Note 10 - Contractual interest in legal recoveries
|3 Months Ended|
Mar. 31, 2020
|Note 10 - Contractual interest in legal recoveries||
Note 10 - Contractual interests in legal recoveries
Interest in G FarmaLabs Limited legal recovery
On March 22, 2017, G Farma purchased 222,223 restricted shares of the Companys Common Stock in a private placement at a price of $2.25 per share, for an aggregate purchase price of $500,002. Pursuant to Addendum II entered into on April 28, 2017, G Farma purchased an additional 66,667 shares of the Companys Common Stock at $1.50 per share for an aggregate purchase price of $100,000. The combined total purchase of $600,002 was to be paid as follows: (i) Assignment to the Company of an interest, equal to the amount of the purchase price, in any and all civil forfeiture or similar recoveries received by, or due to, G Farma including a $10 million claim filed March 29, 2017, against the County of Calaveras, or (ii) at any time before payment of the full purchase price from recovery, the Company may elect to have G Farma pay all or some of the purchase price on the date of the maturity of the promissory notes, described above under the Notes Purchase Agreement, or (iii) the Company may elect to have G Farma pay all or some of the purchase price by issuance to the Company of G Farma securities in aggregate amount equal to the purchase price as are offered to any other person (other than stock options offered to employees).
G Farmas civil forfeiture case in the Federal District Court for the Eastern District of California, a portion of which was one of the three ways in which the purchase price could be paid for the purchase of shares of Mentor Common Stock, was dismissed on April 12, 2018 and has no value. In the quarter ended March 31, 2019, the $600,002 contractual interest in G Farmas legal recovery intended as consideration for payment of the shares of Companys Common Stock was fully impaired due to the events discussed in Notes 1, 8, and 9, where the City of Corona Building Department closed access to G Farmas corporate location and the Corona Police impounded certain G Farma assets. These events significantly impacted G Farmas financial position and its ability to make payments under the notes receivable which negatively impacts option (ii) for the payment of the purchase price for the shares of Companys Common Stock. Currently G Farma does not have an agreement to offer G Farma securities to other persons under purchase price payment option (iii), and any such securities would, at this point, likely have no value. G Farma defaulted on payment of the promissory notes leaving the Company with no means of collecting on the final alternative source of payment for the shares of common stock. On October 3, 2019, the Company rescinded the sale of an aggregate of 288,890 shares of its Common Stock to G Farma, issued at an aggregate purchase price of $600,002, due to a complete failure of consideration. The Company recognized the rescission of the Common Stock at par value on December 31, 2019. On March 6, 2020, the 288,890 shares of Common Stock were cancelled and returned to unissued shares by the Companys stock transfer agent.
Interest in Electrum Partners, LLC legal recovery
Electrum is the plaintiff in that certain legal action captioned Electrum Partners, LLC, Plaintiff, and Aurora Cannabis Inc., Defendant, pending in the Supreme Court of British Columbia (Litigation). On October 23, 2018, Mentor entered into a Joint Prosecution Agreement among Mentor, Mentors corporate legal counsel, Electrum, and Electrums legal counsel.
On October 30, 2018, Mentor entered into a Recovery Purchase Agreement (Recovery Agreement) with Electrum under which Mentor purchased a portion of Electrums potential recovery in the Litigation. Mentor agreed to pay $100,000 of costs incurred in the Litigation, in consideration for ten percent (10%) of anything of value received by Electrum as a result of the Litigation (Recovery) in addition to repayment of its initial investment. As of March 31, 2020 and December 31, 2019, Mentor invested an additional $96,716 and $46,195, respectively, of capital in Electrum for payment of legal retainers and fees in consideration for an additional nine percent (9%) and four percent (4%), respectively, of the Recovery. At March 31, 2020 and December 31, 2019, the Recovery Agreement investment is reported in the condensed consolidated balance sheets at our cost of $196,912 and $146,195, respectively. This investment is subject to loss should Electrum not prevail in the Litigation. However Company management estimates that recovery is more likely than not, and no impairment has been recorded at March 31, 2020 and December 31, 2019. Subsequent to quarter-end, on April 30, 2020, $15,383 of Mentors funds were returned to the Company which decreased the additional consideration to $81,547 and decreased the amount of the Recovery to which Mentor is entitled to eighteen percent (18%), see Note 22.
On October 31, 2018, Mentor also entered into a secured Capital Agreement with Electrum under which Mentor invested an additional $100,000 of capital in Electrum. In consideration for Mentors investment, Electrum shall pay to Mentor, on the payment date, the sum of (i) $100,000, (ii) ten percent of the Recovery, and (iii) 0.083334% of the Recovery for each full month from October 31, 2018 to the payment date for each full month that $833 is not paid to Mentor. The payment date under the October 31, 2018 Capital Agreement is the earlier of November 1, 2021, or the final resolution of the Litigation. Payment is secured by all assets of Electrum. This investment is included at cost of $100,000 in Contractual interests in legal recoveries on the condensed consolidated balance sheets at March 31, 2020 and December 31, 2019.
On January 28, 2019, Mentor entered into a second secured Capital Agreement with Electrum. Under the second Capital Agreement, Mentor invested an additional $100,000 of capital in Electrum. In consideration for Mentors investment, Electrum shall pay to Mentor on the payment date the sum of (i) $100,000, (ii) ten percent (10%) of the Recovery, and (iii) the greater of (A) 0.083334% of the Recovery for each full month from the date hereof until the payment date if the Recovery occurs prior to the payment date, and (B) $833.34 for each full month from the date hereof until the payment date. The payment date is the earlier of November 1, 2021, and the final resolution of the Litigation. This investment is included at its $100,000 cost as part of the Contractual interests in legal recoveries on the condensed consolidated balance sheets at March 31, 2020 and December 31, 2019. In addition, the second Capital Agreement provides that Mentor may, at any time up to and including 90 days following the payment date, elect to convert its 6,198 membership interests in Electrum into a cash payment of $194,028 plus an additional 19.4% of the Recovery.