Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2016

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

For the transition period from ___________ to ___________

Commission File Number:

INDOOR HARVEST CORP

(Exact name of registrant as specified in its charter)

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

5300 East Freeway Suite A

Houston, Texas

(Address of principal executive offices)

713-410-7903

(Registrant's telephone number, including area code)

N/A

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

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

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

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

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller Reporting Company	x

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

As of November 9, 2016 there were 15,113,983 shares issued and outstanding of the registrant's common stock.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements	3

Item 2.	Management's Discussion and Analysis or Plan of Operation.	16

Item 3.	Quantitative and Qualitative Disclosure about Market Risk.	21

Item 4.	Controls and Procedures.	21

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings.	22

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	22

Item 3.	Defaults Upon Senior Securities.	23

Item 4.	Mine Safety Disclosures.	23

Item 5.	Other Information.	23

Item 6.	Exhibits.	24

SIGNATURES		25

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

INDOOR HARVEST CORP

BALANCE SHEETS

(UNAUDITED)

	September 30, 2016			December 31, 2015

ASSETS
Current assets:
Cash	$	34,347		$	100,906
Accounts receivable, net of bad debt allowance of $0 at each period		-			59,200
Other receivable		7,323			-
Inventory		2,709			7,001
Prepaid expenses		-			1,697
Total current assets		44,379			168,804

Furniture and equipment, net		165,947			193,737
Security deposit		12,600			12,600
Intangible asset, net		8,033			9,318
Other assets		-			48,783
Total assets	$	230,959		$	433,242

LIABILITIES
Current liabilities:
Accounts payable & accrued expenses	$	65,560		$	40,891
Convertible note payable, net of debt discount of $50,000 and $0, respectively		50,000			-
Note payable, net of discount of $33,345 and $0, respectively		192,155			-
Derivative liability		129,413			-
Accrued payroll		7,142			6,285
Deferred rent		9,082			9,778
Billing in excess of costs and estimated earnings		34,980			19,931
Total current liabilities		488,332			76,885

Long term liabilities:
Note payable		28,723			33,262
Total Liabilities		517,055			110,147

Stockholders' equity (deficit):
Series A Convertible Preferred stock: $0.01 par value, 5,000,000 shares authorized; 250,000 and 0 shares issued and outstanding, respectively, net of warrant associated discount of $33,328 at September 30, 2016 and December 31, 2015, respectively.		2,500			-
Common stock: $0.001 par value, 50,000,000 shares authorized; 13,715,215 and 11,204,571 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively		13,715			11,204
Additional paid-in capital		3,237,518			2,233,663
Accumulated Deficit		(3,539,829	)		(1,921,772	)
Total Stockholders' equity (deficit)		(286,096	)		323,095

Total liabilities and stockholders' equity	$	230,959		$	433,242

The Accompanying Notes are an Integral Part of these Financial Statements

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INDOOR HARVEST CORP

STATEMENTS OF OPERATIONS

(UNAUDITED)

	For the three months ended September 30,						For the nine months ended September 30,
	2016			2015			2016			2015

Revenue	$	21,210		$	-		$	83,376		$	-
Cost of Sales		11,278			-			55,199			-
Gross Income		9,932						28,177

Operating Expenses
Depreciation expense	$	12,958		$	12,484		$	38,221		$	33,928
Research and development		6,376			5,459			15,047			17,987
Professional fees		11,355			16,559			87,277			124,531
General and administrative expenses		283,721			346,430			918,929			784,288
Total operating expenses		314,410			380,932			1,059,474			960,734
Loss from operations		(304,478	)		(380,932	)		(1,031,297	)		(960,734	)
Other Income (Expense)
Other Income		52,324			27			52,347			321
Interest expense		(3,674	)		(682	)		(7,862	)		(990	)
Derivative expense		(66,980	)		-			(66,980	)		-
Amortization of debt offering costs		(9,131	)		-			(20,000	)		-
Amortization of debt discount		(234,883	)		-			(331,034	)		-
Loss on debt settlement		(131,944	)		-			(131,944	)		-
Loss on sale of equipment		(36,626	)		-			(36,626	)		(10,050	)
Change in fair value of embedded derivative liability		(44,661	)		-			(44,661	)		-
Total Other Income/ (Expense)		(475,575	)		(655	)		(586,760	)		(10,719	)

Net loss	$	(780,053	)	$	(381,587	)	$	(1,618,057	)	$	(971,453	)

Net loss per common share:
Net loss per share, basic and diluted	$	(0.06	)	$	(0.04	)	$	(0.14	)	$	(0.10	)

Weighted average number of common shares outstanding:
Basic and diluted		12,338,016			10,024,410			11,980,169			9,946,256

The Accompanying Notes are an Integral Part of these Financial Statements

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INDOOR HARVEST CORP

STATEMENTS OF SHAREHOLDERS' EQUITY

(UNAUDITED)

	Preferred Stock Series A, $0.01 Par Value					Common Stock, $0.001 Par Value				Additional Paid in Capital		Accumulated Deficit			Total Stockholders' Equity
	Shares		Amount			Shares		Amount
Balances, December 31, 2015		-	$	-			11,204,571	$	11,204	$	2,233,663	$	(1,921,772	)	$	323,095

Issuance of preferred stock with warrants, net of warrant associated discount of $33,238		250,000	$	2,500			-	$	-	$	122,500	$	-			125,000

Issuance of common stock
For cash		-		-			100,000		100		49,900		-			50,000
For services, net of debt offering costs		-		-			1,107,303		1,107		376,800		-			377,907
Convertible debt converted into common stock		-		-			1,303,341		1,303		102,048		-			103,351
Beneficial conversion feature		-		-			-		-		154,416		-			154,416
Debt discount related to the warrants attached to note payable		-		-			-		-		12,612		-			12,612
Derivative liability associated with convertible debt		-		-			-		-		185,579		-			185,579
Net loss, for the nine months ended September 30, 2016		-		-			-		-		-		(1,618,057	)		(1,618,057	)

Balances, September 30, 2016		250,000	$	(30,738	)		13,715,215	$	13,715	$	3,237,518	$	(3,539,829	)	$	(286,096	)

The Accompanying Notes are an Integral Part of these Financial Statements

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INDOOR HARVEST CORP
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	For the nine months ended September 30,
	2016			2015
Cash flows from operating activities:
Net loss	$	(1,618,057	)	$	(971,453	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		38,220			33,928
Loss on the sale other assets		36,626			9,250
Loss on debt modification		131,944			-
Amortization of original issue discount		22,500			-
Amortization of debt discount		308,534			-
Amortization of debt offering costs		20,000			-
Derivative expense		66,980			-
Stock issued for services - related party		183,693			273,344
Change in fair value of derivative liability		44,661			-
Stock issued for services		194,215			115,471
Change in operating liability:
(Increase)/Decrease in deferred rent		(696	)		564
Decrease in accounts receivable		59,200			-
Increase in other receivable		(7,323	)		-
(Increase)/Decrease in inventory		4,292			(4,589	)
(Increase)/Decrease in prepaid expense		1,697			(9,315	)
Increase in accounts payable and accrued expenses		24,669			11,750
Accrued compensation - officers		4,327			-
Increase in costs and estimated earnings in excess of billings		15,049			-
Decrease in accrued compensation		(3,470	)		(263	)
Net cash used in operating activities		(472,939	)		(541,313	)

Cash flows from investing activities:
Proceeds from sale of equipment		10,000			10,050
Purchase of equipment & software		(6,988	)		(71,007	)
Net cash used in investing activities		3,012			(60,957	)

Cash flows from financing activities:
Proceeds from note payable		-			34,699
Repayments of note payable		(4,539	)		-
Proceeds from convertible note payable, less offerings costs and OID costs paid		230,000			-
Repayment of convertible note		(201,093	)		-
Proceeds from demand note payable, less OID costs paid		204,000			-
Collection of stock subscription receivable		-			10,000
Issuance of preferred stock for cash		125,000			-
Issuance of common stock for cash		50,000			268,000
Net cash provided by financing activities		403,368			312,699

Increase cash and cash equivalents		(66,559	)		(289,571	)
Cash and cash equivalents at beginning of period		100,906			411,669
Cash and cash equivalents at end of period	$	34,347		$	122,098

Supplementary disclosure of non-cash financing activity:
Sale of stock for subscriptions receivable	$	-		$	-

Supplementary disclosure of cash flow information
Cash paid during the period for:
Interest	$	2,405		$	-
Income taxes	$	-		$	-
Supplemental disclosure of non-cash investing and financing activities:
Beneficial conversion feature	$	154,416		$	-
Shares issued for debt issuance costs	$	143,500		$	-
Shares issued on conversion of convertible debt	$	103,351		$	-
Reclass of promissory note to convertible note	$	203,351		$	-

The Accompanying Notes are an Integral Part of these Financial Statements

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INDOOR HARVEST CORP

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (GAAP). It is management's opinion, however, that all material adjustments (consisting of normal and recurring adjustments) have been made which are necessary for a fair financial statements presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year.

Indoor Harvest Corp., or the "Company," is a Texas corporation formed on November 23, 2011. Indoor Harvest Corp., through its brand name Indoor Harvest™, is a company specializing in equipment design, development, marketing and direct-selling of commercial grade aeroponics fixtures and supporting systems for use in urban Controlled Environment Agriculture ("CEA") and Building Integrated Agriculture ("BIA").

Indoor Harvest Corp is a Design-Build contractor for the vertical farming and indoor farming industry. The Company's principal lines of business are engineering, procurement and construction services as well as manufacturing a variety of indoor farming fixtures and equipment. The Company provides its products and services worldwide for controlled environment and building integrated agricultural operators.

These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on March 30, 2015

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("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 complete 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.

Accounts Receivable and Work in progress

Work in process consists of costs recorded and revenue earned on projects recognized on the percentage of completion method for work performed on contracts in progress at September 30, 2016 and December 31, 2015. The Company records revenue recognition based on contractual agreements entered into at the inception of construction contracts. Amounts are payable from customers based on milestones established in each contract. Amounts are billed at milestone completion and are reflected as accounts receivable when billed. Costs and estimated earnings are accumulated on projects in process and compared to amounts billed based on the percentage of completion method of accounting (cost to cost). Costs incurred in excess of amounts billed and related profit recognized are reflected as an asset in the balance sheet as costs and estimated earnings in excess of billings. Unearning billings are reflected in the balance sheet as a liability as billings in excess of costs and estimated earnings on projects in process.

Loss per Share

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

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The Company has the following common stock equivalents for the nine months ended September 30, 2016 and 2015, respectively:

	September 30, 2016		September 30, 2015
Convertible Debt (Exercise price - $0.07/share)		1,307,190		-
Series A Convertible Preferred Shares (Exercise price - $0.08/share)		3,267,974		-
Total		4,575,163		-

Fair Value of Financial Instruments

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

	·	Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

	·	Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

	·	Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.

The following is the major category of liabilities measured at fair value on a recurring basis as of September 30, 2016, using quoted prices in active markets for identical liabilities (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):

Description	September 30, 2016		December 31, 2015

Derivative liabilities (Level 2)	$	129,413		-

Reclassifications

Certain expense items have been reclassified in the statement of operations for the three and nine months ended September 30, 2015, to conform to the reporting format adopted for the three and nine month ended September 30, 2016.

Recent Accounting Pronouncements

We do not believe any other recent pronouncements will have any impact on our presentation of financial position or results of operations.

Derivative Liability

The Company accounts for derivative instruments in accordance with ASC 815, which establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts and requires recognition of all derivatives on the balance sheet at fair value, regardless of hedging relationship designation. Accounting for changes in fair value of the derivative instruments depends on whether the derivatives qualify as hedge relationships and the types of relationships designated are based on the exposures hedged. At September 30, 2016 and December 31, 2015, the Company did not have any derivative instruments that were designated as hedges.

At September 30, 2016, the Company had outstanding convertible notes and warrants that contained embedded derivatives. These embedded derivatives include certain conversion features and reset provisions. (See Note 5 and Note 6).

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Beneficial Conversion Feature

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

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

NOTE 2 - GOING CONCERN

As reflected in the accompanying unaudited financial statements, the Company had a net loss of $1,618,057, net cash used in operations of $472,939 and has an accumulated deficit of $3,539,829, for the nine months ended September 30, 2016. These factors raise substantial doubt about the Company's ability to continue as a going concern.

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

The business plan of the Company is to engage in the design, development, marketing and direct-selling of commercial grade aeroponics fixtures and supporting systems for use in urban Controlled Environment Agriculture ("CEA") and Building Integrated Agriculture ("BIA"). During the next twelve months, the Company's strategy is to: complete ongoing product development; commence product marketing, product assembly and sales; construct a demonstration CEA and BIA farm; and offer design-build services. The Company's long-term strategy is to direct sale, license and franchise their patented technologies and methods.

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

NOTE 3 - CONCENTRATIONS

At September 30, 2016 and December 31, 2015, the Company had a concentration of accounts receivable of:

Customer	September 30, 2016		December 31, 2015

		-		-	%

For the three months ended September 30, 2016 and September 30, 2015, the Company had a concentration of sales of:

Customer	September 30, 2016			December 31, 2015

University of Arizona CEAC		24	%		0	%
ER Michigan		76	%		0	%

For the nine months ended September 30, 2016 and September 30, 2015, the Company had a concentration of sales of:

Customer	September 30, 2016			September 30, 2015

University of Arizona CEAC		22	%		0	%
GSS Colorado		6	%		0	%
ER Michigan		34	%		0	%
PH Research Platform		5	%		0	%
UB Poland		33	%		0	%

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NOTE 4 - WORK IN PROCESS

Work in progress as of September 30, 2016 and December 31, 2015 consists of the following:

Description	September 30, 2016		December 31, 2015

Costs incurred on uncompleted contracts	$	-	$	92,379
Estimated earnings		-		-
				-
Less billings to date		34,980		112,310
Total	$	34,980	$	19,931

Reflected in the balance sheet as:
Costs and estimated earnings in excess of billings on contracts in process	$	-	$	-
Billings in excess of costs and estimated earnings on contracts in process		34,980		19,931
Total	$	34,980	$	19,931

NOTE 5 - DEBT AND CONVERTIBLE LOAN PAYABLE

Convertible Note Payable

On March 22, 2016 the Company entered into a securities purchase agreement with Firstfire Global Opportunities Fund, LLC, and Rockwell Capital Partners Inc, relating to the issuance and sale of notes of $272,500 in aggregate principal amount including $250,000 actual payment of purchase price plus a 9% original issue discount, and an aggregate total of 50,000 shares of common stock valued at $23,500 ($0.47/share).

The notes carry an interest on the unpaid principal amount at the rate of 3% per annum. Any Principal Amount or Interest which is not paid when due shall bear interest at the rate of 15% per annum from the due date until the same is paid. The notes mature on September 22, 2016 and may be prepaid in whole or in part except otherwise explicitly set forth in the Note. If the Company exercises its right to prepay or repay the Note, the Company shall make payment to the note holders of an amount in cash equal to the sum of 125% multiplied by the Principal Amount plus accrued and unpaid interest on the Principal Amount to the Optional Prepayment Date plus Default Interest, if any.

The notes convert into shares of Common Stock at a price equal to $0.30; provided, however that from and after the occurrence of any Event of Default hereunder, the Conversion Price shall be the lower of: (i) the Fixed Conversion Price or (ii) 45% multiplied by the lowest sales price of the Common Stock in a public market during the ten (10) consecutive Trading Day period immediately preceding the Trading Day that the Company receives a Notice of Conversion (as defined in the Note). For the nine months ended September 30, 2016, the Company received $272,500 proceeds less the $20,000 in debt issue costs and $22,501 in original issuance discount fee pursuant to the terms of this convertible note. For convertible debt, the convertible feature indicated a rate of conversion that was not below market value after debt discounts. As a result, the Company will record a BCF and related debt discount.

On September 22, 2016 the Company identified the embedded derivatives related to the FirstFire Global Opportunities note. Due to the default provisions, the principal was increased by 125% and interest to 15% per annum. During the nine months ended September 30, 2016, the Company converted debt and accrued interest, totaling $103,351 into 1,303,341 shares of common stock. The remaining outstanding principal balance as of September 30, 2016 is $100,000.

On September 22, 2016 the Company entered into a default provision with Rockwell Capital Partners, Inc. Due to the default provisions, the principal was increased by 125% and interest to 15% per annum. During the nine months ended September 30, 2016, the Company repaid debt and accrued interest, totaling $203,441. As of September 30, 2016, the loan is fully repaid.

On September 26, 2016 the Company entered into a promissory note with Chuck Rifici Holdings, Inc., relating to the issuance of $225,500 in aggregate principal amount including $204,000 actual payment of purchase price plus a 10% original issue discount. In conjunction with the issuance of the Note, the Company also issued one year warrants to purchase 250,000 shares of common stock at an exercise price of $0.30 per share, the warrants were fair valued at $12,612 based upon the fair value of the proceeds received and allocated as debt discount to the total proceeds. During the nine months ended the Company amortized $767 of debt discount related to the warrants (See Note 8). The note bears an interest on the unpaid principal amount at the rate of 8% per annum. The note mature on March 23, 2017 and may be prepaid in whole or in part at any time prior to the due date. If the Company exercises its right to prepay or repay the Note, the Company shall make payment to the note holders of an amount in cash equal to the sum of 115% multiplied by the Principal Amount plus accrued and unpaid interest on the Principal Amount to the Optional Prepayment Date plus Default Interest, if any. In the event of the default the note is convertible into shares of Common Stock. The conversion price equals to 65% multiplied by the lowest sales price of the common stock during the ten consecutive trading days period immediately preceding the trading day that the Company receives a notice of conversion.

For the nine months ended September 30, 2016, the Company accrued $2,816 in accrued interest related to outstanding the notes.

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Debt Discount and Original Issuance Costs

During the nine months September 30, 2016 and 2015, the Company recorded debt discounts and original issuance costs totaling $380,267 and $0, respectively.

The debt discounts recorded in 2016 and 2015, pertain to beneficial conversion feature on the convertible notes. The notes are required to be bifurcated and reported at fair value on the date of grant.

The Company amortized $331,034 and $0 to interest expense in the nine months ended September 30, 2016 and 2015 as follows:

	Nine Months Ended September 30, 2016			Year Ended December 31, 2015

Debt discount - December 31, 2015	$	-			-
Additional debt discount - Nine months ended September 30, 2016		380,267			-
Amortization of debt discount - Nine months ended September 30, 2016		(330,267	)		-
Debt discount September 30, 2016	$	50,000			-

Debt Issuance Costs

During the nine months ended September 30, 2016, the Company paid debt issue costs totaling $20,000.

During the nine months ended September 30, 2016 and 2015, the Company amortized $20,000 and $0 of debt issue costs, respectively.

The following is a summary of the Company's debt issue costs:

	Three Months Ended			Three Months Ended
	September 30, 2016			September 30, 2016

Debt Issue Costs	$	-			-
Additional debt issue costs - Nine months ended September 30, 2016		20,000			-
Amortization of debt issue costs - Nine months ended September 30, 2016		(20,000	)		-
Debt issue costs - net	$	-			-

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NOTE 6 - DERIVATIVE LIABILITIES

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

The following schedule shows the change in fair value of the derivative liabilities by September 30, 2016:

Derivative liabilities - December 31, 2015	$	0
Add fair value at the commitment date for convertible notes issued during the current year		270,331
Less derivatives due to conversion		(185,579	)
Fair value mark to market adjustment for derivatives		44,661
Derivative liabilities - September 30, 2016		129,413

The Company recorded the debt discount to the extent of the gross proceeds raised, and expensed immediately the remaining value of the derivative as it exceeded the gross proceeds of the note. The Company recorded derivative interest expenses for the year ended September 30, 2016 of $66,980.

The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions during the current quarter:

Assumption	Commitment Date			Remeasurement Date
Expected dividends:		0	%		0	%
Expected volatility:		210	%	219%-20		%
Expected term (years):		0.08		0.063-0.073 years
Risk free interest rate:		0.09	%	0.12%-0.20		%

NOTE 7 - RELATED PARTY TRANSACTIONS

On May 9, 2016, the Company entered into a Director Agreement with Pawel Hardej. The Company will reimburse the Director for reasonable travel and other incidental expenses incurred by the Director in performing his services and attending meetings as approved in advance by the Company. The Company shall award to the Director 166,560 shares of common stock over a two year period as directed in the Director Agreement. As of September 30, 2016, the Company issued 20,820 shares of common stock having a fair value of $13,512 ($0.65/share) based upon the most recent trading price per share of the Company's common stock (See Note 8).

On April 8, 2016 the Company entered into an employment agreement with John Zimmerman, the executive to serve as a Vice President of Business Development. The term of the agreement will continue until April 8, 2017, unless the employment is sooner terminated by the Board of Directors. As compensation for services, the employee will receive 100,000 shares of common stock and a percentage of closed projects as follows:

	·	5% on Purchase Orders (facilities and production finishing hardware) minus taxes, fees and shipping for sole sourced projects that lead to a signed Design Build Agreement.

	·	5% of Facilities portion of Purchase Order only on signed Design Build agreements brought in from Authorized Dealers.

	·	Discretionary % split agreed to by Executive on a case-by-case basis for supporting services he chooses to bring into closing an agreement.

	·	Compensation payments dispersed at the same % rate as the contractually agreed client payments schedule is received from the client/finance group (ie: 5% down, 50% at Purchase Order, 45% at shipping etc..)

On April 8, 2016, we issued 100,000 shares of Common Stock related to an Executive Employment Agreement with John Zimmerman. The Company recorded fair value of $54,500 ($0.545/share) based upon the most recent trading price per share of the Company's stock (See Note 7).

On March 1, 2015, the Company entered into a Director Agreement with William Jamieson. The Company will reimburse the Director for reasonable travel and other incidental expenses incurred by the Director in performing his services and attending meetings as approved in advance by the Company. The Company shall award to the Director 166,560 shares of common stock pursuant to the Company's 2015 Stock Incentive over a two year period as directed in the Director Agreement. As of September 30, 2016, the Company issued 83,280 shares of common stock having a fair value of $36,435 ($0.30 - $0.5/share) based upon the most recent trading price per share of the Company's common stock (See Note 7).

On May 9, 2016, Mr. William Jamieson resigned as a Director in the Company. Mr. Jamieson's resignation was not the result of any disagreement with us on any matter relating to our operations, policies (including accounting or financial policies) or practices. A majority of the Board of Directors decided to restructure the Board of Directors to better reflect the Company's current business direction and Mr. Jamieson voluntarily agreed to resign as part of that restructuring effort. Mr. Jamieson was issued 83,280 shares of common stock as part of an agreement with the Company and the Company recorded a fair value of $54,049($0.649/share) based upon the most recent trading price per share of the Company's comment stock (See Note 7) .

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On August 14, 2015, the Company entered into an employment agreement with John Choo, the executive to serve as a Company President. The term of the agreement will continue until August 14, 2016, unless the employment is sooner terminated by the Board of Directors. The Company is currently in process extending the agreement. As compensation for services, the employee will receive annual compensation of $60,000. In addition, the employee will receive 355,060 shares of common stock. In addition, the Company shall award to the Director 166,560 shares of common stock pursuant to the Company's 2015 Stock Incentive over a two year period as directed in the Director Agreement. As of September 30, 2016, the Company issued 355,060 shares in common stock having a fair value of $164,393 ($0.46/share) and 104,100 shares of common stock having a fair value of $48,723 ($0.30 - $0.59/share) based upon the most recent trading price per share of the Company's common stock (See Note 8).

In May 2015, the Company issued 50,000 shares of Common stock to Chad Sykes, our CEO having a fair value of $25,500 ($0.51/share) based upon the most recent trading price per share of the Company's common stock (See Note 8).

In November 17, 2015 the Company issued 125,000 shares of Common stock to the Company's legal counsel as part of legal fees having a fair value of $56,250 ($0.45/share) based upon the most recent trading price per share of the Company's common stock (See Note 8).

NOTE 8 - SHAREHOLDERS' EQUITY

Convertible Series A Preferred Stock

On August 3, 2015, the Company's Board of Directors signed a written action that included the following:

	·	The Board of Directors have approved the creation of 5,000,000 shares of Series A Convertible Preferred Stock and to take the required steps to amend the Corporations articles of incorporation and any other such SEC filings, or Company records as needed

	·	The Board of Directors have approved a Certificate of Designation, Preferences and Rights of the Series A Convertible Preferred Stock.

	·	The stated value of each issued share of Series A Convertible Preferred Stock is $0.50.

During the third quarter, the company initiated a subscription agreement to offer to accredited investors for up to 1,000,000 units of security. Each unit consists one share of Series A convertible Preferred Stock and one Series A warrant. The price per unit is $0.5 for maximum aggregate 1,000,000 units and maximum aggregate proceeds of $500,000. The state value of each preferred stock is $0.50 and there is no dividends on the preferred stock. Each warrant excise price is $0.50 per share and shall be exercisable for a period of one year.

From August 15 to August 29, 2016, the company subscribed 250,000 units to three investors for total proceeds of $125,000. Based on fair value of issued 250,000 warrants, $33,238 proceeds allocated as discount to the total $125,000 preferred stock.

The fair value of warrant calculation based upon the following management assumption during the current quarter.

Assumption	Issue Date

Expected dividends:		0	%
Expected volatility:	153%-156		%
Expected term (years):		1.00
Risk free interest rate:	0.56%-0.62		%

Common Stock

On January 17, 2016, the Company issued 20,820 shares of Common Stock related to a Director Agreement with John Zimmerman, of common stock with a fair value of $9,369 ($0.45/share) based upon the most recent trading price per share of the Company's stock.

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On January 19, 2016, we issued 300,000 shares of Common Stock to Kodiak Capital Group, LLC as a commitment fee for a Two Million Dollar Equity Financing Agreement. The Company a fair value of $120,000 ($0.40/share) based upon the most recent trading price per share of the Company's stock. The Company is subject to a Registration Rights Agreement which requires the Company to file a S1 Registration Statement with the SEC by March 31, 2016 and must receive a notice of effectiveness from the SEC prior to executing a Put Notice. The Purchase Price of the security is based on 80% of the Market Price based on the Put Date. Market price is calculated on the lowest daily volume weight average price for any trading day during the valuation period, which is the five days from the Put Notice to the Put Date.

On January 22, 2016, we issued 125,000 shares of Common Stock to Emerging Growth, LLC, to provide investor and public relations services. The Company recorded a fair value of $43,750 ($0.35/share) based upon the most recent trading price per share of the Company's stock.

On February 29, 2016, we issued 41,640 shares of Common Stock related to a Director Agreement with John Choo and William Jamieson. The Company recorded fair value of $14,574 ($0.35/share) based upon the most recent trading price per share of the Company's stock.

On March 14, 2016, we issued 11,330 shares to a consultant for services rendered, of common stock with a fair value of $4,986 ($0.44/share) based upon the most recent trading price per share of the Company's stock.

On March 25, 2016, we issued 5,000 shares to a consultant for services rendered, of common stock with a fair value of $1,800 ($0.36/share) based upon the most recent trading price per share of the Company's stock.

On March 23, 2016 the Company issued 100,000 shares of common stock to one U.S. accredited investor at $0.50 per share for cash totaling $50,000.

On April 18, 2016, the Company issued 20,820 shares of Common Stock related to a Director Agreement with John Zimmerman, of common stock with a fair value of $9,369 ($0.45/share) based upon the most recent trading price per share of the Company's stock.

On May 9, 2016, the Company issued 83,280 shares of Common Stock related to a resignation of its Director Agreement William Jamieson. The Company recorded fair value of $54,049 ($0.649/share) based upon the most recent trading price per share of the Company's stock (See Note 6).

On June 29, 2016 the Company issued 125,000 shares of Common stock to the Company's legal counsel as part of legal fees having a fair value of $68,738 ($0.549/share) based upon the most recent trading price per share of the Company's common stock.

On July 11, 2016, we issued 50,403 shares of Common Stock to a consultant for services rendered having a fair value of $25,000 ($0.496044/share) based upon the three day average price prior to the issuance date of the Company's stock.

On July 19, 2016, we issued 20,820 shares of Common Stock related to a Director Agreement with John Zimmerman. The Company recorded fair value of $14,366 ($0.6946/share) based upon the most recent trading price per share of the Company's stock.

On August 9, 2016 we issued 20,820 shares of Common Stock related to a Director Agreement with Paul Hardej. The Company recorded fair value of $13,512 ($0.64950/share) based upon the most recent trading price per share of the Company's stock.

On August 11, 2016, we issued 48,704 shares of Common Stock to a consultant for services rendered having a fair value of $25,000 ($0.513355/share) based upon the three day average price prior to the issuance date of the Company's stock.

On August 31, 2016 we issued 20,820 shares of Common Stock related to a Director Agreement with John Choo. The Company recorded fair value of $12,287 ($0.590246/share) based upon the most recent trading price per share of the Company's stock.

September 11, 2016, we issued 62,846 shares of Common Stock to a consultant for services rendered having a fair value of $25,000 ($0.3978/share) based upon the three day average price prior to the issuance date of the Company's stock.

During the nine months ended September 30, 2016, the Company converted debt and accrued interest, totaling $103,351 into 1,303,341 shares of common stock

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Common Stock Warrants

	Number of Warrants		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in Years)

Balance, December 31, 2015		--		-
Granted		500,000
Exercised		-
Cancelled/Forfeited		-
Balance, September 30, 2016		500,000	$	0.40		0.94

For the nine months ended September 30, 2016, the following warrants were outstanding:

Exercise Price Warrants Outstanding		Warrants Exercisable		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value

$	0.30-$0.50		500,000		0.94		-

NOTE 9 - SUBSEQUENT EVENTS

Subsequent to September 30, 2016, the Company converted debt and accrued interest, totaling $100,000 into 1,278,220 shares of common stock.

October 11, 2016, the Company issued 89,928 shares of Common Stock to a consultant for services rendered having a fair value of $19,784 ($0.22/share) based upon the most recent trading price per share of the Company's stock.

October 17, 2016, the Company issued 9,800 shares of Common Stock to a consultant for services rendered having a fair value of $2,940 ($0.30/share) based upon the most recent trading price per share of the Company's stock.

On October 19, 2016 the Company entered into a securities purchase agreement with Firstfire Global Opportunities Fund, LLC, relating to the issuance and sale of a note of $137,500 in aggregate principal amount including $125,000 actual payment of purchase price, plus a 10% original issue discount.

On October 20, 2016, we issued 20,820 shares of Common Stock related to a Director Agreement with John Zimmerman. The Company recorded fair value of $11,035 ($0.53/share) based upon the most recent trading price per share of the Company's stock.

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

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

Our Management's Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are, by their very nature, uncertain and risky. Although the forward-looking statements in this Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

Forward-Looking Statements

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

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

Although the forward-looking statements in this Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

Overview

Indoor Harvest Corp, through its brand name Indoor Harvest ^Ò , is a full service, state of the art design-build, engineering, procurement and construction firm for the indoor and vertical farming industry. The company provides production platforms, mechanical systems and complete custom designed build outs for both Controlled Environment Agriculture ("CEA") and Building Integrated Agriculture ("BIA"), tailored to the specific needs of virtually any cultivar.

CEA is the process of manipulating any agricultural technology to allow the farmer an ability to manipulate a crop's environment to desired conditions. Technologies include greenhouse production, hydroponics, aquaculture, aquaponics and aeroponics. Controlled variables may include temperature, lighting, humidity, pH and nutrient analysis.

BIA is the process of locating CEA methods on, or in, mixed use buildings to provide synergy with the buildings infrastructure and the agriculture process. Earliest examples of BIA include the use of hydroponics, aeroponics and aquaponics, where waste heat is captured through the buildings existing heating, ventilation and air conditioning system as well as the combined use of solar, rainwater collection and evaporative systems. Current operating examples include such buildings as Eli Zabar's rooftop greenhouse, The Sun Works Center for Environmental Studies, Gotham Greens, Sky Vegetables, Top Sprouts, Cityscape Farms, Dongtan, Masdar City, AeroFarms, Solar 2, Lufa Farms, BrightFarms, FarmedHere, Green Sense Farms, Green Spirit Farms and Big Box Farms. The term building-integrated agriculture was coined by Dr. Ted Caplow in a paper delivered at the 2007 Passive and Low Energy Cooling Conference in Crete, Greece.

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

Aeroponics is the process of growing plants in an air or mist environment without the use of soil or an aggregate medium (known as geoponics). Aeroponic culture differs from both conventional hydroponics and in-vitro (plant tissue culture) growing. Unlike hydroponics, which uses water as a growing medium and essential minerals to sustain plant growth, aeroponics is conducted without a growing medium. Because water is used in aeroponics to transmit nutrients, it is sometimes considered a type of hydroponics.

The Company generates revenue from vertical farm rack system sales, aeroponic fixture sales and design build construction management services. Our products are designed for the production of aeroponic and hydroponic leafy greens, micro-greens, fruiting plants and herbs. Our fixtures and systems can also be adapted for a variety of other uses such as horticulture research, medicinal plant production, pharmaceutical plant production, plant cloning and hardwood propagation.

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In addition to these products, the Company also generates revenue from engineering, procurement and construction management services. Engineering, procurement, and construction management ("EPCM") is a common form of contracting arrangement for very large infrastructure and facility projects. Under an EPCM arrangement, the client would engage the Company to coordinate all design, procurement and construction work to ensure that the whole project is completed as required.

We are an "emerging growth company" ("EGC") that is exempt from certain financial disclosure and governance requirements for up to five years as defined in the Jumpstart Our Business Startups Act ("the JOBS Act"), that eases restrictions on the sale of securities; and increases the number of shareholders a company must have before becoming subject to the U.S. Securities and Exchange Commission's ("SEC's") reporting and disclosure rules (See "Emerging Growth Companies" section above). We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the Jobs Act, that allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.

Our operational expenditures are primarily related to developing our line of productions, developing our in-house manufacturing and fabrication facilities and the costs related to being a fully reporting company with the Securities and Exchange Commission.

Potential Separation and Sale of Cannabis Operations

On August 22, 2016 we entered into a memorandum of agreement ("MOA") with Head North LLC ("Head North") to provide Head North with an exclusive period to negotiate an acquisition, merger, or joint venture, of our cannabis related operations in exchange for certain funding obligations. On September 2, 2016, the Company received an executed subscription agreement for $375,000 of our Series A Preferred shares related to the terms outlined in our MOA. On September 23, 2016, we issued 30 day notice to Head North that we were terminating the agreement under Section VIII due to default under the terms of the MOA and a failure to fund its subscription.

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 negotiating with multiple new groups for the potential merger, acquisition, or formation of a joint venture, to acquire our assets and operations related to cannabis. There is no guarantee that an agreement will be reached with any group we are currently negotiating with, or that the Company will be successful in its efforts to separate its cannabis and produce operations.

Current Projects

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

Project-Client

Facility
Type

Project
Type

Project Status
as of
September 30,
2016

Equipment
Price/Design
Fee Total

ROM
Estimate[1]

IGES Johnstown

Produce

EPCM

0% Completed

11,374,500

Tweed

Cannabis

Equipment Installation

0% Completed

96,925

___________

[1]

A Rough Order of Magnitude Estimate (ROM estimate) is an estimation of a project's level of effort and cost to complete. A ROM estimate takes place very early in a project's life cycle, during the project selection and approval period and prior to project initiation in most cases, when a project's scope and requirements has not been fully defined. The main purpose of the ROM estimate is to provide decision-makers with the information necessary to make a decision on whether it makes sense to move forward with the project based on the estimated level of effort, in terms of completion time and cost. A ROM estimate is used to reduce the uncertainty of cost outcomes for both the client and the contractor. There is no assurance that the Company will receive as revenues any or all of the total amount of a ROM estimate.

Signed Design-Build, EPCM Agreements

On March 8, 2016, we entered into a design-build, EPCM contract with OD Farms for a 7,000 sq. ft. cannabis production facility in Alaska. The contract includes an EPCM agreement for HVAC, LED lighting and facility controls. On April 21, 2016, we completed initial design work and provided the client with a ROM estimate of $2,009,308 for HVAC, LED lighting, facility controls and equipment schedule. As of September 30, 2016, the Company had closed this project and recorded $35,000 in other revenue for design services and removed the project from current projects pending further instructions from the client.

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On July 6, 2016, we entered into Phase Two of our Cannabis Production Pilot Agreement with Canopy Growth Corporation and signed a design-build, EPCM, cost plus contract with Tweed, a subsidiary of Canopy Growth, to construct a High Pressure Aeroponic (“HPA”) production system to include facility integration and controls for the purpose of an economic pilot. The production system will include 13 HPA units and a Nutrient Dispensing System (pump skid). Additional costs for mechanical, electrical, plumbing and controls will be invoiced prior to hardware shipment and onsite installation under a cost plus agreement.

On July 13, 2016, we entered into a design-build, EPCM, maximum guaranteed price agreement, for a 40,000 sq.ft vertical farm project in Johnstown Ontario with IGES Canada ltd., the project includes 676 Low Tide VFRack platforms, integrated LED lighting, facilities mechanical, electrical and plumbing, construction management and equipment start-up and commissioning. Total contract maximum guaranteed price is $11,374,500 with 5% of the total, $568,725 due upon the start of design work. Originally contracted to begin on September 23, 2016, the project start date has been delayed by the client for administrative and seasonal reasons.

On July 27, 2016, we entered into a design-build, EPCM, cost plus agreement, with TexAg Ventures, LLC, to provide full design and engineering, system prototyping and system testing of a custom vertical farming platform. An initial deposit of $35,000 is required to begin prototyping. Design and engineering services were to be provided free and remaining project costs will be deemed construction coordination services and billed at cost plus. As of September 30, 2016, approximately 90% of the design work has been completed.

Current EPCM Sales Pipeline

Our current sales pipeline consists of 9 facility build discussions with 6 in early to mid-stage discussions and 3 in late stage negotiations and 3 new potential projects as of June 30, 2016. The company is pursuing final agreements applicable for the stage of development the client is in. There is no guarantee of success regarding these agreements or that applicable project revenue will be fully recognized until the agreements and final budget negotiations are complete.

Below is a table showing the Company's current sales pipeline status as of September 30, 2016:

Project-Client

Facility
Type

Scoped [1]

DB Phase 1 - Contract
Sent [2]

DB Phase 2 - Contract
Sent [3]

Design
Fee/ROM
Estimate [4]

IGES/Welland

Produce

3,970,000

IGES/Tyendenag

Produce

2,441,000

IGES/Kingston

Produce

3,970,000

IGES/Galipeau/Smith Falls

Produce

5,960,841

IGES/Easton

Produce

4,500,000

Alamo CBD

CBD/Pharma

5,000,000

ZP CO

Cannabis

2,000,000

DR VF

Produce

545,000

Metro VF

Produce

401,200

Total

28,518,041

__________

[1]	Scoped - Includes projects in which initial meetings have taken place, preliminary design work has been provided based on the clients provided scope of work along with a project ROM estimate. Scoped projects are early to mid-stage in the design-build process and have a high risk of being abandoned by either party.

[2]	DB Phase 1 - Contract Sent - Includes projects that have completed the initial client side discussions and a contract has been provided to the client to develop a detailed scope of work and engineered drawings to develop a project cost estimate. DB Phase 1 projects are early to mid-stage in the design-build process and have a high risk of being abandoned by either party.

[3]	DB Phase 2 - Contract Sent - Includes projects that have completed a DB Phase 1 contract, or where the client has provided a detailed scope of work and drawings where no initial design work is needed. DB Phase 2 contracts are also generally provided to B2B clients. DB Phase 2 projects are mid to late stage in the design-build process and have a medium to low risk of being abandoned by either party.

[4]	ROM Value - See description above. There is no assurance that the Company will receive as revenues any or all of the total amount of a ROM estimate.

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Results of Operations

For the three months ended September 30, 2016 we generated revenue of $21,210 with cost of sales of $11,278 resulting in gross income of $9,932. We did not generate any revenue as of September 30, 2015. For the nine months ended September 30, 2016 we generated revenue of $83,376 with cost of sales of $55,199 resulting in gross profit of $28,177.

For the three months ended September 30, 2016 and September 30, 2015, we incurred $314,410 and $380,932, respectively, in operating expenses. For the nine months ended September 30, 2016 and September 30, 2015, we incurred $1,059,474 and $960,734, 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 September 30, 2016 and September 30, 2015 were $6,376 and $5,459, respectively. Our increase for the three months ended September 30, 2016, were for research and development of new products. Our expenses related to research and development for the nine months ended September 30, 2016 and September 30, 2015 were $15,047 and $17,987, respectively. The decrease in research and development expenses for the nine-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 September 30, 2016 we had total liabilities of $517,055, 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.

Deferred rent payable at September 30, 2016 was $9,082. Deferred rent payable is the sum of the difference between the monthly rent payment and the straight-line monthly rent expense of an operating lease that contains escalated payments in future periods.

Liquidity and Capital Resources

As of September 30, 2016, we had $44,379 in total current assets. We had current liabilities of $488,332 as of September 30, 2016. Accordingly, we had a working capital deficit of $443,953 as of September 30, 2016.

Operating activities used $472,939 in cash for the nine months ended September 30, 2016, as compared with $541,313 used for the nine months ended September 30, 2015.

Investing activities for the nine months ended September 30, 2016 used $3,012 in cash, as compared with using $60,957 for the nine months ended September 30, 2015.

Financing activities for the nine months ended September 30, 2016 generated $403,368 in cash, as compared with $312,699 for the nine months ended September 30, 2015. Proceeds from financing activities consisted primarily of proceeds from issuance of convertible debt in 2016 and common stock for cash in 2015.

Cash Requirements: Current Operational Activities

Our estimated minimum day-to-day operational costs as set forth above, are estimated to be approximately $430,800 to maintain current operational activities during the next 12 months. Our minimal annual operating expenses includes $352,000 in payroll expenses, our lease agreement for our 10,000 sq. ft. facility of $55,200 per year, our estimated annual utility expenses of $10,800 and $12,800 in miscellaneous operating expenses. In addition, we will have $75,000 in costs related to maintaining our publicly traded status over the next 12 months.

Planned Restructuring

During the next 12 months, we anticipate restructuring our Company by separating our cannabis and produce related operations. The Company currently has no additional planned operational activities beyond supporting its current operational activities until restructuring is complete.

Sources of Funding

Existing Cash and Operational Cash Flow

As of November 15, 2016, we had $71,838 in cash and $2,500 in available credit facilities.

We are actively engaged in a number of current projects which are generating cash flow. In addition to the key projects already discussed, our current sales pipeline consists of 9 facility build discussions with 6 in early to mid-stage discussions and 3 in late stage negotiations. However, we have no final agreements concerning these potential future projects and we may not ever secure final agreements.

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Chuck Rifici Holdings Note for $204,000

On September 26, 2016, we entered into a Promissory Note and Warrant Purchase Agreement with Chuck Rifici Holdings, Inc, a Canadian Corporation. The note consisted of $225,500 in aggregate principal amount including $204,000 actual payment of purchase price plus a 10% original issue discount. The Warrant Purchase Agreement consisted of an aggregate total of 250,000 common stock warrants to purchase common stock for $0.30 for a period of 12 months, to the Buyer, in accordance with and in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended and/or Regulation S of the Securities Act of 1933, as amended for the above issuances to non US citizens or residents.

On the Closing Date, the Company issued Notes of aggregate $225,500 in face value, which will, by their principal terms,

	·	Carry an interest (the “Interest”) on the unpaid principal amount at the rate of 8% per annum. Interest all commence accruing on the date that the Note is fully funded and shall be computed on the basis of a 365-day year and the actual number of days elapsed;

	·	Mature on March 23, 2017 and may be prepaid in whole or in part except otherwise explicitly set forth in the Note. If the Borrower exercises its right to prepay or repay the Note, the Borrower shall make payment to the Holder of an amount in cash equal to the sum of 115% multiplied by the Principal Amount plus accrued and unpaid interest on the Principal Amount to the Optional Prepayment Date plus Default Interest, if any; and

	·	Upon an Event of Default, the per share conversion price into which any Principal Amount and interest under this Note shall be convertible into shares of Common Stock, at the option of the holder, hereunder shall be equal to 65% multiplied by the lowest sales price of the Common Stock in a public market during the ten (10) consecutive Trading Day period immediately preceding the Trading Day that the Company receives a Notice of Conversion.

FirstFire and Rockwell Bridge Financing for $250,000

On March 22, 2016, we entered into a securities purchase agreement with Firstfire Global Opportunities Fund, LLC, a Delaware limited liability Company and Rockwell Capital Partners Inc, a Delaware corporation, (the “Buyers”) relating to the issuance and sale of (i) notes of $272,500 in aggregate principal amount including $250,000 actual payment of purchase price plus a 9% original issue discount, and an aggregate total of 50,000 shares of common stock of the Company, par value per share $0.001, to the Buyers, in accordance with and in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended and/or Rule 506 of Regulation D as promulgated by the United States Securities and Exchange Commission under the Securities Act.

On September 23, 2016, the maturity date under the Notes, the then aggregate outstanding principal amount of $406,069 came due under the Notes and the Company was unable to make the required payments. As a result, the Company is in default under the Notes. The Company received notices from the Buyers providing formal notice that an Event of Default, as defined in the Notes, had occurred. Pursuant to the Notices, the Holders demand payment of the Note’s principal amount at the Mandatory Default Amount, which is defined as 145% of the outstanding principal amount of the Note, in addition to the payment of all other amounts, costs, expenses and liquidated damages due in respect of this Note. On September 27, 2016, the Company made a cash payment of $203,441 to Rockwell Capital Partners Inc to satisfy the principal and interest of the Rockwell note. No common stock conversions took place under the Rockwell note.

FirstFire Global Opportunities Fund, LLC issued a notice of conversion of the shares described in Item 3.02 below, and, to the extent that the Event of Default remains uncured, interest on the principal amount that remains outstanding equal to 15% per annum. On September 26, 2016, the Company received a notice of conversion of FirstFire of $33,000 of the amount due under its Note, calculated pursuant to this provision. As of the date of this Current Report, the Company believes the Mandatory Default Amount due to FirstFire to be $170,351. Further, amounts due under the FirstFire Note may be converted at the election of the Holder into shares of the Company’s common stock at 45% multiplied by the lowest sales price of the Common Stock in a public market during the ten (10) consecutive Trading Day period immediately preceding the Trading Day that the Company receives a Notice of Conversion.

Meeting Cash Requirements

Based upon the assumption of our monthly current operational burn rate remaining unchanged during the fiscal year, the Company currently has sufficient funds through a combination of the Sources of Funding above, to include accounts receivable financing and factoring, to continue our current operations for the next 12 months. There is no assurance we will obtain the anticipated funds from our Sources of Funding. There can be no assurance that additional financing will be available to us on acceptable terms, or at all. If we don't obtain the anticipated funds from our Sources of Funding, and we don't take other measures such as cutting back operational activities, we may not have sufficient funds to continue operations for the next 12 months.

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We cannot guarantee we will be successful in our business operations. We cannot guarantee that we will have sufficient financial resources to fund Current Operational Activities. Our business is subject to risks inherent in the establishment of a new business enterprise, including the financial risks associated with the limited capital resources currently available to us for the implementation of our business strategies. To become profitable and competitive, we must continue to execute our business plan as described above.

We began offering our products and services during the 3rd Quarter of 2015. We have an accumulated deficit and have incurred operating losses since our inception and expect losses to continue during 2016. Our auditor has indicated in their Report that these conditions raise substantial doubt about our ability to continue as a going concern.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

For a discussion of our accounting policies and related items, please see the Notes to the Financial Statements, included in Item 1.

Item 3. Quantitative and Qualitative Disclosure about Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

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

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

Changes in Internal Control over Financial Reporting

There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities Exchange Act) during the fiscal quarter ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

None.

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

On January 19, 2016, we issued 300,000 shares of Common Stock to Kodiak Capital Group, LLC as a commitment fee for a Two Million Dollar Equity Financing Agreement. The Company a fair value of $120,000 ($0.40/share) based upon the most recent trading price per share of the Company's stock. The Company is subject to a Registration Rights Agreement which requires the Company to file a S-1 Registration Statement with the SEC by March 31, 2016 and must receive a notice of effectiveness from the SEC prior to executing a Put Notice. The Purchase Price of the security is based on 80% of the Market Price based on the Put Date. Market price is calculated on the lowest daily volume weight average price for any trading day during the valuation period, which is the five days from the Put Notice to the Put Date. The Registration Statement has now been withdrawn.

On March 23, 2016 the Company issued 100,000 shares of common stock to one U.S. accredited investor at $0.50 per share for cash totaling $50,000.

On April 14, 2016, we issued 100,000 shares of Common Stock related to an Executive Employment Agreement with John Zimmerman. The Company recorded fair value of $66,000 ($0.66/share) based upon the most recent trading price per share of the Company's stock.

On April 18, 2016, we issued 20,820 shares of Common Stock related to a Director Agreement with John Zimmerman. The Company recorded fair value of $14,782 ($0.71/share) based upon the most recent trading price per share of the Company's stock.

On May 9, 2016, we issued 83,280 shares of Common Stock related to an agreement with a previous Director, William Jamieson. The Company recorded fair value of $54,132 ($0.65/share) based upon the most recent trading price per share of the Company's stock.

On June 29, 2016, we issued 125,000 shares of Common Stock to the Company's legal counsel as part of legal fees having a fair value of $68,738 ($0.55/share) based upon the recent trading price per share of the Company's common stock.

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During the nine months ended September 30, 2016, the Company converted debt and accrued interest, totaling $103,351 into 1,303,341 shares of common stock

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

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

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

	·	The distribution did not involve general solicitation or advertising.

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

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

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

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Item 6. Exhibits.

Exhibit No.		Document Description

31.1		CERTIFICATION of CEO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.

32.1 *		CERTIFICATION of CEO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEYACT OF 2002.

Exhibit 101		Interactive data files formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to the Consolidated Financial Statements.**

		XBRL Instance Document**

		XBRL Taxonomy Extension Schema Document**

		XBRL Taxonomy Extension Calculation Linkbase Document**

		XBRL Taxonomy Extension Definition Linkbase Document**

		XBRL Taxonomy Extension Label Linkbase Document**

		XBRL Taxonomy Extension Presentation Linkbase Document**

______________

*	This exhibit shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 of the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

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

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SIGNATURES

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

Indoor Harvest Corp, a Texas corporation

TITLE	NAME	DATE	SIGNATURE

Principal Executive Officer	Chad Sykes	November 21, 2016	/s/ Chad Sykes

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

SIGNATURE

NAME

TITLE

DATE