Note 9 - Note purchase agreement and consulting agreement with G FarmaLabs Limited

On March 17, 2017, the Company entered into a Notes Purchase Agreement with G FarmaLabs Limited (“G Farma”), a Nevada corporation, with operations in Washington and planned operations in California under two temporary licenses pending completion of its Desert Hot Springs, California, location. Under the Agreement the Company purchased two secured promissory notes from G Farma in an aggregate principal amount of $500,000, both of which bear interest at 7.42% per annum, with monthly payments beginning on April 15, 2017, and mature on April 15, 2022. The first promissory note in the amount of $120,000 is for the purchase of real estate, which was to be secured by a deed of trust on real property and requires monthly payments of $1,107 beginning April 15, 2017, with a balloon payment of approximately $94,164 at maturity. The agreement, as amended, provides for converting the real estate loan to a working capital loan should no property be selected to secure the real estate loan. No property has been selected at this time. The second promissory note in the amount of $380,000 was to be used for working capital and requires monthly payments of $3,505 with a balloon payment of approximately $298,185 at maturity. The two G Farma notes, as amended by the subsequent addenda below, are secured by all property, real and personal, tangible or intangible of G Farma and are guaranteed by two majority shareholders of G Farma. As of December 31, 2018, the Company and G Farma have executed six addenda subsequent to the original agreement.

Addendum II (the “Addendum II”) on April 28, 2017, in which Mentor invested an additional $100,000 in G Farma by increasing the aggregate principal face amount of the working capital note to $480,000 and increasing the monthly payments on the working capital note to $4,427 per month. The maturity date remained the same resulting in a total balloon payment of approximately $377,095 at maturity. Addendum II also provides that if the contemplated real estate transaction or a similar transaction is not consummated the real estate note will be consolidated into the working capital note with extension of the security pledges and guarantees.

Addendum III (the “Addendum III”) on June 4, 2017, in which Mentor invested an additional $100,000 in G Farma by increasing the aggregate principal face amount of the working capital note to $580,000 and increasing the monthly payments on the working capital note to $5,350 per month. The maturity date remained the same resulting in a total balloon payment of approximately $456,877 at maturity.

Addendum IV (the “Addendum IV”) on September 26, 2017, in which Mentor invested an additional $100,000 in G Farma by increasing the aggregate principal face amount of the of the working capital note to $680,000, increasing the monthly payments on the working capital note to $6,272 per month beginning November 15, 2017. The maturity date remained the same resulting in a total balloon payment of approximately $538,372 at maturity.

Addendum V (the “Addendum V”) on December 6, 2017, in which Mentor invested an additional $100,000 in G Farma by increasing the aggregate principal face amount of the of the working capital note to $780,000, increasing the combined monthly payments on the working capital and real estate notes to $8,301 per month beginning January 15, 2018. The maturity date remained the same resulting in a total balloon payment of approximately $620,708 at maturity.

Addendum VI (the “Addendum VI”) on January 17, 2018, in which Mentor invested an additional $100,000 in G Farma by increasing the aggregate principal face amount of the working capital note to $880,000, increasing the combined monthly payments on the working capital and real estate notes to $9,223 per month beginning February 15, 2018. The maturity date remained the same resulting in a total balloon payment of approximately $703,874 at maturity.

Addendum VII (the “Addendum VII”) on September 7, 2018, in which Mentor invested an additional $79,000 in G Farma by increasing the aggregate principal face amount of the working capital note to $959,000, increasing the combined monthly payments on the working capital and real estate notes to $9,953 per month beginning October 15, 2018. The maturity date remained the same resulting in a total balloon payment of approximately $772,612 at maturity.

Subsequent to year end, on January 29, 2019, Mentor invested an additional $31,000 in G Farma, see Note 37.

Associated with the Notes Purchase Agreement, on March 17, 2017, the Company and G Farma entered into a Rights Agreement which provided that G Farma would not register its stock in a public offering unless it either (i) obtained the written consent of the Company, or (ii) without the Company’s written consent if G Farma issued to the Company shares of each class or series of G Farma stock then outstanding equal to 1.5% of each such number of shares, calculated on a full dilution full conversion basis. The stepped addition of each addendum, through Addendum VII, increased item (ii) resulting in a rate of 3.0% of outstanding shares. The Rights Agreement provided for equity rights that were contingent on G Farma registering its stock in a public offering. Mentor management estimated that registration was not likely, and the contingent rights were valued at $0.

On September 6, 2018, as a result of the Equity Purchase and Issuance Agreement, Mentor received equity interests equal to 3.75% of the entirety of G Farma and its affiliates’ (“G Farma Equity Entities”) interests in exchange for relinquishing its contingent equity rights under the Rights Agreement, increasing the working capital loan by $79,000, and leasing $171,000 of additional equipment to G Farma through Partner I. In the event that it is illegal or inadvisable for the Company to own any of the equity in one or more G Farm Equity Entities, or the Company elects not to receive any of those shares, the G Farma Equity Entities granted the Company an irrevocable, fully paid, perpetual, right and option to (i) have the G Farma Equity Entities issue the shares and (ii) receive the shares, or any part thereof, at one or more Company elections on payment of $1. Mentor has estimated the fair value of its 3.75% equity interest in the G Farma Equity Entities based on currently licensed operations of the G Farma Equity Entities at $41,600 based on 3.75% of annualized revenue from licensed Washington sales during the first eight months of 2018. Because the contingent equity position under the Rights Agreement was initially valued at $0, the increase in fair value for the 3.0% of the equity position, $33,250 is reported as a gain on investments in the consolidated income statements for the year ended December 31, 2018. The additional 0.75% in the equity position was offset as a discount of $8,351 from the additional amounts invested under Addendum VII and is being amortized as additional interest over the life of the loan. The unamortized discount balance at December 31, 2018 was $7,591. Subsequent to yearend, on January 29, 2019, Addendum VIII increased the working capital note by $31,000 and the Company obtained an immediate additional 0.093% interest in the G Farma Equity Enities, resulting in a total 3.843% interest in the G Farm Equity Entities, see Note 27.

In addition, on March 17, 2017, the Company entered into a Consulting Agreement with G Farma whereby the Company receives a monthly consulting fee in arrears of $1,400 per month beginning April 15, 2017 and continuing until the later of (i) 12 months, and (ii) the date on which G Farma has paid in full all obligations under the Notes Purchase Agreement, as amemded. This monthly consulting fee increased proportionately with Addendum II and Addenda IV through VII resulting in a fee of $2,741 per month as of December 31, 2018. Addendum VIII increased the consulting fee to $2,828 per month effective March 15, 2019. For the year ended December 31, 2018 and 2017, $30,343 and $15,400 of consulting fees from G Farma is included in revenue, respectively.

Notes receivable from G Farma consists of the following at December 31, 2018 and 2017: