In November 2016, the Company collected $859,486 in settlement proceeds from the Medical Marijuana Inc. (“MJNA”) Settlement Note/Promissory Note (as defined below) note receivable of $480,000, resulting in a gain on the collection of the notes receivable of $379,486. In addition, in December 2016, the Company received the remainder of its common stock previously held in escrow from MJNA, HempMeds PX, LLC, Kannaway, LLC, General Hemp, LLC, HDDC Holdings, LLC, Rabbit Hole Technologies, Inc., Hemp Deposit and Distribution Corporation and MJNA Holdings, LLC (collectively, the “MJNA Parties”), as settlement for the Company’s $60,351 notes receivable. Furthermore, during the year ended 2016, a portion of the Company products previously sold to MediJane Holdings (“MJMD”) were returned to the Company in February 2016 with the remaining products returned in June 2016. In connection with the return of the remaining products, a bad debt expense of $9,218 was recorded during the year ended 2016.

As such, no notes receivable were outstanding as of December 31, 2016. Notes receivable at December 31, 2015 was comprised of the following:

The MJNA settlement note relates to an agreement as reported in the Company’s Form 8-K filed with the SEC on July 20, 2015 (the “July Form 8-K”). As further discussed in the July Form 8-K, on July 14, 2015, the Company entered into a settlement agreement with the MJNA Parties to settle multiple litigation matters between the Company and the MJNA Parties (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the MJNA Parties paid the Company the sum of $150,000 and delivered a promissory note in the principal amount of $600,000 (the “Settlement Note”), bearing interest at the rate of 6% per annum, payable in six equal monthly installments of $101,757 commencing August 15, 2015. The promissory note was secured by shares of the Company’s common stock held by the MJNA Parties. In November 2015, MJNA failed to timely pay the fourth payment installment under the Settlement and therefore defaulted on the Settlement Note. On December 3, 2015, the Company foreclosed on the Settlement Note collateral consisting of Company common stock. The foreclosure resulted in the Company obtaining rights to receive 624,600 shares of our common stock in full satisfaction of the remaining principal and accrued interest balance. At the foreclosure date, the Company took immediate possession of 500,000 shares held in escrow. The Settlement Note balance of $60,351 at December 31, 2015 represents the fair value at the foreclosure date of the remaining 124,600 shares. In December 2016, the Company obtained the remaining 124,600 shares held as collateral from the MJNA Parties as part of the Settlement Note, which were immediately cancelled upon receipt.

In August 2015, the Company entered into an agreement to sell MJNA our products and received from MJNA a promissory note in the principal amount of $2,002,910 (the “MJNA Promissory Note”) that was to be paid in 12 equal installments beginning on November 3, 2015 in exchange for products shipped to MJNA. The MJNA Promissory Note was secured by 2,000,000 shares of the Company’s common stock held in escrow (the “collateral shares”). MJNA failed to make any payments on the MJNA Promissory Note owned by MJNA. At December 31, 2015, the fair value of the collateral was determined to be $480,000, equal to the $0.24 per share closing price of the Company’s Common Stock as of December 31, 2015, multiplied by the 2,000,000 shares of Company common stock. As a result, the Company recorded a loss of $1,522,910 related to the MJNA Promissory Note for the year ended December 31, 2015. In November 2016, the Company entered into a Mutual Release and Satisfaction of the Note with MJNA (the “Note Release”). As part of the Note Release, MJNA paid the Company $859,486 in full satisfaction of all obligations outstanding with regards to the MJNA Promissory Note, as specified in the Amendment. As a result, the Company recorded a gain of $379,486, presented as a separate line item in the consolidated financial statements within operating income/(loss).

The MJMD note relates to the sale of Company products during December 2014 in exchange for a convertible promissory note in the amount of $1,200,000 (the “MJMD Note”). The full amount of the MJMD Note was due on June 23, 2015 along with accrued interest at 10%. In October 2015, we converted $42,350 of the principal amount of the MJMD Note into MJMD common stock. MJMD was unable to secure financing in support of its operations and was not able to sell or otherwise commercialize the Company products purchased. In February 2016, the Company entered into an amendment to the MJMD Note, providing for the return of Company products previously sold to MJMD. A portion of the Company products previously sold to MJMD were returned to the Company in February 2016 with the remaining products to be returned in June 2016. At December 31, 2015, the fair value of the Company products to be returned was determined to be $77,330, equal to the cost value of the Company products to be returned. As a result, the Company recorded a loss of $1,203,258 related to the MJMD Note and also recorded a loss of $42,350 in connection with the MJMD common stock owned by the Company for the year ended December 31, 2015. During the year ended 2016, a portion of the Company products previously sold to MJMD were returned to the Company in February 2016 with the remaining products returned in June 2016. In connection with the return of the remaining products, a bad debt expense of $9,218 was recorded during the year ended 2016.