LONG TERM DEBT

Long-term debt consists of the following:



	June 30, 2015			December 31, 2014
12.0% convertible notes, due October 31, 2018, issued December 2013	$	380,000		$	530,000
8.5% convertible note payable, due December 31, 2018 (Pueblo West Property)	161,543			164,644
12.0% convertible notes, due October 31, 2018, issued January 2014	980,000			1,120,000
14.0% mortgage payable, due October 21, 2016 (The Greenhouse)	600,000			600,000
10.0% private placement notes, due May 1, 2016	325,000			—
Long-term debt	2,446,543			2,414,644
Unamortized discount	(1,140,399		)	(1,352,510		)
Long-term debt, net of unamortized discount	1,306,144			1,062,134
Debt maturing within one year (1)	(195,001		)	(6,337		)
Debt maturing after one year	$	1,111,143		$	1,055,797


(1)	Includes principal due within the next twelve months on the 8.5% convertible note payable (Pueblo West Property) and the 10.0% private placement notes, due May 1, 2016.

12% Convertible Notes

December 2013 Issuance

In December 2013, the Company entered into various convertible promissory notes with various third parties totaling $530,000 (the “December 2013 Issuance”), of which $380,000 and $530,000 was outstanding at June 30, 2015 and December 31, 2014, respectively. The principal amounts of these notes range between $10,000 and $150,000. Under the terms of these notes, they mature on October 31, 2018, accrue interest at 12.0% per annum, and are convertible into shares of the Company’s common stock at a conversion rate of $5.00 per share, with standard dilution clauses (i.e. dividends, stock splits, etc.). These notes are secured by a first lien on all of the Company’s assets, which the Company acquires with the proceeds from the sale of these notes.

The Company paid $66,000 to a placement agent for finder’s fees which the Company recorded as a debt discount as of June 30, 2015 and December 31, 2014. In addition, the Company granted the placement agent warrants to purchase 10,600 shares at a price of $5.00 per share, (with standard dilution clause for dividends, stock splits, etc.) which vest immediately, and expire October 31, 2018. The value of the warrants was approximately $20,000 based on the Black-Scholes pricing model. The Company recorded the value of warrants as additional debt discount at issuance. The debt discount is being amortized over the life of the notes. The Company recorded debt discount amortization expense of $4,000 and $3,000 for the three months ended June 30, 2015 and 2014, respectively, and $21,000 and $6,000 for the six months ended June 30, 2015 and 2014, respectively. The unamortized debt discount balance for these notes was approximately $46,000 and $67,000 at June 30, 2015 and December 31, 2014, respectively.

To properly account for the December 2013 Issuance, the Company performed a detailed analysis to obtain a thorough understanding of the transaction. The Company reviewed ASC 815, to identify whether any equity-linked features in the December 2013 Issuance are freestanding or embedded. The Company determined that there were no free standing features. The December 2013 Issuance was then analyzed in accordance with ASC 815 to determine if the embedded conversion feature should be bifurcated and accounted for at fair value and remeasured at fair value in income. The Company determined that the embedded conversion feature did not meet the requirements for bifurcation pursuant to ASC 815 and therefore accounted for the December 2013 Issuance as conventional debt. The Company then reviewed ASC 470-20, and determined that the December 2013 Issuance met the criteria of a conventional convertible note and that none of the December 2013 Issuance had a beneficial conversion feature. As a result, pursuant to ASC 470-20, the Company recorded the conventional convertible note as a debt instrument in its entirety.

January 2014 Issuance

In January 2014, the Company entered into various convertible promissory notes with various third parties totaling $1,605,000 (the “January 2014 Issuance”), of which $980,000 and $1,120,000 was outstanding at June 30, 2015 and December 31, 2014, respectively. The principal amounts of these notes range between $10,000 and $200,000. Under the terms of these notes, they mature on October 31, 2018, accrue interest at 12.0% per annum, and are convertible into shares of the Company’s common stock at a conversion rate of $5.00 per share, with standard dilution clauses (i.e. dividends, stock splits, etc.). These notes are convertible at the election of the noteholder at any time on or before maturity date. These notes are secured by a first lien on all of the Company’s assets, which the Company acquires with the proceeds from the sale of these notes.

The Company paid approximately $160,500 in debt issuance costs and $32,100 to a placement agent for finder’s fees which the Company recorded as a debt discount as of December 31, 2014. In addition, the Company granted the placement agent warrants to purchase 32,100 shares at a price of $5.00 per share, (with standard dilution clause for dividends, stock splits, etc.) which vest immediately, and expire October 31, 2018. The value of the warrants was approximately $84,000 based on the Black-Scholes pricing model.

To properly account for the January 2014 Issuance, the Company evaluated the debt instruments pursuant to ASC 815, to identify whether any equity-linked features in the convertible debt are freestanding or embedded. The January 2014 Issuance was issued availing the option for note holders to convert debt to common stock at fixed conversion price of $5.00 per share. The Company determined that the conversion feature was embedded in the January 2014 Issuance, but did not meet the definition of a derivative pursuant to ASC 815 and therefore should not be bifurcated. The Company concluded that the January 2014 Issuance was conventional debt and assessed under ASC 470-20 whether the January 2014 Issuance had a beneficial conversion feature. Since the initial conversion price of the security was less than the market value of the common stock at the time of issuance, it was determined that a beneficial conversion feature existed. The Company calculated the value of the beneficial conversion feature by estimating the intrinsic value using the lattice method.

The calculated value of the beneficial conversion feature and the combined value of the debt discount resulted in a value greater than the value of the debt and as such, the total discount was limited to the value of the debt balance of $1,605,000. The Company recorded debt discount amortization expense of approximately $52,000 and $110,000 for the three months ended June 30, 2015 and 2014, respectively, and approximately $216,000 and $412,000 for the six months ended June 30, 2015 and 2014, respectively. The unamortized discount balance was approximately $687,000 and $903,000 at June 30, 2015 and December 31, 2014, respectively.

Conversion of 12% Convertible Notes

Through June 30, 2015, one of the December 2013 Issuance note holders converted notes with principal balances totaling $150,000 into 30,000 shares of the Company’s common stock at a conversion price of $5.00 per share. Through June 30, 2015, ten of the January 2014 Issuance note holders converted notes with principal balances totaling an aggregate of $625,000, and accrued interest of approximately $4,700 into 125,946 shares of the Company’s common stock at a conversion price of $5.00 per share.

Upon conversion, any remaining unamortized portions of debt discount relating to converted notes is immediately expensed to amortization expense. Amortization expense immediately expensed relating to converted notes was approximately $0 and $148,000 for the three months ended June 30, 2015 and 2014, respectively, and $123,000 and $148,000 for the six months ended June 30, 2015 and 2014, respectively.

After December 1, 2015, the remaining convertible notes in the December 2013 Issuance and the January 2014 Issuance (collectively, the “Convertible Notes”) will automatically convert to shares of the Company’s stock if the trading stock price has exceeded $10 for twenty consecutive trading days and the daily volume for those twenty consecutive trading days exceeds 25,000 shares. As of April 24, 2014, these parameters have been met and the Company expects that the Convertible Notes will automatically convert to shares of the Company’s stock on December 1, 2015. The Company’s Convertible Notes gross balance of $1,360,000 at June 30, 2015 is convertible to 272,000 shares of the Company’s stock.

8 ½% Convertible Note Payable (Pueblo West Property)

In December 2013, the Company executed a mortgage on its Pueblo West Property in the amount of $170,000 at 8 ½% interest with a term of five years and an amortization period of 15 years (the “Pueblo Mortgage”). This note is convertible at any time at $5.00 per share.

To properly account for the Pueblo Mortgage, the Company performed a detailed analysis to obtain a thorough understanding of the transaction. The Company reviewed ASC 815, to identify whether any equity-linked features in the Pueblo Mortgage are freestanding or embedded. The Company determined that there were no free standing features. The Pueblo Mortgage was then analyzed in accordance with ASC 815 to determine if the embedded conversion feature should be bifurcated and accounted for at fair value and remeasured at fair value in income. The Company determined that the embedded conversion feature did not meet the requirements for bifurcation pursuant to ASC 815 and therefore accounted for the Pueblo Mortgage as conventional debt. The Company then reviewed ASC 470-20, and determined that the Pueblo Mortgage met the criteria of a conventional convertible note and that none of the Pueblo Mortgage had a beneficial conversion feature As a result, pursuant to ASC 470-20, the Company recorded the conventional convertible note as a debt instrument in its entirety.

14% Mortgage Note Payable (The Greenhouse)

In October 2014, the Company executed a mortgage on The Greenhouse in the amount of $600,000 at 14.0% interest with a maturity date of October 21, 2016 (the “Greenhouse Mortgage”).

To properly account for the Greenhouse Mortgage, the Company performed a detailed analysis to obtain a thorough understanding of the transaction. The Company reviewed ASC 815, to identify whether any equity-linked features in the Greenhouse Mortgage are freestanding or embedded. The Company determined that there were no free standing features. The Greenhouse Mortgage was then analyzed in accordance with ASC 815 to determine if the embedded conversion feature should be bifurcated and accounted for at fair value and remeasured at fair value in income. The Company determined that the embedded conversion feature did not meet the requirements for bifurcation pursuant to ASC 815 and therefore accounted for the Greenhouse Mortgage as conventional debt. The Company then reviewed ASC 470-20, and determined that the Greenhouse Mortgage met the criteria of a conventional convertible note and that none of the Greenhouse Mortgage had a beneficial conversion feature. As a result, pursuant to ASC 470-20, the Company recorded the conventional convertible note as a debt instrument in its entirety.

In addition, the Company granted 600,000 warrants to Evans Lendco, the note holder of the Greenhouse Mortgage, which expire on October 21, 2016. The warrants vest immediately and allow for Evans Lendco to purchase 600,000 shares of the Company’s common stock at a price of $4.40 per share, (with standard dilution clause for dividends, stock splits, etc.). The relative fair value of the warrants was approximately $418,000 based on the Black-Scholes pricing model. The Company recorded the relative fair value of warrants as debt discount at issuance. The debt discount is being amortized to interest expense over the life of the notes. The amount amortized to interest expense was approximately $58,000 and $111,000 for the three and six-month periods ended June 30, 2015. The unamortized debt discount balance at June 30, 2015 and December 31, 2014 was approximately $272,000 and $383,000, respectively. On July 29, 2015, the Company exchanged 600,000 warrants previously issued to Evans Street Lendco, LLC ("Evans Lendco") with 225,000 warrants to purchase shares of the Company's stock at $1.20 per share with a term of 2 years (See Note 16).

10% Private Placement Notes

In May, 2015, the Company initiated a private placement pursuant to a Promissory Note and Warrant Purchase Agreement (the “10% Agreement”) between the Company and certain accredited investors for a term of one year for the note and 18 months for the warrants. Under the 10% Agreement, the Company can sell up to $2,000,000 of notes to investors, each note with a denomination of a minimum of $25,000 (each such note, a “10% Note,” and collectively, the “10% Notes”). At June 30, 2015, the balance of 10% Notes was $325,000. The Company performed an analysis to obtain a thorough understanding of the transaction. Pursuant to ASC 815 and ASC 470-20, the Company concluded that the 10% Notes should be accounted for as conventional debt and recorded the 10% Notes as debt instruments in their entirety.

Subject to the terms and conditions of the 10% Agreement, each investor is granted fully-vested warrants equal to their Note principal divided by 2 (the “10% Warrants”) (with standard dilution clause for dividends, stock splits, etc.). The 10% Warrants shall be exercisable for a period of eighteen (18) months after grant date and have an exercise price of $1.08 per share. As of June 30, 2015, the Company had 162,500 10% Warrants outstanding to various investors. The relative fair value of the warrants was approximately $146,000 based on the Black-Scholes pricing model. The Company recorded the relative fair value of warrants as debt discount at issuance. The debt discount is being amortized over the life of the notes. The amount amortized to interest expense was approximately $11,000 for the three months ended June 30, 2015. The unamortized debt discount balance at June 30, 2015 was approximately $135,000.

The tables below summarize the Company's convertible notes activity during the six months ended June 30, 2015:



	Principal Balance			Debt Discount			Accrued Interest			Total
Balance at December 31, 2014	$	2,414,644		$	(1,352,510	)	$	16,470		$	1,078,604
Issued during the period	325,000			(145,547		)	—			179,453
Converted into shares of common stock	(290,000		)	—			(1,063		)	(291,063		)
Amortization of debt discount	—			357,658			—			357,658
Payment of loan principal	(3,101		)	—			—			(3,101		)
Interest accrued during period	—			—			147,705			147,705
Interest paid during period	—			—			(94,540		)	(94,540		)
Balance at June 30, 2015	2,446,543			(1,140,399		)	68,572			1,374,716
Less: Current portion (1)	(330,133		)	135,132			—			(195,001		)
Long-term debt	$	2,116,410		$	(1,005,267	)	$	68,572		$	1,179,715


(1)	Includes principal due within the next twelve months on the 8.5% convertible note payable (Pueblo West Property) and the 10.0% private placement notes, due May 1, 2016.

Annual maturities of long-term debt (excluding unamortized discount) for the next five years ending December 31, and thereafter, consist of:



Remainder of 2015	$	3,238
2016	931,897
2017	7,507
2018	1,503,901
2019	—
2020	—
Thereafter	—
	$	2,446,543