Note 10 - Finance leases receivable
|3 Months Ended|
Mar. 31, 2019
|Note 10 - Finance leases receivable||
Note 10 - Finance leases receivable
Mentor Partner I
Partner I entered into a Master Equipment Lease Agreement with G FarmaLabs Limited, G FarmabLabs DHS, LLC, and GFBrands, Inc. (the G Farma Entities) 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 Entities under sales-type finance leases. Partner I recorded equipment sales revenue of $0 and $152,404 for the three months ended March 31, 2019 and 2018, respectively. At March 31, 2019 and December 31, 2018, all Partner I leased equipment under finance leases receivable was located in California.
As discussed in Notes 1 and 9, on February 22, 2019, the City of Corona Building Department closed access to G Farmas corporate location. On April 24, 2019, the Company was informed that certain G Farma assets at its corporate location, including approximately $427,804 of equipment under the Master Equipment Lease Agreement with G Farma Entities, was impounded by the City of Corona. This event has severely impacted G Farmas ability to pay amounts due the Company in the future. Based on our estimate of what we expect to collect or recover on the G Farma leases receivable, we have recorded a bad debt reserve of $668,958, at March 31, 2019, which is included in Selling, general and administrative expenses in the condensed consolidated income statement for the three months ended March 31, 2019. The G Farma leases receivable have been put on non-accrual status and are classified as non-performing on the condensed consolidated balance sheet at March 31, 2019. The current portion of the G Farma finance lease receivable, represents the $80,733 credit allocated from the repurchase of Mentor common stock from G Farma subsequent to quarter-end, see Note 25.
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 $2,065 and $0 for the three months ended March 31, 2019 and 2018, respectively. At March 31, 2019 and December 31, 2018, 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 borrowers ability to repay, estimated value of underlying collateral and current economic conditions. No allowance is recorded at December 31, 2018.
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.
Net investment in finance leases
The net investment included in finance leases at March 31, 2019 are as follows:
The net investment included in finance leases at December 31, 2018, all of which were classified as performing, are as follows:
Interest income recognized from Partner I finance leases for the three months ended March 31, 2019 and 2018, prior to classification as non-performing finance leases receivable, was $23,811 and $1,124, respectively. Interest income recognized from Partner II finance leases for the three months ended March 31, 2019 and 2018 was $13,079 and $0, respectively.
At March 31, 2019, minimum future payments receivable under finance leases were as follows:
The entire disclosure for lessor entity's leasing arrangements for operating, capital and leveraged leases.
Reference 1: http://fasb.org/us-gaap/role/ref/otherTransitionRef