XML 26 R15.htm IDEA: XBRL DOCUMENT

Note 9 - Finance leases receivable

9 Months Ended

Sep. 30, 2020

Note 9 – Finance leases receivable

Mentor Partner I

Partner I entered into a Master Equipment Lease Agreement with G FarmaLabs Limited and G FarmaLabs DHS, LLC (the “G Farma Lease Entities”) with guarantees by GFBrands, Inc., formerly known as G FarmaBrands, Inc, Ata Gonzalez and Nicole Gonzalez (collectively, the “G Farma Lease Guarantors”) dated January 16, 2018, and amended March 7, April 4, June 20, and September 7, 2018, and March 4, 2019. Partner I acquired and delivered manufacturing equipment as selected by G Farma Lease Entities under sales-type finance leases. Partner I did not report equipment sales revenue for the nine month periods ended September 30, 2020 and 2019.

As discussed in Note 8, on February 22, 2019, the City of Corona Building Department closed access to G Farma’s corporate location; the Company was not informed by G Farma of this incident until March 14, 2019. On April 24, 2019, the Company was informed that certain G Farma assets at its corporate location, including equipment leased to G Farma by Mentor Partner I under the Master Equipment Lease Agreement valued at approximately $427,804, was impounded by the Corona Police. This event severely impacted G Farma’s ability to pay amounts due the Company in the future and the G Farma lease receivable was put on non-accrual status effective April 1, 2019 and is classified as non-performing on the consolidated balance sheets at September 30, 2020 and December 31, 2019. In March 2020, we discovered that an additional component valued at $36,594 was missing from the equipment recovered by Mentor earlier in 2020. Bad debt expense of $0 and $1,084 for the three months ended September 30, 2020 and 2019, respectively, is included in selling, general and administrative expenses in the condensed consolidated income statement. Bad debt expense of $19,519 and $730,469 for the nine months ended September 30, 2020 and 2019, respectively, is included in selling, general and administrative expenses in the condensed consolidated income statement.

On January 31, 2020, all remaining equipment leased to G Farma by Mentor Partner I which was not impounded by the Corona Police was repossessed by the Company and moved to storage under the Company’s control. In the quarter ended March 31, 2020, the Company sold a portion of the recovered equipment, with an original cost of $495,967, for net proceeds of $222,031. In the quarter ended June 30, 2020, the Company sold all remaining recovered equipment, with an original cost of $126,703, for net proceeds of $27,450, after deducting shipping and delivery costs. All proceeds from sale of repossessed equipment has been applied to the G Farma lease receivable balance. Remaining net lease payments receivable from G Farma are fully reserved for at September 30, 2020. The Company has initiated an action against the G Farma Lease Entities and the G Farma Lease Guarantors in the Superior Court of California in the County of Marin seeking, among other things, damages caused by G Farma’s and its guarantors’ breaches of the various agreements. We will continue to pursue collection to the maximum extent possible from the G Farma Lease Entities and G Farma Lease Guarantors for collection on all amounts due that have not been recovered through the sale of assets.

Net finance leases receivable, non-performing, consists of the following:

		September 30, 2020		December 31, 2019
Gross minimum lease payments receivable	$	1,203,404	$	1,455,685
Less: unearned interest		(400,005)		(400,005)
Less: reserve for bad debt		(803,399)		(786,680)
Finance leases receivable		-		269,000
Less current portion		-		(269,000)
Long term portion	$	-	$	-

Mentor Partner II

Partner II entered into a Master Equipment Lease Agreement with Pueblo West, dated February 11, 2018 and amended November 28, 2018 and March 12, 2019. Partner II acquired and delivered manufacturing equipment as selected by Pueblo West under sales-type finance leases. Partner II recorded equipment sales revenue of $0 and $0 for the three months ended September 30, 2020 and 2019, respectively. Partner II recorded equipment sales revenue of $0 and $74,889 for the nine months ended September 30, 2020 and 2019, respectively. At September 30, 2020, all Partner II leased equipment under finance leases receivable is located in Colorado.

We review the finance leases receivables by individual account to determine expected collectability. The allowance for credit losses is an estimate of the losses inherent in our finance receivables taking into consideration past loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of underlying collateral and current economic conditions.

The Company issues a payment schedule upon inception of the lease. Revenue is recognized at the time equipment is delivered. Principal on lease payments received prior to delivery of equipment is recorded as a decrease in the finance lease receivable and interest received in advance is recorded as a liability under deferred revenue.

Performing net finance leases receivable consists of the following:

		September 30, 2020		December 31, 2019
Gross minimum lease payments receivable	$	505,223	$	587,854
Accrued interest		2,119		2,463
Less: unearned interest		(113,637)		(145,445)
Finance leases receivable		393,705		444,872
Less current portion		(67,257)		(62,145)
Long term portion	$	326,448	$	382,727

Interest income recognized from Partner I finance leases for the three months ended September 30, 2020 and 2019, was $0 and $0, respectively. Interest income recognized from Partner I finance leases for the nine months ended September 30, 2020 and 2019, was $0 and $23,811, respectively.

Interest income recognized from Partner II finance leases for the three months ended September 30, 2020 and 2019, was $11,730 and $13,312, respectively. Interest income recognized from Partner II finance leases for the nine months ended September 30, 2020 and 2019, was $36,297 and $38,554, respectively.

At September 30, 2020, minimum future payments receivable for performing finance leases receivable were as follows:

12 months ending September 30,		Total
2021	$	67,257
2022		74,732
2023		83,038
2024		92,268
2025		65,487
Thereafter		10,923
	$	393,705