Note 20 – Commitments and contingencies

During the normal course of business, the Company may be exposed to litigation. When the Company becomes aware of potential litigation, it evaluates the merits of the case in accordance with FASB ASC 450-20-50, Contingencies. The Company evaluates its exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If the Company determines than an unfavorable outcome is probable and can be reasonably estimated, it establishes the necessary accruals. As of June 30, 2016, the Company is not aware of any contingent liabilities that should be reflected in the accompanying financial statements.

Mentor lawsuit seeking rescission of co-operative funding agreement with Bhang and subsequent arbitration award

On August 11, 2014, Mentor filed suit against Bhang and its owners, in the United States District Court for the Northern District of California for rescission of the February 28, 2014 co-operative funding agreement with Bhang (“Bhang Agreement”) and seeking return of the $1,500,000 paid by the Company to Bhang and its owners. This was in response to the June 24, 2014, unilateral announcement by Bhang that they were terminating all details of their relationship with Mentor, leaving Mentor with nothing, but declining to return any of the $1,500,000 paid to Bhang and its shareholders by Mentor during the preceding, and only, four months of interaction. On January 9, 2015, Mentor initiated arbitration proceedings against Bhang Chocolate Company, its successor in interest Bhang Corporation, and its owners seeking rescission of the Bhang Agreement. An arbitration hearing was held in May 2016. Subsequent to June 30, 2016, the Arbitration Panel granted Mentor’s request for contract rescission and ordered Bhang to return Mentor’s $1,500,000 plus interest at the rate of 10% during the period of time from the date of the Bhang Agreement through the date of the arbitration award. See Note 4. The Company’s legal counsel will be submitting to the Arbitration Panel a motion seeking recovery of legal fees incurred by Mentor related to the Bhang dispute.

In March 2015, Bhang and its owners filed a counterclaim against Mentor in the arbitration action. Bhang contended it suffered losses and should be able to keep the $1,500,000 they received from Mentor and sought additional damages of approximately $84,000,000. The Arbitration Panel’s decision, received subsequent to June 30, 2016, found for Mentor on all claims and denied Bhang’s request for damages entirely.

Pursuant to the Bhang Agreement, the Bhang owners purchased 117,000 Mentor shares at a price of $1.95 per share. Subsequent to June 30, 2016, the Arbitration Panel’s decision granting Mentor’s request for rescission provided for return of the Bhang owners’ shares to Mentor in exchange for payment of the original purchase price for such shares plus interest at the rate of 10% for the period of time from the date of the Bhang Agreement through the date of the arbitration award. No shares have been returned to the Company at this time.

In July 2015, Mentor was served with a complaint in a Federal District Court for the District of Utah action initiated by the wife and daughter of Bhang’s corporate counsel seeking reimbursement of the purchase price for shares of Mentor’s common stock purchased from the CEO of Bhang along with other allegations of securities violations. As these shares of Mentor stock were purchased from one of the Bhang owners, these shares may be returned to Mentor pursuant to the arbitration award rendered in the Bhang dispute. The Company contends that it was not a party to this secondary transaction and intends to vigorously defend itself against all claims in this case. On May 4, 2016, Mentor filed a third-party complaint against Richard Golden and Scott Van Rixel seeking contribution from and indemnification by Messrs. Golden and Van Rixel related to the secondary sale under which the Mentor shares were sold to the plaintiffs in this action.

Mentor lawsuit seeking return of loan commitment fee

In March 2014, the Company paid $621,250, which represented 1.75% of a prospective loan amount, in refundable fees paid for credit default insurance to a third party as required by the lender on an international loan facility. The lender was unable to fund the loan and a cooperative exit from the loan commitment was agreed to by the parties on June 12, 2014. The lender has released the requirement for credit default insurance and the insurance company has agreed to return the fee, however the refund has not yet been received. On September 5, 2014, the Company filed suit in San Mateo County Superior Court against Wm. E. Fielding and Associates, Inc., the name of the account holder to whom the $621,250 was wired, for conversion and fraud seeking return of the $621,250 in credit insurance premiums that had been paid, had been promised to be returned, and which were not returned. The $621,250 in fees was expensed as loan costs in June 2014, pending the outcome of the suit. The court entered a default against the defendant. On March 1, 2016, Mentor was granted a judgment in the amount of $746,500 against defendant and Mentor now intends to collect on this judgment. The Company is assessing its ability to collect on the judgement and due uncertainty surrounding collection, the Company has not recorded a receivable on the condensed consolidated balance sheet at June 30, 2016.