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 statement presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year.

Indoor Harvest Corp. (the "Company,") is a Texas corporation formed on November 23, 2011. From its inception, the Company, through its brand name Indoor Harvest ®, specialized 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”).

In the first half of 2017, the Company transitioned from an engineering, procurement, and construction management company for the vertical farming industry, into a developer of personalized cannabis medicines, and a provider of advanced cultivation technology, methods, and processes for cannabis production. Through its historical and current business and its brand name, Indoor Harvest ®, the Company continues to be a full-service state of the art design-build engineering firm for the indoor farming industry.

These unaudited interim condensed financial statements should be read in conjunction with the financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the United States Securities and Exchange Commission (the “SEC”) on April 17, 2017.

Use of Estimates

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

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

Cash and Cash Equivalents

The Company considers all highly liquid instruments with a maturity of three months or less to be cash and cash equivalents.

Accounts Receivable and Work in Progress

Work in progress 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, 2017, and December 31, 2016. The Company records revenue 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 on the balance sheet as costs and estimated earnings in excess of billings. Unearned billings are reflected in the balance sheet as a liability as billings in excess of costs and estimated earnings on projects in process (See Note 6).

Inventories

Inventory consists primarily of raw materials and packaging materials and is valued at the lower of cost or market. Cost is determined using the weighted average method and the average cost is recomputed after each inventory purchase or sale. Inventory is periodically reviewed to identify obsolete or damaged inventory and impaired values. Inventory is comprised of raw materials such as steel for our framing systems and packaging materials such as boxes and pallets valued at $2,360 at both September 30, 2017, and December 31, 2016.

Revenue Recognition

The Company recognizes revenue on arrangements in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 605, Revenue Recognition. In all cases, revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured. The Company will generate revenue from the design and installation of the equipment and licensing of technology.

Revenue from construction contracts are reported under the percentage of completion method for financial statement purposes. The estimated revenue for each contract reflected in the financial statements represent that percentage of estimated total revenue that costs incurred to date bear to estimated total costs, based on the Company’s current estimates. With respect to contracts that extend over one or more accounting periods, revisions in costs and revenue estimates during the work are reflected in the period the revisions become known. When current estimates of total contract costs indicate a loss, provision is made for the entire estimated loss.

The asset, “costs and estimated earnings in excess of billings on uncompleted contracts,” represents revenues recognized in excess of amounts billed. The liability, “Estimated earnings on uncompleted contracts,” represents billings in excess of revenues recognized.

Billing practices for these projects are governed by the contract terms of each project based upon actual costs incurred, achievement of milestones, or pre-agreed schedules. Billings do not necessarily correlate with revenue recognized under the percentage of completion method of accounting. Except for claims and change orders that are in the process of being negotiated with customers, unbilled work is usually billed during normal billing processes following achievement of the contractual requirements.

Stock Based Compensation

The Company recognizes stock-based compensation in accordance with ASC 718-10, Stock Compensation. ASC 718-10 focuses on transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus in which an entity obtains employee services in stock-based payment transactions. ASC 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award (with limited exceptions).

Basic Loss per Share

Basic loss 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 the Company has incurred losses for all periods, the impact of the common stock equivalents would be antidilutive and therefore are not included in the calculation.

The Company has the following common stock equivalents for the nine months ended September 30, 2017 and 2016, respectively:

	September 30, 2017		September 30, 2016
Convertible debt (exercise price - $0.07/share)		-		1,307,190
Convertible debt (exercise price - $0.30/share)		916,667		-
Series A convertible preferred shares (exercise price - $0.08/share)		-		3,267,974
		916,667		4,575,164

Fair Value of Financial Instruments

The Company adopted ASC 820 Fair Value Measurements for financial and non-financial assets and liabilities. The adoption did not have a material impact on our results of operations, financial position or liquidity. This standard defines fair value and 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. 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.

Carrying amounts reported on the balance sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value due to their relatively short maturity. Debt classified as Level 2 in the fair value hierarchy represent note payable, net of debt discount, of $0 and $209,786 at September 30, 2017 and December 31, 2016, respectively, and convertible notes payable of $247,986 and $122,383 at September 30, 2017 and December 31, 2016, respectively.

Income Taxes

The Company accounts for income taxes pursuant to ASC 740 Income Taxes. This standard requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more likely than not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements. Deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities reflect the tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is provided if it is more likely than not that some or all the deferred tax asset will not be realized.

ASC 740 implements a process for measuring those tax positions that meet the recognition threshold of being ultimately sustained upon examination by the taxing authorities. There are no uncertain tax positions taken by the Company on its tax returns. The Company files tax returns in the U.S. and states in which it has operations and is subject to taxation.

Tax years 2016, 2015, 2014, 2013, 2012 and 2011, remain subject to examination by the Internal Revenue Service (“IRS”) and respective states.

Property and Equipment

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

Asset Description	Estimated Useful Life (Years)
Furniture and equipment	3 - 5
Tooling equipment		10
Leasehold improvements	*

__________

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

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

Goodwill and Other Intangible Assets

Goodwill and indefinite-lived intangible assets are not amortized but are evaluated for impairment annually or more often if indicators of a potential impairment are present. In connection with the merger with Alamo CBD LLC (“Alamo CBD”), the Company has subsumed into goodwill all intangible assets acquired in the transaction. Indefinite-lived intangible assets consist of the Company’s domain name. Finite-lived intangible assets include software and is amortized over a 3 to 5 year period.

In accordance with ASC 350 Goodwill and Other Intangible Assets, goodwill and indefinite-lived intangible assets are reviewed annually for impairment or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. There were no impairment charges taken during the nine months ended September 30, 2017 and 2016.

Intangible assets consist of the following at September 30, 2017 and December 31, 2016:

Classification	September 30, 2017			December 31, 2016
Domain name	$	2,000		$	2,000
Facilities Manager's Package Online (software)		1,022			1,022
MLC CD Systems (software)		7,560			7,560
Total		10,582			10,582
Less: Accumulated amortization		(4,261	)		(2,978	)
Intangible assets, net	$	6,321		$	7,604

Patent and Patent Application Expenses

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

Research and Development

Research and development expenditures are charged to expense as incurred. Research and development expense for the three and nine months ended September 30, 2017 and 2016 are as follows:

	Three Months Ended				Nine Months Ended
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
Research and development expense	$	-	$	6,376	$	1,625	$	15,047

Advertising Expense

Advertising and promotional costs are expensed as incurred. Advertising expense for the three and nine months ended September 30, 2017 and 2016, are as follows:

	Three Months Ended				Nine Months Ended
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
Advertising expense	$	3,298	$	5,418	$	16,185	$	67,079

Recent Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect as of the date of the issuance of these financial statements. The following pronouncements may impact future reporting of financial position and results of operations. Management is currently assessing implementation.

The FASB issued Accounting Standards Update (ASU) No. 2017-01, Business Combinations (Topic 805) clarifying the definition of a business. The amendment affects all companies and other reporting organizations that must determine whether they have acquired or sold a business. For public companies, the amendment is effective for annual periods beginning after December 15, 2017, including interim periods within those periods.

The FASB issued ASU No. 2016-02, Leases (Topic 842) providing new lease accounting guidance. The standard requires the recognition of right-of-use assets and lease liabilities for all long-term leases, including operating leases, on the balance sheet. The standard also provides additional guidance on the measurement of the right-of-use assets and lease liabilities and will require enhanced disclosures about the Company’s leasing arrangements. Under current accounting standards, substantially all the Company’s leases are considered operating leases and, as such, are not recognized on the Consolidated Balance Sheet. This standard is effective for the Company beginning on January 1, 2019, with early adoption permitted.

The FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718) providing improved accounting for employee share-based payments. The standard affects all organizations that issue share-based payment awards to their employees. For public companies, the amendment is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods.

The FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606). This standard requires an entity to recognize the amount of revenue to which it expects to be entitled to for the transfer of promised goods or services to customers. The new standard was originally effective on January 1, 2017; however, in July 2015 the FASB decided to defer the effective date by one year. Early application is not permitted, but reporting entities may choose to adopt the standard as of the original effective date. The standard permits the use of either the retrospective or cumulative effect transition method.

Derivative Liability

The Company accounts for derivative instruments in accordance with ASC 815 Derivatives and Hedging, 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, 2017 and December 31, 2016, the Company did not have any derivative instruments that were designated as hedges.

Beneficial Conversion Feature

For conventional convertible debt where the rate of conversion is below market value, the Company records a beneficial conversion feature (“BCF”) and related debt discount. When the Company records a BCF, the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument. The discount is amortized to interest expense over the life of the debt.