NOTE 5 – NOTES PAYABLE

Convertible Notes:

Beginning in October 2011, the Company began selling 5% promissory notes (the “Notes”) along with shares of the Company's common stock. Investors received one share of common stock for each one dollar of principal amount loaned to the Company. The Notes bear interest at 5% per annum, they are unsecured, and their maturity dates are seven years from their issue date. The Company sold $3,086,388 of notes from October 2011 through November 2012. Quarterly payments are applied against accrued interest first, then principal. The minimum aggregate quarterly payment to Note holders is 2.5% of the Company's portion of gross quarterly revenues from each Southern Hospitality BBQ restaurant. The first minimum quarterly payment of $7,297 was paid in May 2013 (45 days after the first calendar quarter in which the Denver restaurant opened which occurred on February 21, 2013). Payments made in the years ended December 31, 2014 and 2013, were $2,409 and $21,600, respectively. At December 31, 2014, the Company has not made all required payments of interest on the Notes. The Company may cure this deferral in interest payments within a defined period of time, as provided for in the note agreements, thus preventing the Notes from becoming callable.

By their original terms, the Notes and accrued interest became convertible, at the option of the holder, upon the Company's common stock becoming publicly traded on November 13, 2012. The conversion price is 80% of the 20-day average closing sales price on the date conversion is elected, but not less than $0.50 per share. The Company determined that there was a beneficial conversion feature associated with the Notes in the amount of $283,500 related to the intrinsic value of the conversion feature before the Company's stock became public. The Company recorded the beneficial conversion feature as a discount to the Note and is amortizing the amount to interest over the term of the Notes. Approximately $49,100 and $82,300 was amortized for the years ended December 31, 2014 and 2013, respectively. During the year ended December 31, 2013, there was $830,984 of Notes and accrued interest converted into 417,828 common shares at conversion prices between $1.82 and $2.30 per share. No Notes were converted in 2014. At December 31, 2014 and 2013, the balance of the Notes and accrued interest, net of discount, was approximately $665,900 and $592,800, respectively.

Beginning in August 2014, the Company began selling 6.5% promissory notes (the “2014 Notes”) along with warrants to purchase the Company's common stock. Investors received a warrant to purchase four shares of common stock for each one dollar of principal amount loaned to the Company with an exercise price of $0.40 per share exercisable for three years. The 2014 Notes bear interest at 6.5% per annum, they are unsecured, and their maturity dates are five years from their issue date. The Company sold $460,000 of notes from August 2014 through December 2014. At December 31, 2014, the balance of the notes and accrued interests, net of discount, was approximatley $182,200. Subsequent to December 31, 2014, the Company sold an additional $30,000 of notes. By their original terms, the 2014 Notes and accrued interest become convertible, at the option of the holder, after two years from the issue date. The conversion price is the lower of 80% of the 20-day average closing sales price on the date conversion is elected or $0.25 per share.

Convertible Notes:

The 2014 Notes were recorded at $151,200 after discounting the convertible notes based on the relative fair value of the warrants issued with the debt, of approximately $188,800. The warrants were issued with the convertible debt and their relative fair value was determined using the Black-Scholes option pricing model. Additionally, the convertible notes were further discounted, as the Company determined that the convertible debt contained a beneficial conversion feature and recorded an additional debt discount of approximately $120,000. Approximately $14,800 was amortized as additional interest for the year ended December 31, 2014.

The assumptions used in the Black-Scholes model to determine the fair value of warrants are as follows: (1) dividend yield of 0%, (2) expected volatility of 205%, (3) weighted average risk-free interest rate of 0.78%, (4) contractual life of 3.0 years, and fair value of the Company's shares of $0.23 to $0.30 per share. The relative fair value attributable to the warrants and the beneficial conversion feature have been recorded as a discount and deducted from the face value of the convertible debt in the accompanying consolidated balance sheet. The discount applied to the 2014 notes is being amortized over the five-year term of the convertible notes.

Promissory Note:

During the year ended December 31, 2013, the Company issued a promissory note with an aggregate face value of $200,000, along with a warrant to purchase 50,000 shares of the Company's common stock. This note bears interest at 5% per annum and is unsecured. The holder of the note received additional consideration in the form of a fully vested warrant to purchase 50,000 common shares at an exercise price of $0.50 per share exercisable for three years from the date of execution of the note. The Company determined the relative fair value of the warrant to be approximately $44,000, which was recorded as a discount to the note payable, which was amortized over approximately three months (Note 8).

Bank Financing:

In November 2014, 53 Peaks Lone Tree LLC, a wholly-owned subsidiary of the Company, subsequently renamed Southern Hospitality Lone Tree, LLC, and Rocky Mountain Bank & Trust entered into a bank financing agreement to purchase kitchen equipment for the restaurant location. The agreement provides for financing up to $200,000, of which the Company had drawn approximately $2,000 by December 31, 2014. This loan bears interest at 6%. Monthly interest-only payments begin in December 2014 for six months. Thereafter, monthly principal and interest payments of approximately $5,000 are due through maturity in May 2020. The agreement was personally guaranteed by two directors of the Company. Their personal guarantees were subsequently released, and the agreement is now collateralized by the kitchen equipment at the Lone Tree and SHD restaurants.

Related Party Promissory Notes:

On August 1, 2013, the Company entered into an unsecured promissory note with BBHCLLC. The note was for $249,301 (a balance of $204,877 at December 31, 2013) with a maturity date of February 1, 2014. The note included a 5% annual interest rate and terms in case of default in which the loan could have been converted into common stock of the Company by the note holder at no less than $0.10 a share. The note and unpaid interest was extinguished on the date the Company and BBHCLLC successfully closed the BB Transaction.

The Company issued short-term promissory notes totaling $90,000 in the third quarter of 2014 to two shareholders. These notes bear interest at 10% per annum, are unsecured, and have a maturity date of 180 days after the date of execution (March 28, 2015). In addition, the Company issued a short-term, unsecured promissory note for $25,000 on November 13, 2014, to a third shareholder. This note was subsequently paid off in full in January 2015.

Related Party Loan Agreement:

On December 31, 2014, the Company entered into a Loan Agreement and associated Promissory Note (the “Loan Agreement”) with Bourbon Brothers #14, LLC (“BB14”) which provides for an unsecured term loan in the aggregate original principal amount of $1,250,000 (the “Loan”). The Company received net proceeds of $1,197,714 after loan closing fees. BB14 is a related party entity, controlled by certain shareholders of the Company. The Company is to pay interest on the Loan at the greater of 9.5% or 6.25% per annum plus the prime rate announced by the Wall Street Journal. In addition, the Company is to pay a monthly loan servicing fee in the amount of 1% of the principal balance of the Loan. The entire principal balance of the Loan, plus any accrued and unpaid interest, is due on December 29, 2016, unless the Company exercises its option to extend the term of the Loan. Extension of the Loan requires certain conditions to be met at the time of the extension.

In connection with the Loan, the Company issued a warrant to BB14 for the purchase of 7,500,000 shares of common stock exercisable for a period of five years at $0.10 per share with the warrant vesting in one year. BB14 assigned part of the warrant to purchase 500,000 to Heather Atkinson for her services as manager of BB14. BB14 funded the Loan with financing BB14 received from a third-party lender. JW Roth, a director of the Company, personally guaranteed the BB14 Loan to obtain financing to facilitate the Loan. To compensate JW Roth, the Company issued a warrant to Mr. Roth for the purchase of 7,500,000 shares of common stock exercisable for a period of five years at $0.10 per share with the warrant vesting in one year. The Company determined the relative fair value of the warrants to be approximately $731,800, which has been recorded as a discount to the Loan principal balance, and which is to be amortized over the term of the Loan.

Scheduled Maturity Table:

Scheduled maturities of notes payable for the next five years and thereafter as of December 31, 2014, are as follows:

Year ending December 31:
2015	$	315,000
2016		1,250,000
2017		-
2018		839,481
2019		460,000
Thereafter		-
		2,864,481
Less total discount on notes payable		(1,259,899	)
Add accrued interest at December 31, 2014		103,918
		1,708,500
Less current portion		465,877
Non-current portion	$	1,242,623