Quarterly report pursuant to Section 13 or 15(d)

Liquidity Agreement for Purchase of Investor Webcast

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Liquidity Agreement for Purchase of Investor Webcast
6 Months Ended
Jun. 30, 2016
Liquidity Agreement for Purchase of Investor Webcast  
Liquidity Agreement for Purchase of Investor Webcast

Note 18 – Liquidity Agreement for Purchase of Investor Webcast, LLC and Subsequent Termination

 

On April 20, 2015, the Company entered into a liquidity agreement to acquire 100% of CAST valued at $469,611 in exchange for 4,696 to-be-created Series B convertible preferred shares of Mentor. The purchase price was based on projected future earnings of CAST and discounted at 17.87% (the discount rate used for the 2015 investment in installment receivable described in Note 5).

 

After one year, the to-be-created Series B convertible preferred shares could be converted, in steps or in whole, into Mentor common shares. The to-be-created Series B convertible preferred shares would have converted to common shares based on the following conversion formula: ((3.3 times CAST recurring revenue) + (20 times CAST after tax profit) divided by 2) plus cash minus liabilities, for the preceding four calendar quarters, as defined in the agreement. Due to Mentor’s recent reincorporation in Delaware, the series B convertible preferred shares had not yet been created and therefore, a convertible security was issued to the prior owner of CAST which could be converted to Mentor Series B convertible preferred shares once they were created.

 

Purchase price allocation of CAST assets and liabilities:

 

CAST assets and liabilities:

 

 

 Current assets

$

106,305

 Property and equipment

 

4,378

 Current liabilities

 

(107,837)

Net equity

 

2,846

Goodwill

 

466,765

 Purchase valuation based on projected future earnings using  17.87% discount rate

$

469,611

 

Actual operating results of CAST in future periods and the share price of Mentor common shares at the date of conversion would determine the number of common shares issued upon conversion of the Series B convertible preferred shares, in whole or in part. The conversion formula was to be evaluated in subsequent periods to determine if actual CAST operations result in a contingent asset or liability relating to the Series B convertible preferred shares. The Company evaluated CAST revenue and income for the period from the purchase date, April 20, 2015, to December 31, 2015 along with revised projections. The revenue and net loss realized in 2015 and the lower revised projections resulted in a fair value of $0 for the convertible security at December 31, 2015.

 

 

On March 1, 2016, the Company entered into a Mutual Termination Agreement and General Release in which the certain Investor Webcast – Mentor Capital Cannabis Owners Public Liquidity Agreement effective April 20, 2015 (the “Purchase Agreement”) and the Convertible Security Agreement with the prior owner of CAST were cancelled and terminated, resulting in a disposition of CAST assets and liabilities by the Company. Pursuant to Section 3 of the Purchase Agreement, the CAST owner was to receive Mentor shares according to Mentor’s conversion formula specified in the agreement. However, the CAST business has not evolved as quickly as CAST owners expected and the result of the conversion formula was a negative number less than zero at the time of the termination. Therefore, the parties by mutual consent dissolved their relationship.

 

The CAST prior owner received assets valued at $7,408, assumed liabilities of $7,063 as follows:

 

CAST assets and liabilities disposed:

 

 

Liabilities:

 

 

 Accounts payable

$

5,427

 Accrued expenses

 

420

 Deferred revenue

 

1,216

   Total liabilities transferred

 

7,063

Assets:

 

 

 Prepaid expenses

 

2,885

 Accounts receivable, net of $10,000 allowance

 

190

 Employee advance

 

1,013

 Fixed assets, net of accumulated depreciation

 

3,320

   Total assets disposed

 

7,408

Loss on disposition of assets and liabilities

$

(345)

 

Mentor forgave an intercompany note receivable from CAST of $23,225, direct intercompany charges of $10,284, and $17,043 of intercompany overhead receivable from CAST. In addition, Mentor paid $500 to the prior owner and $50 each to two prior employees.