INTANGIBLE ASSETS AND GOODWILL

9 Months Ended

Sep. 30, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

INTANGIBLE ASSETS AND GOODWILL

NOTE 4.    DEBT

Line of Credit – Related Party

In February 2015, the Company issued a senior secured note to Infinity Capital, LLC (“Infinity Capital”), as amended in April 2015, bearing interest at 5% payable monthly in arrears commencing June 30, 2015, until the maturity date of August 31, 2015 (the “Infinity Note”).   Infinity Capital, an investment management company, was founded and is controlled by the Company’s chairman of the board, a related party.  On July 1, 2015, the outstanding principal and interest of $309,000 was settled by the Company issuing a 10% private placement note.  During the quarter ended September 30, 2015, the Company borrowed an additional $365,000 under the Infinity Note.

Notes Payable

		September 30, 2015		December 31, 2014
10.0% private placement notes	$	659,000	$	--
14.0% mortgage note payable (The Greenhouse)		600,000		600,000
12.0% convertible notes - December 2013		380,000		530,000
12.0% convertible notes - January 2014		950,000		1,120,000
8.5% convertible note payable (Pueblo West Property)		159,943		164,644
		2,748,943		2,414,644
Unamortized debt discount		(1,069,750)		(1,352,510)
		1,679,193		1,062,134
Less: Current portion		665,765		6,337
Long-term portion	$	1,013,428	$	1,055,797

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”) with certain accredited investors, bearing interest at 10% payable quarterly, with a maturity date of May 1, 2016.  Under the 10% Agreement, the Company can issue up to $2,000,000 of notes to investors, bearing interest at 10%, with a minimum denomination of $25,000 (each such note, a “10% Note,” and collectively, the “10% Notes”).  Subject to the terms and conditions of the 10% Agreement, each investor is granted fully-vested warrants equal to their note principal divided by two (the “10% Warrants”) (with standard dilution clause for dividends, stock splits, etc.).  The 10% Warrants are exercisable for a period of eighteen months after grant date and have an exercise price of $1.08 per share.  The debt is treated as conventional debt.  The 10% Notes are collateralized by a security interest in substantially all of the Company’s assets.

$309,000 of the 10% Notes are due to a related party, Infinity Capital, at September 30, 2015.

14% Mortgage Note Payable (The Greenhouse)

In October 2014, the Company executed a mortgage on The Greenhouse in the amount of $600,000, bearing 14.0% interest payable quarterly, with a maturity date of October 21, 2016 (the “Greenhouse Mortgage”).  The debt is treated as conventional debt.

In addition, the Company granted 600,000 warrants to Evans Street Lendco LLC (“Evans Ledco”), 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.).  Due to the drop in the Company’s stock price, on July 29, 2015, Evans Lendco and the Company agreed to replace the 600,000 warrants previously issued to Evans Lendco with warrants to purchase 225,000 shares of the Company’s stock at $1.20 per share with a term of two years.  The estimated fair value of the replacement warrants is less than the fair value of the original warrants on their date of grant.  Accordingly, the Company will continue to amortize the remaining fair value of the original warrants over the remaining life of the underlying debt.

12% Convertible Notes

December 2013 Issuance

In December 2013, the Company entered into convertible promissory notes with various third parties totaling $530,000 (the “December 2013 Issuance”). 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, bear interest at 12.0% payable quarterly, 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 acquired or may acquire with the proceeds from these notes.

Derivative treatment is not required, as the conversion feature met the scope exception. The conversion feature is not beneficial, because the conversion price was higher than the stock price on the commitment date.  Accordingly, the Company is treating the December 2013 Issuance as conventional debt.

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”). 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, bear interest at 12.0% payable quarterly, 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 acquired or may acquire with the proceeds from these notes.

Derivative treatment is not required, as the conversion feature met the scope exception.  Since the initial conversion price 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 intrinsic 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.

Conversion of 12% Convertible Notes

After December 1, 2015, the remaining convertible notes in the December 2013 Issuance and the January 2014 Issuance (collectively, the “12% 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 were met and the Company expects that the Convertible Notes will automatically convert to shares of the Company’s stock on December 2, 2015.

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, bearing 8 ½% interest with monthly principal and interest payments totaling $1,674 through December 31, 2018 (the “Pueblo Mortgage”). This note is convertible at any time at $5.00 per share.

Derivative treatment is not required, as the conversion feature met the scope exception. The conversion feature is not beneficial, because the conversion price was higher than the stock price on the commitment date.  Accordingly, the Company is treating the Pueblo Mortgage as conventional debt.

Annual maturities of long-term debt (excluding unamortized discount) for the next four years, consist of:

Year ending December 31,
2015	$	1,635
2016		1,265,910
2017		7,507
2018		1,473,891
	$	2,748,943