Note 2 - Summary of significant accounting policies: Convertible notes receivable (Policies)
|3 Months Ended|
Mar. 31, 2019
|Convertible notes receivable||
Convertible notes receivable
The Company had a convertible note receivable from Electrum Partners, LLC (Electrum) under an Addendum to Convertible Note and Purchase Option Agreement (Addendum) dated April 28, 2017. Under the Addendum, the Company invested an additional $100,000 in Electrum by the purchase of a second promissory note in the principal face amount of $100,000 (Note II) from Electrum, with interest at 10% per annum compounded monthly. Note II required monthly principal and interest payments of $2,290 to the Company beginning June 12, 2017. On May 31, 2018, the Company elected to convert the residual principal and accrued but unpaid interest totaling $86,256 into an equity investment in Electrum at $164 per unit for 526 membership interest units.
The Company has convertible notes receivable from NeuCourt, Inc. which are recorded at the aggregate principal face amount of $75,000 and $75,000 plus accrued interest of $2,735 and 1,801 at March 31, 2019 and December 31, 2018, respectively, as presented in Note 8. The notes bear 5% interest with one $25,000 principal face amount note maturing on October 25, 2019, and a second $50,000 principal face amount note maturing on October 31, 2020. No payments are required prior to maturity. Principal and unpaid interest may be converted into a blend of shares of a to-be-created series of Preferred Stock, and Common Stock, of NeuCourt (defined as Conversion Shares) (i) on closing of a future financing round of at least $750,000, (ii) on the election of NeuCourt on maturity of the Note, or (iii) an election of Mentor following NeuCourts election to prepay the Note. The Conversion Price for the Note is the lower of (i) 75% of the price paid in the Next Equity Financing, or the price obtained by dividing a $3,000,000 valuation cap by the fully diluted number of shares. The number of Conversion Shares issued on conversion shall be the quotient obtained by dividing the outstanding principal and unpaid accrued interest on a Note to be converted on the date of conversion by the Conversion Price (the Total Number of Shares), The Total Number of Shares shall consist of Preferred Stock and Common Stock as follows: (i) That number of shares of Preferred Stock obtained by dividing (a) the principal amount of each Note and all accrued and unpaid interest thereunder by (b) the price per share paid by other purchasers of Preferred Stock in the Next Equity Financing (such number of shares, the "Number of Preferred Stock") and (ii) that number of shares of Common Stock equal to the Total Number of Shares minus the Number of Preferred Stock.
Using the valuation cap of $3,000,000, the Notes would convert into 270,324 and 270,324 Conversion Shares at March 31, 2019 and December 31, 2018, respectively. In the event of a Corporate Transaction prior to repayment or conversion of the Note, the Company shall receive back two times its investment, plus all accrued unpaid interest. NeuCourt is a Delaware corporation that is developing a technology that is expected to be useful in the cannabis space.
Disclosure of accounting policy for financing receivable.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef