UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

 

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): August 22, 2016

 

INDOOR HARVEST CORP.

(Exact name of registrant as specified in its charter)

 

Texas

333-194326

45-5577364

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(IRS Employer

Identification No.)

 

5300 East Freeway Suite A

Houston, Texas

77020

(Address of Principal Executive Offices)

(Zip Code)

 

713-410-7903

(Registrant's telephone number, including area code)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 
 
 

Item 1.01. Entry into a Material Definitive Agreement.

 

On August 22, 2016, we entered into a Memorandum of Agreement with Head North LLC in order to work together to design, develop and construct a facility to produce various cannabis related pharmaceutical products as well as develop specific related intellectual property and to provide an exclusive period of negotiations to Head North to acquire, in whole, or in part, or enter into a joint venture for the related intellectual property, know-how and assets of Indoor Harvest's cannabis related activities and operations.

 

Indoor Harvest Corp and Head North wish to collaborate on the development of pharmaceutical cannabis related products and process and wish to explore jointly applying to become registered with the Drug Enforcement Agency under its newly expanded research programs for cannabis production related to pharmaceutical development. Areas of collaboration would include, but not be limited to, production and process related intellectual property, and research related to the development of recipes and processes for the production of specific cannabis chemical expression profiles to treat various medical related conditions.

 

Head North agrees to subscribe a total of Three Hundred Seventy-five Thousand Dollars ($375,000.00 USD), representing the remaining balance of Indoor Harvest's current Rule 506(b) Series A offering for $500,000, of which currently $75,000 has been subscribed and $50,000 has been committed. A subscription related to this commitment would be fully executed no later than August 26, 2016. Indoor Harvest will use the proceeds from this offering to repay its existing convertible debt and for general working capital purposes.

 

In return for a fully executed Series A subscription of $375,000.00, Indoor Harvest will agree to hold off any and all discussions related to the acquisition, in whole, or in part, or any potential joint venture plans of its Cannabis Division for a period of 60 days from the date that the Series A subscription has been fully executed, thereby providing Head North with exclusive negotiating rights during said period. In order for a subscription agreement to be fully executed, the funds subscribed must be delivered to Indoor Harvest's bank account by bank wire.

 

Additionally, both parties desire to enter into a design-build agreement to deliver a cannabis pharmaceutical production facility, whereby Indoor Harvest agrees to provide Head North with the necessary framework to see mutual equity interests built into the agreement for all parties, as well as reduced hardware costs for the build-out of the facility. An additional 90 days of exclusivity, to discuss an acquisition, in whole, or in part, or any potential joint venture of Indoor Harvest's Cannabis Division will be granted to Head North upon memorializing and the funding of fair and equitable costs of a Design-Build Agreement. A Fifty Thousand Dollar ($50,000 USD) deposit towards the Design-Build Agreement will be fully executed no later than October 1, 2016 and placed into in escrow-related account under the management of Head North for future disbursement to Indoor Harvest upon the successful negotiations and agreement of terms of the Design-Build Agreement.

 

A press release announcing these plans will be distributed upon delivery and closing of funds under the terms of this agreement. The text of the complete Memorandum of Agreement is attached as Exhibit 10.1 to this Current Report on Form 8-K.

 

Item 8.01 Other Events

 

On August 22, 2016, Indoor Harvest Corp (the "Company") issued a press release titled "Indoor Harvest Corp Announces Second Quarter Results". The text of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K.

 

Exhibits

 

10.1 Memorandum of Agreement with Head North

 

 

99.1 Press Release

 

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

 

 

INDOOR HARVEST CORP.

  

Date: August 23, 2016

By:

/s/ Chad Sykes

Chad Sykes

Chief Executive Officer and Director

 

 

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EXHIBIT 10.1

 

MEMORANDUM OF AGREEMENT

 

Between Head North LLC and Indoor Harvest Corp.

 

I. INTRODUCTION

 

This MEMORANDUM OF AGREEMENT (MOA) ("Memorandum"), dated August 22, 2016 between Head North LLC ("Head North"), with its offices located at 1650 West End Blvd, Suite 100, St. Louis Park, MN 55416 represented by Nic Quiles, III, Partner and Senior Vice President of Operations & Acquisitions; and Indoor Harvest Corp ("Indoor Harvest"), a Texas based company, represented by John Choo, President with its principal place of business at 5300 East Freeway Suite A , Houston TX 77020, collectively referred to as "the Partners". The Partners wish to work together and in compliance with the following clauses:

 

II. GOAL

 

The parties agree to work together to design, develop and construct a facility to produce various cannabis related pharmaceutical products as well as develop specific related intellectual property and to provide an exclusive period of negotiations to Head North to acquire, in whole, or in part, or enter into a joint venture for the related intellectual property, know-how and assets of Indoor Harvest's cannabis related activities and operations.

 

III. AREAS OF COLLABORATION

 

The parties agree that they wish to collaborate on the development of pharmaceutical cannabis related products and process and wish to explore jointly applying to become registered with the Drug Enforcement Agency under its newly expanded research programs for cannabis production related to pharmaceutical development. Areas of collaboration would include, but not be limited to, production and process related intellectual property, and research related to the development of recipes and processes for the production of specific cannabis chemical expression profiles to treat various medical related conditions.

 

IV. ROLES AND RESPONSIBILITIES OF PARTNERS

 

1) Head North agrees to subscribe a total of THREE HUNDRED SEVENTY FIVE THOUSAND DOLLARS ($375,000.00 USD) representing:

 

Series A Convertible Preferred Stock shares to Head North, and;

 

Series A Convertible Preferred Stock shares providing the following:

 

· Section 4 provides full dissolution protection. Series A holders are senior to common stock holders. This means all the assets of the Company go to Series A holders before common stock holders in the event of a dissolution, liquidation or winding up.

 

 

· Section 5(iii) provides full ratchet protection to the down side. It provides Series A investors with down side protection in the event shares are sold discounted to the purchase price, and;

 

 
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Series A Warrants provide the following:

 

· Exercisable for a period of 1 year

 

 

· The right, but not the obligation, to convert

 

 

· Conversion into common stock at $0.50., hereby representing;

 

the remaining balance of Indoor Harvest's current Rule 506(b) Series A offering for $500,000, of which currently $75,000 has been subscribed and $50,000 has been committed. A subscription related to this commitment would be fully executed no later than August 26, 2016. Indoor Harvest will use the proceeds from this offering to repay its existing convertible debt and for general working capital purposes.

 

2) In return for a fully executed Series A subscription of $375,000.00, Indoor Harvest will agree to hold off any and all discussions related to the acquisition, in whole, or in part, or any potential joint venture plans of its Cannabis Division for a period of 60 days from the date that the Series A subscription has been fully executed, thereby providing Head North with exclusive negotiating rights during said period. In order for a subscription agreement to be fully executed, the funds subscribed must be delivered to Indoor Harvest's bank account by bank wire.

 

3) Both parties desire to enter into a design-build agreement to deliver a cannabis pharmaceutical production facility, whereby Indoor Harvest agrees to provide Head North with the necessary framework to see mutual equity interests built into the agreement for all parties, as well as reduced hardware costs for the build-out of the facility. An additional 90 days of exclusivity, to discuss an acquisition, in whole, or in part, or any potential joint venture of Indoor Harvest's Cannabis Division will be granted to Head North upon memorializing and the funding of fair and equitable costs of a Design-Build Agreement. A FIFTY THOUSAND DOLLAR ($50,000 USD) deposit towards the Design-Build Agreement will be fully executed no later than October 1, 2016 and placed into en escrow-related account under the management of Head North for future disbursement to Indoor Harvest upon the successful negotiations and agreement of terms of the Design-Build Agreement.

 

4) A press release announcing these plans will be distributed upon delivery and closing of funds under Section IV.(1) of this agreement.

 

V. PRINCIPAL CONTACTS

 

The Principal Contacts for each one of the organizations is:

 

Head North LLC

Nic Quilles, III

Partner

1650 West End Blvd, Suite 100

St. Louis Park, MN 55416

(414) 640-6299

 

Indoor Harvest Corp

John Choo

President

5300 East Freeway Suite A, Houston Texas 77020, USA

(613) 866-8771

 

Such Principal Contacts may be changed in writing from time to time by their respective Partners.

 

 
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VI. USE OF INTELLECTUAL PROPERTY

 

The parties agree that any intellectual property, which is jointly developed and filed through activities covered under this MOA, can be used by either party for sales/marketing purposes with the consent of the other party which can be set forth in initial guidance upon any successful and/or legally binding joint venture partnership entity or agreement terms being drafted and accepted.

 

All other prior intellectual property used in the implementation of the MOA will remain the property of the party that created and/or provided said IP. This property can be used by either party for purposes covered by the MOA but consent will be obtained from the owner of the property before using it for purposes not covered by the MOA.

 

VII. EFFECTIVE DATES AND AMENDMENTS.

 

This MOA shall take effect upon signing by both Parties. Neither party may assign or transfer all or any portion of this MOA without the prior written consent of the other party.

 

The provisions of this MOA may only be amended or waived by mutual written agreement by both Parties.

 

The individuals signing this MOA on behalf of their respective entities represent and warrant (without personal liability therefore) that upon the signature of each, this MOA shall have been duly executed by the entity each represents.

 

VIII. TERMINATION

 

Any Party may terminate this MOA and any related agreement, work-plan and budget in the event either party fails to perform any of its obligations under this MOA by giving thirty (30) days prior written notice to the other Party.

 

IX. NO JOINT VENTURE

 

Notwithstanding the terms "Partners" and "Partnership", the Partners agree that they are not entering into a Legal Partnership, joint venture or other such business arrangement. Neither Partner will refer to or treat the arrangements under this Agreement as a Legal Partnership or take any action inconsistent with such intention other than outlined in the terms of this agreement.

 

X. DISPUTE RESOLUTION

 

The Partners hereby agree that, in the event of any dispute between the Partners relating to this Agreement, the Partners shall first seek to resolve the dispute through informal discussions. In the event any dispute cannot be resolved informally within 90 ninety calendar and consecutive days, the Partners agree that the dispute will be negotiated between the Partners through mediation, if Partners can agree on a mediator. The costs of mediation shall be shared equally by the Partners.

 

Neither Partner waives its legal rights to adjudicate this Agreement in a legal forum. In the event of a litigious resolution, the non-prevailing party in any dispute under this agreement shall pay all costs and expenses, including expert witness fees and attorneys' fees, incurred by the prevailing party in resolving such dispute.

 

So as to limit liability, in no event shall either party be liable to the other or any third party in contract, tort or otherwise for incidental or consequential damages of any kind, including, without limitation, punitive or economic damages or lost profits, regardless of whether either party shall be advised, shall have other reason to know or in fact shall know of the possibility.

 

 
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XI. ASSIGNMENT/SUBCONTRACTING

 

Neither party shall have the right to assign or subcontract any part of its obligations under this agreement.

 

XII. GOVERNING LAW

 

This agreement shall be governed by and construed in accordance with the internal laws of the State of Minnesota, U.S.A., without reference to any conflicts of law provisions.

 

XIII. FORCE MAJEURE

 

Neither party shall be held responsible for any delay or failure in performance of any part of this agreement to the extent such delay or failure is caused by fire, flood, explosion, war, embargo, government requirement, civil or military authority, catastrophic act(s) of nature, or other similar causes beyond its control and without the fault or negligence of the delayed or non-performing party. The affected party will notify the other party in writing within ten (10) days after the beginning of any such cause that would affect its performance. Notwithstanding, if a party's performance is delayed for a period exceeding thirty (30) days from the date the other party receives notice under this paragraph, the non-affected party will have the right, without any liability to the other party, to terminate this agreement.

 

XIV. INDEMNITY

 

Each party shall indemnify, defend, and hold the other party harmless from and against any and all claims, actions, suits, demands, assessments, or judgments asserted, and any and all losses, liabilities, damages, costs, and expenses (including, without limitation, attorneys fees, accounting fees, and investigation costs to the extent permitted by law) alleged or incurred arising out of or relating to any operations, acts, or omissions of the indemnifying party or any of its employees, agents, and invitees in the exercise of the indemnifying party's rights or the performance or observance of the indemnifying party's obligations under this agreement. Prompt notice must be given of any claim, and the party who is providing the indemnification will have control of any defense or settlement.

 

XV. ENTIRETY

 

This Agreement, including all Annexes, embodies the entire and complete understanding and agreement between the Partners and no amendment will be effective unless signed by both Partners.

 

FOR Head North LLC

Date

 

/s/ Nic Quiles, III

8/22/2016

Nic Quiles, III, Partner

 

FOR Indoor Harvest Corp.

Date

 

/s/ John Choo

8/22/2016

John Choo, President

 

 

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EXHIBIT 99.1

 

Indoor Harvest Corp Announces Second Quarter Results

 

Houston, Texas, August 22, 2016 — Indoor Harvest Corp (OTCQB:INQD), through its brand name Indoor Harvest Ò , is a full service, state of the art design-build engineering firm for the indoor and vertical farming industry. The company provides production platforms, mechanical systems and complete custom designed build outs for both greenhouse and building integrated agriculture grows, tailored to the specific needs of virtually any cultivar. The Company is pleased to report second quarter results for 2016. The following information is summarized from our financial statements filed with the Securities and Exchange Commission at the following link:

 

https://www.sec.gov/Archives/edgar/data/1572565/000164033416001582/inqd_10q.htm

 

Management will host a conference call on Friday, August 26, 2016, at 2:00 PM EST, to discuss results and to provide a Q&A session for investors and analysts. Individuals interested in participating may dial in using the information below:

 

Dial In: (855) 551-1031

Conference ID: 69683466

 

A recording will be made available to investors who cannot attend shortly after the call and will be posted to the Company Facebook and Twitter pages.

 

Operational Highlights

 

During the second quarter the Company completed construction of several research platforms for groups conducting trials in the vertical farming space. Revenue from these operations was minimal, but we expect that these trial projects may lead to larger projects and equipment orders in the future. The Company also presented at Greentech 2016 and the Association of Vertical Farming Summit in Amsterdam as part of an effort to expand to an international market.

 

"The majority of effort in the second quarter was spent negotiating and closing major construction contracts that we're previously reported in our sales pipeline. Subsequent to the second quarter, we executed two construction related contracts in July valued at approximately $11.5 million. We will continue to maintain previous guidance and expect that by year's end we will reach positive cash flow and move towards profitability by mid-year 2017," stated Chad Sykes, CEO and founder of Indoor Harvest.

 

Potential Separation and Sale of Cannabis Operations

 

The Company is currently actively pursuing separating its cannabis and produce operations as part of its growth strategy. As of the date of this Report, the Company is finalizing the terms of a memorandum of agreement that would provide exclusive negotiating rights for the acquisition, or formation of a joint venture, with a pharmaceutical group to acquire our assets and operations related to cannabis. Although an agreement is expected shortly after the filing of this Report as terms are finalized, there is no guarantee that an agreement will be reached, or that the Company will be successful in its efforts to separate its cannabis and produce operations.

 

 
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Current Projects

 

Our current projects involve both Equipment Sales and Design-Build/Engineering, Procurement and Construction Projects, with the status of each as of June 30, 2016 as set forth below.

 

Project-Client

Facility Type

Project Type

Project Status
as of
June 30,
2016

Equipment
Price/Design
Fee Total

ROM
Estimate

   

ER Michigan

Produce

Equipment Order

55% Completed

$ 8,110

-

University of Arizona

Produce

Equipment Installation

0% Completed

$ 4,990

-

OD Farms

Cannabis

EPCM

0% Completed

$ 35,000

$ 2,009,308

 

Results of Operations

 

For the three months ended June 30, 2016 we generated revenue of $39,872 with cost of sales of $27,122 resulting in gross income of $12,750. We did not generate any revenue as of June 30, 2015. For the six months ended June 30, 2016 we generated revenue of $62,166 with cost of sales of $43,921 resulting in gross income of $18,245.

 

For the three months ended June 30, 2016 and June 30, 2015, we incurred $428,262 and $306,126, respectively, in operating expenses. For the six months ended June 30, 2016 and June 30, 2015, we incurred $744,596 and $579,802, respectively, in operating expenses. The increase in our operating expenses are due to increases in costs related to additional payroll costs, building lease and increased operational activities.

 

Our expenses related to research and development for the three months ended June 30, 2016 and June 30, 2015 were $5,641 and $3,285, respectively. Our increase for the three months ended June 30, 2016, were for research and development of new products. Our expenses related to research and development for the six months ended June 30, 2016 and June 30, 2015 were $8,672 and $12,528, respectively. The decrease in research and development expenses for the six-month period was due to decreased costs associated with our collaborative R&D partnerships, in which we share some costs associated with R&D with our partners.

 

As of June 30, 2016 we had total liabilities of $355,348, while at December 31, 2015, we had total liabilities of $110,147. The increase was the result of accrued payroll expenses from hiring new employees, accounts payable and accrued expenses, billings in excess of costs and estimated earnings and convertible notes payable.

 

Current EPCM Sales Pipeline

 

Our current sales pipeline consists of 6 facility build discussions with 3 in early to mid-stage discussions and 3 in late stage negotiations, including 2 projects that have been moved to current projects, 3 new potential projects and 6 abandoned projects from our sales pipeline as of March 31, 2016. The company is pursuing final agreements applicable for the stage of development the client is in. Below is a table showing the Company's current sales pipeline status:

 

 
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Project-Client

Facility Type

Scoped

DB Phase 1 Contract Sent

DB Phase 2
Contract Sent

Design
Fee/ROM
Estimate

  

IGES/Johnstown

Produce

(Signed July 27)

$ 11,374,500

IGES/Tyendenag

Produce

X

$ 2,441,000

Alamo CBD

CBD

X

$ 5,000,000

IGES/Easton

Produce

X

$ 4,500,000

ZP CO

Cannabis

X

$ 2,000,000

DR VF

Produce

X

$ 545,000

Metro VF

Produce

X

$ 401,200

TF

Cannabis

(Signed July 6)

$ 35,000

 

We have no final agreements concerning these potential future projects and we may not ever secure final agreements. Even if we secure final agreements, there is no assurance that the Company will receive as revenues all of the total amount of a ROM estimate.

 

Liquidity and Capital Resources

 

As of June 30, 2016, we had $63,091 in total current assets. We had current liabilities of $325,073 as of June 30, 2016. Accordingly, we had a working capital deficit of $261,982 as of June 30, 2016.

 

Operating activities used $338,575 in cash for the six months ended June 30, 2016, as compared with $387,578 used for the six months ended June 30, 2015.

 

Investing activities for the six months ended June 30, 2016 used $5,798 in cash, as compared with using $49,911 for the six months ended June 30, 2015.

 

Financing activities for the six months ended June 30, 2016 generated $277,013 in cash, as compared with $314,100 for the six months ended June 30, 2015. Proceeds from financing activities consisted primarily of proceeds from issuance of convertible debt in 2016 and common stock for cash in 2015.

 

Consistent with the SEC's April 2013 guidance on using social media outlets like Facebook and Twitter to make corporate disclosures and announce key information in compliance with Regulation FD, Indoor Harvest is alerting investors and other members of the general public that Indoor Harvest will provide weekly updates on operations and progress through its social media on Facebook, Twitter and Youtube. Investors, potential investors and individuals interested in our company are encouraged to keep informed by following us on Twitter, YouTube or Facebook.

 

Facebook: http://www.facebook.com/indoorharvest

Twitter: http://www.twitter.com/indoorharvest

Youtube: http://www.youtube.com/indoorharvest

 

 
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ABOUT INDOOR HARVEST CORP

 

Indoor Harvest Corp, through its brand name Indoor Harvest Ò , is a full service, state of the art design-build engineering firm for the indoor farming industry. Providing production platforms and complete custom designed build outs for both greenhouse and building integrated agriculture (BIA) grows, tailored to the specific needs of virtually any cultivar. Our patent pending aeroponic fixtures are based upon a modular concept in which primary components are interchangeable. Visit our website at http://www.indoorharvest.com for more information about our Company.

 

FORWARD LOOKING STATEMENTS

 

This release contains certain "forward-looking statements" relating to the business of Indoor Harvest and its subsidiary companies, which can be identified by the use of forward-looking terminology such as "estimates," "believes," "anticipates," "intends," expects" and similar expressions. Such forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to be materially different from those described herein as anticipated, believed, estimated or expected. Certain of these risks and uncertainties are or will be described in greater detail in our filings with the Securities and Exchange Commission. These forward-looking statements are based on Indoor Harvest's current expectations and beliefs concerning future developments and their potential effects on Indoor Harvest. There can be no assurance that future developments affecting Indoor Harvest will be those anticipated by Indoor Harvest. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond the control of the Company) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by such forward-looking statements. Indoor Harvest undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

 

Contacts:

Indoor Harvest Corp

CEO, Mr. Chad Sykes

713-410-7903

ccsykes@indoorharvest.com

 

 

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