse impacts on the Company’s results of operations and financial position at June 30, 2022. The full extent of the future impacts of COVID-19 on the Company’s operations is uncertain. A prolonged outbreak could have a material adverse impact on financial results and business operations of the Company, including the timing and ability of the Company to develop its business plan.liquidity for owners.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the requirements of Form 10-Q and Rule 8-03 of Regulation S-X of the U.S. Securities and Exchange Commission. Accordingly, they may not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included. These interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2021, as not all disclosures required by generally accepted accounting principles for annual financial statements may be presented.

 

Use of Estimates

 

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

 

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

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All significant inter-company accounts and transactions have been eliminated in consolidation.

 

Earnings (Loss) per Share

 

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

 

F-5F-6

 

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 JuneSeptember 30, 2022 and December 31, 2021, the Company did not have any derivative instruments that were designated as hedges.

 

Fair Value of Financial Instruments

 

As defined in ASC 820” Fair Value Measurements,” fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).

 

Recently IssuedAdopted Accounting Pronouncements

 

In August 2020, the FASB issued ASU 2020-06, ASC Subtopic 470-20 “Debt—Debt with “Conversion and Other Options” and ASC subtopic 815-40 “Hedging—Contracts in Entity’s Own Equity”. The standard reduced the number of accounting models for convertible debt instruments and convertible preferred stock. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting; and, (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The companyCompany has adopted the ASU as of January 1, 2022, there were no material impacts to the financial statements.

Reclassification

Certain accounts from prior periods have been reclassified to conform to the current period presentation.

 

NOTE 2 - GOING CONCERN

 

The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. The Company had minimal cash as of JuneSeptember 30, 2022, incurred losses from its operations and did not generate cash from its operation for the past two years and sixnine months ended JuneSeptember 30, 2022. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

The Company’s continued existence is dependent upon management’s ability to develop profitable operations, continued contributions from the Company’s executive officers to finance its operations and the ability to obtain additional funding sources to explore potential strategic relationships and to provide capital and other resources for the further development and marketing of the Company’s products and business.

F-7

NOTE 3 – NOTES RECEIVABLE

During the three months ended September 30, 2022, the Company granted loans of $100,000 and were issued by debtors the following three secured promissory notes that the Company intends to hold to maturity:

SCHEDULE OF SECURED PROMISSORY NOTES

  Principal    Interest  Accrued  September 30. 
Issuance date Amount  Maturity date Rate  Interest  2022 
7/27/2022 $40,000  11/27/2022  8.00% $568  $40,568 
8/10/2022 $20,000  12/10/2022  8.00% $222   20,222 
9/15/2022 $40,000  1/15/2023  8.00% $129   40,129 
            $100,919

The notes are secured by an interest in real property as set forth security agreements between the Company and borrower. During the three-month and nine-month periods ended September 30, 2022, the Company recognized interest income of $919. The Company’s management did not recognize any estimated credit loss for the notes; however, the management closely monitors the liquidity of the debtors for changes in circumstances that may affect the carrying value of these notes. The notes are considered level 3 financial instruments; however, as a result of the short terms to maturity, their amortized costs approximate their fair values.

 

NOTE 34 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

Accounts payable and accrued liabilities at Juneon September 30, 2022 and December 31, 2021 are as follows:

SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

         
  June 30,  December 31, 
  2022  2021 
Accounts payable $77,194  $112,315 
Credit card  11,567   13,191 
Accrued expenses  15,715   15,715 
Accrued management fee  3,183   3,183 
Accounts payable and accrued liabilities $107,659  $144,404 

F-6

  September 30,  December 31, 
  2022  2021 
Accounts payable $83,746  $78,413 
Credit card  11,242   13,191 
Accrued expenses  15,715   15,715 
Accrued management fee  3,183   3,183 
Accounts payable and accrued liabilities $113,886  $110,502 

 

NOTE 45 - SHAREHOLDERS’ EQUITY

 

On May 11, 2020, the Company completed an increase in the authorized shares of the Company’s stock to a total number of 10,015,000,000, allocated as follows among these classes and series of stock:

 

 ●Common Stock Class, par value $0.001 per share - 10,000,000,000 shares authorized.
 ●Preferred Stock Class, Series A, par value $0.01 per share - 15,000,000 shares authorized.

 

Series A Convertible Preferred Stock

 

The Company has designated 15,000,000 shares of Series A Preferred Stock with a par value of $0.01.

 

The stated value of each issued share of Series A Convertible Preferred Stock shall be deemed to be $1.00, as the same may be equitably adjusted whenever there may occur a stock dividend, stock split, combination, reclassification or similar event affecting the Series A Convertible Preferred Stock. There are no dividends payable on the Series A Convertible Preferred Stock. Each holder of outstanding shares of Series A Convertible Preferred Stock shall be entitled to cast the number of votes for the Series A Convertible Preferred Stock in an amount equal to the number of whole shares of common stock into which the shares of Series A Convertible Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter

 

F-8

The Series A Preferred Stock also had a “down-round” protection feature provided to the investors if the Company subsequently issued or sold any shares of common stock, stock options, or convertible securities at a price less than the conversion price of $1.00 per common share. The conversion price would be automatically adjustable down to the price of the instrument being issued. As a result of conversion during the year ended December 31, 2020, the Series A Preferred Stock conversion price was reset to $0.00006 per share.

 

Upon any liquidation, dissolution or winding-up of the Company under Texas law, whether voluntary or involuntary, the holders of the shares of Series A Convertible Preferred Stock shall be paid an amount equal to the aggregate stated value of their shares of Series A Convertible Preferred Stock, before any payment shall be paid to the holders of common stock, or any other stock ranking on liquidation junior to the Series A Convertible Preferred Stock, an amount for each share of Series A Convertible Preferred Stock held by such holder equal to the sum of the Stated Value thereof.

 

On August 27, 2021, the Company completed an initiative where it entered into a Modification Agreement (the “Modification”) with current Series A Convertible Preferred Stockholders to modify their conversion privileges to align and support the current management team’s initiatives with the goal of benefiting shareholders. The modification agreement provides the preferred stockholders the right to convert their preferred shares into common shares at a conversion price at the lower of $0.40 (per the original agreement), or the subsequent per share pricing of a future equity raise greater than Five Hundred Thousand ($500,000) Dollars. This Modification was pursued for the benefit of the Company’s common shareholders to mitigate the potential risk of diluting their shareholding in the event that the Company undertakes additional financing transactions to fund the Company’s expansion initiatives.

 

As of JuneSeptember 30, 2022, and December 31, 2021, there were 0zero shares of Series A Convertible Preferred Stock issued and outstanding.

 

Common Stock

 

Each share of common stock entitles the holder as of the applicable record date to one vote, in person or by proxy, on any matter that is submitted to a vote or for the consent of the stockholders of the Corporation.

 

On February 16, 2022 and March 16, 2022, the Company initiated a private placement offering for the sale of up to 150,000,000 shares of the Company’s common stock, at price of $0.006 per share, for total consideration to the Company of $900,000. The issuance price was updated during the three months ending June 30, 2022 to $0.005 per share.

 

During the three months ended March 31, 2022, the Company issued 12,500,000 shares of common stock at $0.006 per share for cash of $75,000. Upon the change of the share price for the private placement, an additional 2,500,000 common shares were issued.issued during the three months ended June 30, 2022.

 

During the three months ended June 30, 2022, the Company issued 89,600,000 shares of common stock at $0.005 per share for cash of $448,000. An equal number of Warrants (104,600,000) were issued during this period as part of the private placement with an exercise price of $0.01 and a 5-year expiration.

On August 12, 2022, the Company initiated a private placement offering and entered into subscription agreements with certain accredited investors for the sale of 153,846,154 common shares of the Company’s common stock at $0.0065 per share, and an equal number of Warrants with an exercise price of $0.013 for a total consideration to the Company of $1,000,000. During the three months ended September 30, 2022, the Company issued 7,846,154 shares of common stock at $0.0065 per share for cash of $51,000.

The total shares issued during the sixnine months ending JuneSeptember 30, 2022 for the private placementplacements was 104,600,000112,446,154 common shares at $0.005 and $0.0065 per share for total cash of $523,000574,000.

 

As of JuneSeptember 30, 2022, and December 31, 2021, there were 2,681,343,9302,689,190,084 and 2,575,909,930 shares of Common Stock issued and outstanding, respectively.

 

F-7F-9

Shares to be Issued

During the three months ended September 30,2022, in connection to mentioned private placement offering on August 12, 2022, the Company received $250,000 in cash proceeds. As of September 30, 2022, and up to the date of this report, the shares have not been issued. The Shares will be restricted securities and subject to required holding periods under Rule 144.

 

Additional paid in capital

 

Stock Options

 

On August 4, 2021, in order to recognize the substantive efforts of Leslie Bocskor, Benjamin Rote and Dennis Forchic for their contributions to the company without compensation for the period between May 2020 and August 2021 for Mr. Bocskor and between August 2020 and August 2021 for Messrs. Rote and Forchic, the Board voted to formalize employment agreements with Messrs. Bocskor and Rote, and an advisory agreement with Mr. Forchic. Pursuant to their respective employment agreements, Mr. Bocskor was granted the option to purchase 150 million shares of common stock in the Company and Mr. Rote was granted the option to purchase 100 million shares of common stock of the Company at a conversion price of $0.01.$0.01. Pursuant to his advisory agreement, Mr. Forchic was granted the option to purchase 150 million shares of common stock of the Company at a conversion price of $0.01 per share of common stock. The options granted to each of Messrs. Bocskor, Rote and Forchic vested immediately upon the granting of such options. On the one-year anniversary of their respective agreements, additional options will be granted to each of Messrs. Bocskor, Rote and Forchic to purchase up to 150 million, 100 million and 150 million shares of common stock, respectively, at a conversion price of $0.015 per share of common stock.

 

In addition, the Board, consisting of Directors Rick Gutshall and Lang Coleman, having not received any consideration over the past two years, will each be granted the option to purchase up to 5 million shares of common stock at a price of $0.01 per share of common stock. Such options will vest immediately upon the grant date. The company’s legal counsel will be granted the option to purchase 10 million shares of common stock of the Company at a price of $0.01 per share of common stock, which option will vest immediately upon grant, under the same terms as the options granted to the Board.

 

In JulyJune 2022, board members Keith Crouch and Michael Blicharski were each granted the option to purchase up to 10 million shares of common stock, for a total of 20 million shares, at a price of $0.01 per share of common stock. Such options will vest quarterly with the first quarter vesting upon the grant date.

 

Valuation

 

The Company utilizes the Black-Scholes model to value its stock options. The Company utilized the following assumptions:

SCHEDULE OF STOCK OPTIONS ASSUMPTIONS

 Six months ended Year ended 
 June 30, December 31,  Nine months ended Year ended 
 2022 2021  September 30, 2022 December 31, 2021 
Expected term   5.00 - 5.50 years    5.00 - 5.50 years   5.19 years   5.00 - 5.50 years 
Expected average volatility  192 - 203%  198 - 203%  192%  198 - 203% 
Expected dividend yield  -   -   -   - 
Risk-free interest rate  0.67%  0.67%  3.14%  0.67%

 

During the year ended December 31, 2021, the Company granted 820,000,000 common stock options valued at $8,004,855. During the sixnine months ended JuneSeptember 30, 2022, the Company recognized stock option expense of $1,023,6882,377,538, of which $1,023,6882,372,538 was to related parties, and as of JuneSeptember 30, 2022, $469,73496,380 remains unamortized, of which $469,73496,380 is with related parties. The intrinsic value of the 840,000,000 options outstanding as of JuneSeptember 30, 2022, was $880,000220,000.

F-10

 

The following is a summary of stock option activity during the sixnine months ended JuneSeptember 30, 2022:

SCHEDULE OF STOCK OPTION

 Options Outstanding Weighted Average   Options Outstanding Weighted Average 
 Number of Weighted Average Remaining life  Number of Weighted Average Remaining life 
 Options Exercise Price (years)  Options Exercise Price (years) 
              
Outstanding, December 31, 2021  820,000,000  $0.01   9.60   820,000,000  $0.01   9.60 
Granted  20,000,000   0.01   10.00   20,000,000   0.01   10.00 
Exercised  -   -   -   -   -   - 
Forfeited/canceled  -   -   -   -   -   - 
Outstanding, June 30, 2022  840,000,000  $0.01   9.12 
Outstanding, September 30, 2022  840,000,000  $0.01   8.87 
                        
Exercisable options, June 30, 2022  425,000,000  $0.01   9.12 
Exercisable options, September 30, 2022  825,000,000  $0.01   8.85 

 

Warrants

 

As part of the February 16, 2022 private placement, the companyCompany granted one warrant to purchase a common share for each common share purchased. The warrants issued have an exercise price of $0.01 per warrant and expire five years from the date of grant. A total of 104,600,000 warrants were granted.

 

As part of the August 12, 2022 private placement, the Company granted two warrants to purchase a common share for each common share purchased. The warrants issued have an exercise price of $0.013 per warrant and expire five years from the date of grant. A total of 7,846,154 warrants were granted.

F-8

 

Valuation

 

The Company utilizes the Black-Scholes model to value its warrants. The Company utilized the following assumptions:

SCHEDULE OF WARRANTS ASSUMPTIONS

   SixNine months ended 
   JuneSeptember 30, 2022
2022 
Term  5.00 years 
Expected average volatility  202 - 203%%
Expected dividend yield  - 
Risk-free interest rate  1.96% - 3.01%%

 

The following is a summary of warrant activity during the sixnine months ended JuneSeptember 30, 2022:

SCHEDULE OF WARRANTS ACTIVITY

 Warrants Outstanding Weighted Average  Warrants Outstanding Weighted Average 
 Number of Weighted Average Remaining life  Number of Weighted Average Remaining life 
 Warrants Exercise Price (years)  Warrants Exercise Price (years) 
Outstanding, December 31, 2021 - $- -   -  $-   - 
Granted  104,600,000   0.01   5.00   112,446,154   0.01   5.00 
Exercised  -   -   -   -   -   - 
Forfeited/canceled  -   -   -   -   -   - 
Outstanding, June 30, 2022  104,600,000  $0.01   4.84 
Outstanding, September 30, 2022  112,446,154  $0.01   4.61 

 

The warrants were valued at $641,964701,477 and settled through additional paid in capital.

 

NOTE 56 - NET INCOME (LOSS) PER COMMON SHARE

 

Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the periods. Diluted net income per common share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the periods. Common equivalent shares consist of convertible preferred stock and convertible notes that are computed using the if-converted method, and outstanding warrants that are computed using the treasury stock method. Antidilutive stock awards consist of stock options that would have been antidilutive in the application of the treasury stock method.

F-11

SCHEDULE OF EARNINGS PER SHARE, BASIC AND DILUTED

         2022 2021 2022 2021 
 Six Months Ended  Three Months Ended Nine Months Ended 
 June 30,  September 30, September 30, 
 2022 2021  2022 2021 2022 2021 
Numerator:                     
Net income (loss) $(2,350,623) $(77,370,497) $(573,116) $116,422,813  $(2,923,739) $39,052,316 
(Gain) loss on change in fair value of derivatives  -   - 
Gain on change in fair value of derivatives  -   (121,194,219)  -   (43,879,414)
Interest on convertible debt  -   -   -   608   -   1,104 
Net income (loss) - diluted $(2,350,623) $26,563,544 
Net loss - diluted $(573,116) $(4,770,798) $(2,923,739) $(4,825,994)
                        
Denominator:                        
Weighted average common shares outstanding  2,611,129,223   2,401,396,041   2,685,608,144   2,433,482,998   2,636,228,346   2,412,209,228 
Effect of dilutive shares  -   -   -   207,748,451   -   643,116,261 
Diluted  2,611,129,223   2,401,396,041   2,685,608,144   2,641,231,449   2,636,228,346   3,055,325,489 
                        
Net income (loss) per common share:                        
Basic $(0.00) $(0.03) $(0.00) $0.05  $(0.00) $0.02 
Diluted $(0.00) $0.00  $(0.00) $(0.00) $(0.00) $(0.00)

 

For the sixthree and nine months ended JuneSeptember 30, 2022, the convertible instruments are anti-dilutive and therefore, have been excluded from earnings (loss) per share.

NOTE 7- RELATED PARTY TRANSACTIONS

On February 8, 2022, the Company entered an assets acquisition Letter of Intent (“LOI”) with an entity under common control with the Company. During the nine months ended September 30, 2022, in connection with the LOI, the Company paid advance of $130,000 for acquisition of assets.

During the nine months ended September 30, 2022 and 2021, the Company paid consulting fees of $307,000 and $0, communication and technology services of $95,194 and $0, late charge of $508 and $15,980 to an entity under common control of the Company, respectively.

During the nine months ended September 30, 2022 and 2021, the Company recognized stock option expense for related parties of $2,372,538 and $4,753,205, respectively. The stock option-based compensation recognized in additional paid-in-capital.

As of September 30, 2022, and December 31, 2021, the Company was obligated to a related party, for an unsecured, non-interest-bearing demand with balance of $0 and $33,902, respectively.

 

NOTE 6-8- COMMITMENTS AND CONTINGENCIES

 

On March 24, 2022, the Company entered into an agreement with F.E.A. Strategies Group, LLC. as advisory assistance on suitable investment strategies to raise growth capital for the Company. The Company agreed to settle 50% of the advisory fee with 834,000 shares of common stock valued at $5,000. As of JuneSeptember 30, 2022, the company had issued the 834,000 shares of common stock.

 

NOTE 7-9- SUBSEQUENT EVENTS

 

The CompanyManagement has assessed allevaluated subsequent events from June 30, 2022, through the date these consolidated financial statements were available to be issued, unless as disclosed below, there are not anyissued. Based on our evaluation no material subsequent events have occurred that require disclosure in these consolidated financial statements other than events detailed below.

On August 1, 2022, the Company initiated a private placement offering and entered into subscription agreements with certain accredited investors for the sale of One Hundred Fifty Three Million Eight Hundred Forty-Six Thousand One Hundred Fifty-four (153,846,154) Common Shares (the “Shares”) of the Company’s common stock, par value of $0.001 per share, and an equal number of Warrants with an exercise price of $0.013 for a total consideration to the Company of One Million ($1,000,000) Dollars. The Shares will be restricted securities and subject to required holding periods under Rule 144.

The Company intends to use the net proceeds from the sale of the Shares for general corporate purposes.disclosure.

 

On November 1, due to increased interest from certain accredited investors the Company extended the duration of the August private placement offering to December 31, 2022 and increased the maximum funding amount to $1,300,000.

On November 1 and 8, 2022, the Company granted two loans of $25,000 and $20,000, respectively, receiving secured Promissory Notes with an annual interest rate of 8% maturing in 120 days.

F-9F-12

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operation

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operation

 

Results of Operations

 

The following tables presentpresents our operating results for the three and sixnine months ended JuneSeptember 30, 2022 compared to JuneSeptember 30, 2021:

 

Three months ended JuneSeptember 30, 2022 compared to three months ended JuneSeptember 30, 2021

 

  Three Months Ended       
  June 30,       
  2022  2021  Change  % 
Revenue $-  $-  $-  - 
Operating expenses                
Depreciation and amortization expense  -   -         
Professional fees  584,574   23,657   560,917  2371%
General and administrative expenses  699,788   5,680   694,108   12220%
Total operating expenses  1,284,362   29,337   1,255,025  4278%
Loss from operations  (1,284,362)  (29,337)  (1,255,025)  4278%
Other expense                
Other income (expense)      -   -     
Interest income (expense)  -  (1,825)  (1,825)  (100)%
Amortization of debt discount  -             
Change in fair value of embedded derivative liability  -   26,289,783  26,289,783   (100)%
                 
Total other income (expense)  -   26,287,958  26,287,958   (100)%
                 
Net Income (Loss) $(1,284,362) $26,287,958 $27,572,320   (105)%
Comprehensive Income (Loss) $(1,284,362) $26,287,958  

27,572,320

   

(105

)%

  Three Months Ended       
  September 30,       
  2022  2021  Change  % 
Revenue $-  $-  $-   - 
Operating expenses                
Depreciation and amortization expense  -   -         
Professional fees  251,468   130,982   120,486   92%
General and administrative expenses  323,505   4,696,798   (4,373,293)  (93)%
Total operating expenses  574,973   4,827,780   (4,252,807)  (88)%
Loss from operations  (574,973)  (4,827,780)  4,252,807   (88)%
Other expense                
Other income (expense)      -   -     
Interest income  1,857   0  1,857   100%
Interest expense  -

  

(28,090

)  

28,090

   

100

%
Amortization of debt discount  -             
Change in fair value of embedded derivative liability  -   121,194,219   (121,194,219)  (100)%
Gain on settlement of debt  -   84,464   (84,464)  (100)%
                 
Total other income (expense)  (573,116)  121,250,593   (121,823,709)  (100)%
                 
Net income (loss) $(573,116) $116,422,813  $(116,995,929)  (100)%

SixNine months ended JuneSeptember 30, 2022 compared to sixnine months ended JuneSeptember 30, 2021

 

  Six Months Ended       
  June 30,       
  2022  2021  Change  % 
Revenue $-  $-  $-   - 
Operating expenses                
Depreciation and amortization expense  -   -         
Professional fees  1,018,204   41,157   977,047  2374%
General and administrative expenses  1,332,419   10,905   1,321,514   12118%
Total operating expenses  2,350,623   52,062   2,298,561   4415%
Loss from operations  (2,350,623)  (52,062)  

2,298,561

   4415%
Other expense                
Other income (expense)      -   -     
Interest income (expense)  -  (3,630)  3630   (100)%
Amortization of debt discount  -             
Change in fair value of embedded derivative liability  -  (77,314,805)  77,314,805   

(100

)%
                 
Total other income (expense)  -  (77,318,435)  77,318,435   (100)%
                 
Net loss $(2,350,623) $(77,370,497) $75,019,874   

(97

)%
                 
Comprehensive Income (Loss) $(2,350,623) $(77,370,497) $75,019,874   (97)%

  Nine Months Ended       
  September 30,       
  2022  2021  Change  % 
Revenue $-  $-  $-   - 
Operating expenses                
Depreciation and amortization expense                
Professional fees  1,269,672   172,139   1,097,533   638%
General and administrative expenses  1,655,924   4,707,703   (3,051,779)   (65)%
Total operating expenses  2,925,596   4,879,842   (1,954,246)   (40)%
Loss from operations  (2,925,596)  (4,879,842)  1,954,246   (40)%
Other expense                
Interest income  1,857     1,857   100%
Interest expense  -   

(31,720

)  

31,720

   

100

%
Amortization of debt discount                
Change in fair value of embedded derivative liability      43,879,414   (43,879,414)   (100)%
Gain on settlement of debt      84,464   (84,464)   (100)%
Total other income (expense)  1,857   43,932,158  (43,930,301)  (99)%
                 
Net loss $(2,923,739)  $39,052,316 $(41,976,055)   (107)%

Revenues

 

During the sixnine months ended JuneSeptember 30, 2022 and 2021, the Company did not generate any revenues.generated no revenue.

 

Operating Expenses

 

Total operating expenses for the sixnine months ended JuneSeptember 30, 2022 and 2021 were $2,350,623$2,925,596 and $52,062,$4,879,842, respectively, for an aggregate increasedecrease of $2,298,561$1,954,246 or 4415%40%. The aggregate increase is related to an increasedecrease was primarily driven by a decrease in professional fees and general and administrative costs of $2,298,561, which isexpenses associated with theexecutive stock option compensation for the management team.options compensation.

 

Other Income (Expense)

 

Total other income (expense) for the sixnine months ended JuneSeptember 30, 2022 and 2021 were $0$1,857 and $77,318,435,$43,932,158, respectively. The decrease in other expense wasincome is primarily related to the conversion of the Series A Preferred shareholders into common shares, which reducedchange in the fair value of the embedded derivative liability from $43,879,414 to $0 from $77,314,805.$0.

 

4

 

Net Loss

 

As a result of the factors discussed above, net lossincome for the sixnine months ended JuneSeptember 30, 2022 and 2021 was $2,350,623 and $77,370,497,a loss of $2,923,739 compared to a gain of $39,052,316, respectively, for aan aggregate decrease of $75,019,874$41,976,055, or 97%.107% related primarily to the elimination of the derivative liability gains.

 

Liquidity and Capital Resources

 

The following table provides selected financial data about our Company as of JuneSeptember 30, 2022 and December 31, 2021, respectively.

 

Working Capital

 

  June 30,
2022		  December 31,
2021		  Change  % 
Current assets $376,042  $235,601  $140,441   59%
Current liabilities $108,284  $144,404  $(36,120)  (25)%
Working capital $267,758 $91,197 $176,561   197%

  September 30,
2022		  December 31,
2021		  Change  % 
Current assets $353,507  $235,601  $117,906   50%
Current liabilities $114,511  $144,404  $(29,893)  (21)%
Working capital (deficiency) $238,996  $91,197  $147,799   162%

Cash Flows

 

  Six Months Ended       
  June 30, 2022       
  2022  2021  Change  % 
Cash used in operating activities $(457,885) $(25,423) $432,462  1701%
Cash provided by financing activities $523,000  $65,000 $458,000   705%
Net Change in Cash During Period $65,115  $39,577 $22,538   57%

  Nine Months Ended       
  September 30, 2022       
  2022  2021  Change  % 
Cash used in operating activities $(634,981) $(181,783) $(453,198)  249%
Cash used in investing activities $(230,000)  -   (230,000)  100%
Cash provided by financing activities $824,000  $371,800  $452,200   122%
Net change in cash during period $(40,981) $190,017  $(230,998)  (122)%

As of JuneSeptember 30, 2022, our Company’s cash balance was $297,965$191,869 and total assets were $376,042.$483,507. As of December 31, 2021, our Company’s cash balance was $232,850 and total assets were $235,601.

As of JuneSeptember 30, 2022, our Company had total liabilities of $108,284$114,511 compared with total liabilities of $144,404 as of December 31, 2021.

As of JuneSeptember 30, 2022, our Company had working capital of $267,758$238,996 compared with working capital of $91,197 as of December 31, 2021. The increase in working capital was primarily attributed to proceeds raised from the issuance of common stock and warrants, and shares of common stock to be issued included in financing activities. .

Cash Flow fromused in Operating Activities

Net cash used in operating activities for the sixnine months ended JuneSeptember 30, 2022 and 2021 were $457,885$634,981 and $25,423$181,783 respectively, for an increase in cash used in operating activities of $432,462.$453,198. The increase in net cash used in operating activities was the result of an increase in professionalis primarily related to payment for consulting and vendor services, payments on accounts payables and generalaccrued liabilities, merger and administrative expenses.acquisition related costs, and business development.

Cash Flow fromused in Investing Activities

For the sixnine months ended JuneSeptember 30, 2022 and 2021, the Company did not have anyinvested $230,000 and $0 respectively, for an increase of $230,000. The increase in investing activities.activities is related to acquisitions and business development initiatives.

Cash Flow fromprovided by Financing Activities

Net cash provided by (used in) financing activities for the sixnine months ended JuneSeptember 30, 2022 and 2021 were $523,000$824,000 and $65,000 ,$371,800, respectively. TheDuring the nine months ended September 30, 2022, the increase in cash from financing activities was the result of the Company’s receipt of cash proceeds from a private placement offering during this period.offerings.

 

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Item 3.Quantitative and Qualitative Disclosures About Market Risk

Item 3.Quantitative and Qualitative Disclosures About Market Risk

 

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

Item 4.Controls and Procedures

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) 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, 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, 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 JuneSeptember 30, 2022, 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 JuneSeptember 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

6

 

PART II - OTHER INFORMATION

Item 1.Legal Proceedings

Item 1.Legal Proceedings

 

From time to time we may become involved in various legal proceedings that arise in the ordinary course of business. We are not currently a party to any material legal proceeding.

Item 1A.Risk Factors

Item 1A.Risk Factors

 

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

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

On August 1, 2022, the Company commenced a private placement offering and entered into subscription agreements with certain accredited investors for the sale of 153,846,154 common shares of the Company’s common stock at $0.0065 per share, and an equal number of Warrants with an exercise price of $0.013 for a total consideration to the Company of $1,000,000. A total of 7,846,154 common shares and warrants were issued and granted, respectively.

 

None.

Item 3.Defaults Upon Senior Securities

Item 3.Defaults Upon Senior Securities

 

None.

Item 4.Mine Safety Disclosures

Item 4.Mine Safety Disclosures

 

Not Applicable.

Item 5.Other Information

Item 5.Other Information

 

(a) Not applicable.

 

(b) Not applicable.

Item 6.Exhibits

Item 6.Exhibits

 

The following exhibits are included as part of this report:

 

    INCORPORATED BY
REFERENCE
Exhibit Description Form Exhibit Filing Date
         
(31) Rule 13a-14(a)/15d-14(a) Certifications      
* Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer      
* Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer      
         
(32) Section 1350 Certifications      
* Section 906 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer and Principal Financial Officer      
         
(101) Interactive Data Files      
* Inline XBRL Instance Document      
* Inline XBRL Taxonomy Extension Schema Document      
* Inline XBRL Taxonomy Extension Calculation Linkbase Document      
* Inline XBRL Taxonomy Extension Definition Linkbase Document      
* Inline XBRL Taxonomy Extension Label Linkbase Document      
* Inline XBRL Taxonomy Extension Presentation Linkbase Document      
104Cover Page Interactive Data File (formatted as(embedded within the Inline XBRL and contained in Exhibit 101.INS)document)
         
† Management Contract or Compensation Plan      

 

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

 

7

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 INDOOR HARVEST CORP.
 (Registrant)
  
Dated: August 15,November 14, 2022/s/ Leslie Bocskor
 Leslie Bocskor
 Chief Executive Officer, Chief Financial Officer
 (Principal Executive Officer)(Principal Financial Officer)

 

8