On March 1, 2013, the Company issued a Promissory Note (the “Note”) to Roen Ventures, LLC, a Nevada limited liability company (“Roen Ventures”), in exchange for loans provided and to be provided in the future in an amount of up to $2,000,000, subsequently increased to $6,000,000. As of December 31, 2013, the principal balance of the Note was $6,092,069. On January 27, 2014, the Company converted $6,000,000 of the Note balance into 10,000,000 shares of common stock of the Company pursuant to the terms of the Note, as amended. On January 28, 2014, the Company repaid Roen Ventures accrued interest on the Note in the amount of $187,453 and principal under the Note in the amount of $92,069.

The Company had determined that the conversion feature is considered a beneficial conversion feature and determined its value on July 25, 2013, the date of the amendment increasing the principal amount of the Note to $6,000,000, to be $800,000. The Company calculated the beneficial conversion feature at its intrinsic value. Accordingly, the beneficial conversion feature was accounted for as a debt discount to the Note and was to be amortized using the effective interest method as interest expense over the remaining life of the Note or upon conversion, if sooner. Upon conversion of the Note, the remaining balance of the debt discount totaling $589,474 was amortized to interest expense in the accompanying condensed consolidated financial statements.

At March 31, 2014 and December 31, 2013, 100% of the Company’s accounts receivable totaling $1,965,729 and $1,430,202, respectively, were from affiliates of Medical Marijuana, Inc. (“MJNA”), a stockholder of the Company. For the three months ended March 31, 2014, the Company recognized revenues of $2,631,869. 100% of those revenues related to sales to affiliates of MJNA.

On January 10, 2014, MJNA agreed to assume $725,000 of the Dixie Botanicals accounts receivable and write-off $11,496. MJNA paid the Company $125,000 on January 17, 2014 towards this balance. The remaining $600,000 is subject to a promissory note issued by MJNA to the Company, whereby MJNA will make monthly payments to the Company, including interest at 7% per annum, over a two-year period. This note is secured by the shares of common stock of the Company owned indirectly by MJNA through MJNA’s subsidiary, PhytoSPHERE Systems, LLC, which is valued at two times the principal amount of the note based on the five-day average closing price of the Company’s common stock at the time of determination. Such determination shall occur every 60 days, at which time the number of shares pledged shall be increased or decreased, accordingly. At March 31, 2014, $292,644 of the note was classified as a current asset and $260,056 of the note was classified as a non-current asset.