Note 9 - Finance leases receivable
|3 Months Ended|
Mar. 31, 2020
|Note 9 - Finance leases receivable||
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 either of the three months ended March 31, 2020 and 2019.
As discussed in Notes 1 and 8, on February 22, 2019, the City of Corona Building Department closed access to G Farmas 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 Farmas 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 March 31, 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. Bad debt expense of $6,969 and $668,958 for the three months ended March 31, 2020 and 2019, respectively, is included in selling, general and administrative expenses in the consolidated income statement.
On May 28, 2019, Partner I and Mentor Capital, Inc. filed a complaint in the Superior Court of California in the County of Marin for, among other things, breach of contract against the G Farma Lease Entities and the G Farma Lease Guarantors. As of December 31, 2019, the G Farma Lease Entities had unauthorized possession of Mentor Partner I, LLCs equipment valued at approximate $792,425 which was not seized by the Corona Police Department and are in default of their obligations under the Master Equipment Lease.
On January 22, 2020, the Court granted the Companys motion for writ of possession and preliminary injunction prohibiting defendants from retaining control of or selling leased property and, 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 Companys control. On March 5, 2020, the Company sold a portion of the recovered equipment, with an original cost of $495,967, for $240,000, however, because a component of the equipment was reported missing, the Company refunded $17,969 to the purchasing party. The net sale proceeds of $222,031 was credited against the gross lease receivable at March 31, 2020. The remainder of repossessed equipment is classified as held for sale equipment in the condensed consolidated balance sheet at March 31, 2020 at an estimated net realizable value of $40,000. Remaining net lease payments receivable of $793,649 are fully reserved for at March 31, 2020 and we will continue to pursue collection 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:
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 $74,889 for the three months ended March 31, 2020 and 2019, respectively. At March 31, 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 borrowers 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:
Interest income recognized from Partner I finance leases for the three months ended March 31, 2020 and 2019, was $0 and $23,811, respectively.
Interest income recognized from Partner II finance leases for the three months ended March 31, 2020 and 2019, was $12,539 and $13,079, respectively.
At March 31, 2020, minimum future payments receivable for performing finance leases receivable 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