* The company recorded an operating loss; therefore the diluted EPS will not be calculated as the diluted EPS effect is anti-dilutive.
Notes to Condensed Consolidated Financial Statements
March 31, 2021 and 2020
Note 1 - Nature of operations
Corporate Structure Overview
Mentor Capital, Inc. (“Mentor” or “the Company”), reincorporated under the laws of the State of Delaware in September 2015.
The entity was originally founded as an investment partnership in Silicon Valley, California, by the current CEO in 1985 and subsequently incorporated under the laws of the State of California on July 29, 1994. On September 12, 1996, the Company’s offering statement was qualified pursuant to Regulation A of the Securities Act, and the Company began to trade its shares publicly. On August 21, 1998, the Company filed for voluntary reorganization, and on January 11, 2000, the Company emerged from Chapter 11 reorganization. The Company relocated to San Diego, California, and contracted to provide financial assistance and investment into small businesses. On May 22, 2015, a corporation named Mentor Capital, Inc. (“Mentor Delaware”) was incorporated under the laws of the State of Delaware. A shareholder-approved merger between Mentor and Mentor Delaware was approved by the California and Delaware Secretaries of State and became effective September 24, 2015, thereby establishing Mentor as a Delaware corporation. In September 2020, Mentor relocated its corporate office from San Diego, California, to Plano, Texas.
The Company’s common stock trades publicly under the trading symbol OTCQB: MNTR.
The Company’s target industry focus includes energy, mining and minerals, technology, consumer products, management services, and manufacturing sectors with the goal of ensuring increased market opportunities and investment diversification. In April 2021, the Company announced that it is adding a cryptocurrency and Bitcoin focus for any ongoing excess cash of Mentor.
Mentor has a 51% interest in Waste Consolidators, Inc. (“WCI”). WCI was incorporated in Colorado in 1999 and operates in Arizona and Texas. It is a long standing investment of the Company since 2003.
On April 18, 2016, the Company formed Mentor IP, LLC (“MCIP”), a South Dakota limited liability company and wholly owned subsidiary of Mentor. MCIP was formed to hold interests related to patent rights obtained on April 4, 2016, when Mentor Capital, Inc. entered into that certain "Larson - Mentor Capital, Inc. Patent and License Fee Facility with Agreement Provisions for an -- 80% / 20% Domestic Economic Interest -- 50% / 50% Foreign Economic Interest" with R. L. Larson and Larson Capital, LLC (“MCIP Agreement”). Pursuant to the MCIP Agreement, MCIP obtained rights to an international patent application for foreign THC and CBD cannabis vape pens under the provisions of the Patent Cooperation Treaty of 1970, as amended. R. L. Larson continues its efforts to obtain exclusive licensing rights in the United States for THC and CBD cannabis vape pens for various THC and CBD percentage ranges and concentrations. On May 5, 2020, a patent was issued by the United States Patent and Trademark Office and on September 22, 2020, a patent was issued by the Canadian Intellectual Property Office. Patent application national phase maintenance fees were expensed when paid rather than capitalized and therefore, no capitalized assets related to MCIP are recognized on the consolidated financial statements at March 31, 2021 and December 31, 2020.
Mentor Partner I, LLC (“Partner I”) was reorganized as a limited liability company under the laws of the State of Texas as of February 17, 2021. The entity was initially organized as a limited liability company under the laws of the State of California on September 19, 2017. Partner I was formed as a wholly owned subsidiary of Mentor for the purpose of cannabis-focused acquisition and investment. In 2018, Mentor contributed $996,000 of capital to Partner I to facilitate the purchase of manufacturing equipment to be leased from Partner I by G FarmaLabs Limited (“G Farma”) under a Master Equipment Lease Agreement dated January 16, 2018, as amended. Amendments expanded the Lessee under the agreement to include G FarmaLabs Limited and G FarmaLabs DHS, LLC, (collectively referred to as “G Farma Lease Entities”). The finance leases resulting from this investment were fully impaired at March 31, 2021 and December 31, 2020. See Note 8.
Mentor Partner II, LLC (“Partner II”) was reorganized as a limited liability company under the laws of the State of Texas on February 17, 2021. The entity was initially organized as a limited liability under the laws of the State of California on February 1, 2018. Partner II was formed as a wholly owned subsidiary of Mentor for the purpose of cannabis-focused investing and acquisition. On February 8, 2018, Mentor contributed $400,000 to Partner II to facilitate the purchase of manufacturing equipment to be leased from Partner II by Pueblo West Organics, LLC, a Colorado limited liability company (“Pueblo West”) under a Master Equipment Lease Agreement dated February 11, 2018, as amended. On March 12, 2019, Mentor agreed to use Partner II earnings of $61,368 to facilitate the purchase of additional manufacturing equipment to Pueblo West under a Second Amendment to the lease. This lease is fully performing, see Note 8.
10
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2021 and 2020
Note 1 - Nature of operations (continued)
The Company has a membership equity interest in Electrum Partners, LLC (“Electrum”) which is carried at a cost of $194,028 and $194,028 at March 31, 2021 and December 31, 2020, respectively.
On October 30, 2018, the Company entered into a Recovery Purchase Agreement with Electrum. Electrum is the plaintiff in an ongoing legal action pending in the Supreme Court of British Columbia (“Litigation”). As described further in Note 9, Mentor provided capital for payment of Litigation costs in the amount of $181,529 and $146,195 as of December 31, 2020 and 2019, respectively. After repayment to Mentor of all funds invested for payment of Litigation costs, Mentor will receive 18% of anything of value received by Electrum as a result of the Litigation (“Recovery”), after first receiving reimbursement of the Litigation costs. On October 31, 2018, Mentor entered into a secured Capital Agreement with Electrum and invested an additional $100,000 of capital in Electrum. Under the Capital Agreement, on the payment date, Electrum will pay Mentor the sum of (i) $100,000, (ii) ten percent (10%) 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 is the earlier of November 1, 2021, or the final resolution of the Litigation. On January 28, 2019, the Company entered into a second secured Capital Agreement with Electrum and invested an additional $100,000 of capital in Electrum with payment terms similar to the October 31, 2018 Capital Agreement. As part of the January 28, 2019 Capital Agreement, Mentor was granted an option to convert its 6,198 membership interests in Electrum into a cash payment of $194,027 plus an additional 19.4% of the Recovery. See Note 9.
On December 21, 2018, Mentor paid $10,000 to purchase 500,000 shares of NeuCourt, Inc. common stock, representing approximately 6.1% of NeuCourt’s issued and outstanding common stock as of March 31, 2021.
Note 2 - Summary of significant accounting policies
Condensed consolidated financial statements
The unaudited condensed consolidated financial statements of the Company for the three month period ended March 31, 2021 and 2020 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-K. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2020 was derived from the audited financial statements included in the Company's financial statements as of and for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2021. These financial statements should be read in conjunction with that report.
Basis of presentation
The accompanying consolidated financial statements and related notes include the activity of subsidiaries in which a controlling financial interest is owned. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Significant intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform with the current period presentation.
As shown in the accompanying financial statements, the Company has a significant accumulated deficit of $10,748,154 as of March 31, 2021. The Company continues to experience negative cash flows from operations.
The Company management believes it is more likely than not that Electrum will prevail in the legal action described in Note 9 to the consolidated financial statements, in which the Company has an interest. However, there is no surety that Electrum will prevail in its legal action or that we will be able to recover our funds and our percentage of the Litigation Recovery if Electrum does prevail.
11
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2021 and 2020
Note 2 - Summary of significant accounting policies (continued)
The Company will be required to raise additional capital to fund its operations and will continue to attempt to raise capital resources from both related and unrelated parties until such time as the Company is able to generate revenues sufficient to maintain itself as a viable entity. These factors have raised substantial doubt about the Company's ability to continue as a going concern. These financial statements are presented on the basis that we will continue as a going concern. The going concern concept contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. There can be no assurances that the Company will be able to raise additional capital or achieve profitability. However, the Company has approximately 6.2 million warrants outstanding in which the Company can reset the exercise price substantially below the current market price. These condensed consolidated financial statements do not include any adjustments that might result from repricing the outstanding warrants.
Management's plans include increasing revenues through acquisition, investment, and organic growth. Management anticipates funding these activities by raising additional capital through the sale of equity securities and debt.
Impact Related to COVID-19
The effect of the novel coronavirus (“COVID-19”) has significantly impacted the United States and the global economy. COVID-19 and the measures taken by many countries in response have adversely affected and could in the future materially adversely impact the Company’s business, results of operations, financial condition, and stock price. As of March 31, 2021, the impact of COVID-19 continues to unfold. The ongoing worldwide economic situation, future weakness in the credit markets, and significant liquidity problems for the financial services industry may impact our financial condition in a number of ways. For example, our current or potential customers, or the current or potential customers of our partners or affiliates, may delay or decrease spending with us, or may not pay us, or may delay paying us for previously purchased products and services. Also, we, or our partners or affiliates, may have difficulties in securing additional financing. Our legal recovery efforts have been hindered and may continue to be constrained, due to the closure of the courts in California and British Columbia, which may cause COVID-19-related scheduling delays, hindering our legal recovery from the G Farma Entities and delaying the receipt of the Company’s interest in the Electrum Partners, LLC legal recovery, respectively. Additionally, the collectability of our investment in accounts receivable has been impaired by $139,148 in the fourth quarter of 2020, due to a reduction in our expected collection amount of the 2020 and 2021 payments of an installment contract, see Note 4.
Public health efforts to mitigate the impact of COVID-19 have included government actions such as travel restrictions, limitations on public gatherings, shelter in place orders, and mandatory closures. These actions are being lifted to varying degrees. WCI has not experienced an overall reduced demand for services initially anticipated because WCI helps lower monthly service costs paid by its client properties. However, WCI’s clients may experience a delay in collecting rent from tenants, which may cause slower payments to WCI. WCI closely monitors customer accounts and has not experienced significant delays in the collection of accounts receivable.
According to the Critical Infrastructure Standards released by the Cybersecurity and Infrastructure Security Agency on March 18, 2020, “Financial Services Sector” businesses, like Mentor, are considered “essential businesses.” Because of the financial nature of Mentor’s operations, which consist of oversight of our portfolio companies, accounting, compliance, investor relations, and sales, Mentor’s day-to-day operations are not substantially hindered by remote office work or telework.
We anticipate that current cash resources will be sufficient for us to execute our business plan for the next 9 months. The ultimate impact of COVID-19 on our business, results of operations, financial condition and cash flows is dependent on future developments, including the duration of COVID-19 and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time.
Use of estimates
The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates, assumptions, and judgments that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of our consolidated financial statements, and the reported amount of revenues and expenses during the reporting period.
Significant estimates relied upon in preparing these consolidated financial statements include revenue recognition, accounts and notes receivable reserves, expected future cash flows used to evaluate the recoverability of long-lived assets, estimated fair values of long-lived assets used to record impairment charges related to investments, goodwill, amortization periods, accrued expenses, and recoverability of the Company’s net deferred tax assets and any related valuation allowance.
12
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2021 and 2020
Note 2 - Summary of significant accounting policies (continued)
Although the Company regularly assesses these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results may differ from management’s estimates if past experience or other assumptions do not turn out to be substantially accurate.
Recent Accounting Standards
From time to time, the FASB or other standards setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standard Codifications (“ASCs”) are communicated through the issuance of an Accounting Standards Update (“ASU”). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our consolidated financial statements upon adoption.
There were no accounting pronouncements issued during the three months ended March 31, 2021 that are expected to have a material impact on the Company’s condensed consolidated financial statements.
Concentrations of cash
The Company maintains its cash and cash equivalents in bank deposit accounts, which at times may exceed federally insured limits. The Company has not experienced any losses in such accounts, nor does the Company believe it is exposed to any significant credit risk on cash and cash equivalents.
Cash and cash equivalents
The Company considers all short-term debt securities purchased with a maturity of three months or less to be cash equivalents. The Company had no short-term debt securities as of March 31, 2021 and December 31, 2020.
Accounts receivable
Accounts receivables consist of trade accounts arising in the normal course of business and are classified as current assets and carried at original invoice amounts less an estimate for doubtful receivables based on historical losses as a percent of revenue in conjunction with a review of outstanding balances on a quarterly basis. The estimate of the allowance for doubtful accounts is based on the Company's bad debt experience, market conditions, and aging of accounts receivable, among other factors. If the financial condition of the Company's customers deteriorates, resulting in the customer's inability to pay the Company's receivables as they come due, additional allowances for doubtful accounts will be required. At March 31, 2021 and December 31, 2020, the Company has an allowance for doubtful receivables in the amount of $65,631 and $59,461, respectively.
Investments in securities at fair value
Investment in securities consists of debt and equity securities reported at fair value. Under ASU 2016-01, “Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities,” the Company elected to report changes in the fair value of equity investment in realized investment gains (losses), net.
Long term investments
The Company’s investments in entities where it is a minority owner and does not have the ability to exercise significant influence are recorded at fair value if readily determinable. If the fair market value is not readily determinable, the investment is recorded under the cost method. Under this method, the Company’s share of the earnings or losses of such investee company is not included in the Company’s financial statements. The Company reviews the carrying value of its long-term investments for impairment each reporting period.
Investments in debt securities
The Company’s investment in debt securities consists of two convertible notes receivable from NeuCourt, Inc., which are recorded at the aggregate principal face amount of $75,000 plus accrued interest of $8,031 and $7,038 at March 31, 2021 and December 31, 2020, respectively, as presented in Note 7.
13
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2021 and 2020
Note 2 - Summary of significant accounting policies (continued)
Investment in account receivable, net of discount
The Company’s investment in account receivable is stated at face value, net of unamortized purchase discount. The discount is amortized to interest income over the term of the exchange agreement. In the fourth quarter of 2020, we were notified that due to the effect of COVID-19 on the estimated receivable, we may not receive the 2020 installment payment or the full 2021 installment payment. At March 31, 2021 and December 31, 2020, the Company has an impairment of the investment in account receivable of $139,148 and $139,148, respectively.
Credit quality of notes receivable and finance leases receivable, and credit loss reserve
As our notes receivable and finance leases receivable are limited in number, our management is able to analyze estimated credit loss reserves based on a detailed analysis of each receivable as opposed to using portfolio-based metrics. Our management does not use a system of assigning internal risk ratings to each of our receivables. Rather, each note receivable and finance lease receivable is analyzed quarterly and categorized as either performing or non-performing based on certain factors including, but not limited to, financial results, satisfying scheduled payments, and compliance with financial covenants. A note receivable or finance lease receivable will be categorized as non-performing when a borrower experiences financial difficulty and has failed to make scheduled payments. As part of the monitoring process, we may physically inspect the collateral or a borrower’s facility and meet with a borrower’s management to better understand such borrower’s financial performance and its future plans on an as-needed basis.
Lessee Leases
We determine whether an arrangement is a lease at inception. Lessee leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria is met: (i) the lease transfers ownership of the asset by the end of the lease term, (ii) the lease contains an option to purchase the asset that is reasonably certain to be exercised, and (iii) the lease term is for a significant part of the remaining useful life of the asset or the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any one of these criteria. Our operating leases are comprised of office space leases and office equipment. Fleet vehicle leases entered into prior to January 1, 2019, are classified as operating leases based on an expected lease term of four years. Fleet vehicle leases entered into beginning January 1, 2019, for which the lease is expected to be extended to five years, are classified as finance leases. Our leases have remaining lease terms of one to forty-eight months. Our fleet finance leases contain a residual value guarantee which, based on past lease experience, is unlikely to result in a liability at the end of the lease. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments.
Costs associated with operating lease assets are recognized on a straight-line basis, over the term of the lease, within cost of goods sold for vehicles used in direct servicing of WCI customers and in operating expenses for costs associated with all other operating leases. Finance lease assets are amortized within cost of goods sold for vehicles used in direct servicing of WCI customers and within operating expenses for all other finance lease assets, on a straight-line basis over the shorter of the estimated useful lives of the assets or the lease term. The interest component of a finance lease is included in interest expense and recognized using the effective interest method over the lease term. We have agreements that contain both lease and non-lease components. For vehicle fleet operating leases, we account for lease components together with non-lease components (e.g., maintenance fees).
Property, and equipment
Property and equipment is recorded at cost less accumulated depreciation. Depreciation is computed on the declining balance method over the estimated useful lives of various classes of property. The estimated lives of the property and equipment are generally as follows: computer equipment, three to five years; furniture and equipment, seven years; and vehicles and trailers, four to five years. Depreciation on vehicles used by WCI to service its customers is included in cost of goods sold in the consolidated income statements. All other depreciation is included in selling, general and administrative costs in the consolidated income statements.
14
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2021 and 2020
Note 2 - Summary of significant accounting policies (continued)
Expenditures for major renewals and improvements are capitalized, while minor replacements, maintenance and repairs, which do not extend the asset lives, are charged to operations as incurred. Upon sale or disposition, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in operations. The Company continually monitors events and changes in circumstances that could indicate that the carrying balances of its property and equipment may not be recoverable in accordance with the provisions of ASC 360, “Property, Plant, and Equipment.” When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets.
The Company reviews intangible assets subject to amortization quarterly to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life. Conditions that may indicate impairment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the value of an asset, a product recall, or an adverse action or assessment by a regulator. If an impairment indicator exists, we test the intangible asset for recoverability. For purposes of the recoverability test, we group our amortizable intangible assets with other assets and liabilities at the lowest level of identifiable cash flows if the intangible asset does not generate cash flows independent of other assets and liabilities. If the carrying value of the intangible asset (asset group) exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the intangible asset (asset group), the Company will write the carrying value down to the fair value in the period identified.
Goodwill
Goodwill of $1,324,142 was derived from consolidating WCI effective January 1, 2014, and $102,040 of goodwill related to the 1999 acquisition of a 50% interest in WCI. In accordance with ASC 350, “Intangibles-Goodwill and Other,” goodwill and other intangible assets with indefinite lives are no longer subject to amortization but are tested for impairment annually or whenever events or changes in circumstances indicate that the asset might be impaired.
The Company reviews the goodwill allocated to each of our reporting units for possible impairment annually as of December 31 and whenever events or changes in circumstances indicate carrying amount may not be recoverable. In the impairment test, the Company measures the recoverability of goodwill by comparing a reporting unit’s carrying amount, including goodwill, to the estimated fair value of the reporting unit. If the carrying amount of a reporting unit is in excess of its fair value, the Company recognizes an impairment charge equal to the amount in excess. To estimate the fair value, management uses valuation techniques which included the discounted value of estimated future cash flows. The evaluation of impairment requires the Company to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and are subject to change as future events and circumstances change. Actual results may differ from assumed and estimated amounts. Management determined that no impairment write-downs were required as of March 31, 2021 and December 31, 2020.
Revenue recognition
The Company recognizes revenue in accordance with ASC 606, “Revenue from Contracts with Customers,” and FASB ASC Topic 842, “Leases.” Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to government authorities.
WCI works with business park owners, governmental centers, and apartment complexes to reduce facilities related costs. WCI performs monthly services pursuant to agreements with customers. Customer monthly service fees are based on WCI’s assessment of the amount and frequency of monthly services requested by a customer. WCI may also provide additional services, such as apartment cleanout services, large item removals, or similar services, on an as needed basis at an agreed upon rate as requested by customers. All services are invoiced and recognized as revenue in the month the agreed on services are performed.
For each finance lease, the Company recognized as a gain the amount equal to (i) the net investment in the finance lease less (ii) the net book value of the equipment at the inception of the applicable lease. At lease inception, we capitalize the total minimum finance lease payments receivable from the lessee, the estimated unguaranteed residual value of the equipment at lease termination, if any, and the initial direct costs related to the lease, less unearned income. Unearned income is recognized as finance income over the term of the lease using the effective interest rate method.
15
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2021 and 2020
Note 2 - Summary of significant accounting policies (continued)
The Company, through its subsidiaries, is the lessor of manufacturing equipment subject to leases under master leasing agreements. The leases contain an element of dealer profit and lessee bargain purchase options at prices substantially below the subject assets’ estimated residual values at the exercise date for the options. Consequently, the Company classified the leases as sales-type leases (the “finance leases”) for financial accounting purposes. For such finance leases, the Company reports the discounted present value of (i) future minimum lease payments (including the bargain purchase option, if any) and (ii) any residual value not subject to a bargain purchase option as a finance lease receivable on its balance sheet and accrues interest on the balance of the finance lease receivable based on the interest rate inherent in the applicable lease over the term of the lease. For each finance lease, the Company recognized revenue in an amount equal to the net investment in the lease and cost of sales equal to the net book value of the equipment at the inception of the applicable lease.
Basic and diluted income (loss) per common share
We compute net income (loss) per share in accordance with ASC 260, “Earnings Per Share.” Under the provisions of ASC 260, basic net loss per share includes no dilution and is computed by dividing the net loss available to common stockholders for the period by the weighted average number of shares of Common Stock outstanding during the period. Diluted net income (loss) per share takes into consideration shares of Common Stock outstanding (computed under basic net loss per share) and potentially dilutive securities that are not anti-dilutive.
Outstanding warrants that had no effect on the computation of the dilutive weighted average number of shares outstanding as their effect would be anti-dilutive were approximately 7,000,000 and 7,000,000 as of March 31, 2021 and December 31, 2020, respectively. There were 87,456 and 87,456 potentially dilutive shares outstanding at March 31, 2021 and December 31, 2020, respectively.
Conversion of Series Q Preferred Stock into Common Stock would be anti-dilutive for the three months ended March 31, 2021 and 2020 and is not included in calculating the diluted weighted average number of shares outstanding.
Note 3 – Prepaid expenses and other assets
Prepaid expenses and other assets consist of the following:
|
|
|
March 31,
2021
|
|
December 31,
2020
|
|
Prepaid management fees
|
$
|
115,000
|
$
|
-
|
|
Prepaid insurance
|
|
342
|
|
342
|
|
Other prepaid costs
|
|
28,796
|
|
17,497
|
|
|
$
|
144,138
|
$
|
17,839
|
Note 4 – Investment in account receivable
On April 10, 2015, the Company entered into an exchange agreement whereby the Company received an investment in an account receivable with annual installment payments of $117,000 for 11 years, through 2026, totaling $1,287,000 in exchange for 757,059 shares of Mentor Common Stock obtained through exercise of 757,059 Series D warrants at $1.60 per share plus a $0.10 per warrant redemption price.
The Company valued the transaction based on the market value of Company common shares exchanged in the transaction, resulting in a 17.87% discount from the face value of the account receivable. The discount is being amortized monthly to interest over the 11-year term of the agreement. In the fourth quarter of 2020, we were notified that due to the effect of Covid-19 on the estimated receivable, we may not receive the 2020 installment payment or the full 2021 installment payment. Based on management’s collection estimates, we recorded an impairment of $139,148 and $139,148 on the investment in account receivable at March 31, 2021 and December 31, 2020, respectively.
16
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2021 and 2020
Note 4 – Investment in account receivable (continued)
The investment in account receivable consists of the following at March 31, 2021 and December 31, 2020:
|
|
|
March 31,
|
|
December 31,
|
|
2021
|
2020
|
|
Face value
|
$
|
702,000
|
$
|
702,000
|
|
Impairment
|
|
(139,148)
|
|
(139,148)
|
|
Unamortized discount
|
|
(217,566)
|
|
(232,794)
|
|
Net balance
|
|
345,286
|
|
330,058
|
|
Current portion
|
|
(84,662)
|
|
(26,162)
|
|
Long term portion
|
$
|
260,624
|
$
|
303,896
|
For the three months ended March 31, 2021 and 2020, $15,228 and $18,345 of discount amortization is included in interest income, respectively.
Note 5 - Property and equipment
Property and equipment are comprised of the following:
|
|
|
March 31,
|
|
December 31,
|
|
2021
|
2020
|
|
Computers
|
$
|
39,809
|
$
|
38,545
|
|
Furniture and fixtures
|
|
23,428
|
|
23,428
|
|
Machinery and vehicles
|
|
211,782
|
|
205,187
|
|
|
|
275,019
|
|
267,160
|
|
Accumulated depreciation and amortization
|
|
(139,395)
|
|
(129,974)
|
|
|
|
|
|
|
|
Net Property and equipment
|
$
|
135,624
|
$
|
137,186
|
Depreciation and amortization expense was $9,421 and $3,842 for the three months ended March 31, 2021 and 2020, respectively. Depreciation on WCI vehicles used to service customer accounts is included in the cost of goods sold, and all other depreciation is included in selling, general and administrative expenses in the condensed consolidated income statements.
17
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2021 and 2020
Note 6 – Lessee Leases
Our operating leases are comprised of office space and office equipment leases. Fleet leases entered into prior to January 1, 2019, are classified as operating leases. Fleet leases entered into beginning January 1, 2019, under ASC 842 guidelines, are classified as finance leases.
Gross right of use assets recorded under finance leases related to WCI vehicle fleet leases were $651,941 and $406,242 as of March 31, 2021 and December 31, 2020, respectively. Accumulated amortization associated with finance leases was $122,798 and $110,164 as of March 31, 2021 and December 31, 2020, respectively.
Lease costs recognized in our consolidated statements of operations is summarized as follows:
|
|
|
Three Months Ended
|
|
March 31,
|
|
|
|
2021
|
|
2020
|
|
Operating lease cost included in cost of goods
|
$
|
32,864
|
$
|
45,956
|
|
Operating lease cost included in operating costs
|
|
11,096
|
|
14,274
|
|
Total operating lease cost (1)
|
|
43,960
|
|
60,230
|
|
Finance lease cost, included in cost of goods:
|
|
|
|
|
|
Amortization of lease assets
|
|
28,518
|
|
13,993
|
|
Interest on lease liabilities
|
|
5,467
|
|
3,494
|
|
Total finance lease cost
|
|
33,985
|
|
17,487
|
|
Short-term lease cost
|
|
2,300
|
|
8,970
|
|
Total lease cost
|
$
|
80,245
|
$
|
86,687
|
(1)Right of use asset amortization under operating agreements was $40,981 and $45,896 for the three months ended March 31, 2021 and 2020, respectively.
Other information about lease amounts recognized in our condensed consolidated financial statements is summarized as follows:
|
|
March 31,
2021
|
|
December 31,
2020
|
|
Weighted-average remaining lease term – operating leases
|
1.52 years
|
|
0.93 years
|
|
Weighted-average remaining lease term – finance leases
|
4.07 years
|
|
3.41 years
|
|
Weighted-average discount rate – operating leases
|
9.2%
|
|
10.1%
|
|
Weighted-average discount rate – finance leases
|
5.1%
|
|
8.3%
|
Finance lease liabilities were as follows:
|
|
|
March 31,
|
|
December 31,
|
|
2021
|
2020
|
|
Gross finance lease liabilities
|
$
|
516,408
|
$
|
310,685
|
|
Less: imputed interest
|
|
(45,088)
|
|
(40,183)
|
|
Present value of finance lease liabilities
|
|
471,320
|
|
270,502
|
|
Less: current portion
|
|
(119,542)
|
|
(79,526)
|
|
Long-term finance lease liabilities
|
$
|
351,778
|
$
|
190,976
|
18
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2021 and 2020
Note 6 – Lessee Leases (Continued)
Operating lease liabilities were as follows:
|
|
|
March 31,
|
|
December 31,
|
|
2021
|
2020
|
|
Gross operating lease liabilities
|
$
|
161,153
|
$
|
146,171
|
|
Less: imputed interest
|
|
(6,646)
|
|
(6,863)
|
|
Present value of operating lease liabilities
|
|
154,507
|
|
139,308
|
|
Less: current portion
|
|
(121,588)
|
|
(123,158)
|
|
Long-term operating lease liabilities
|
$
|
32,919
|
$
|
16,150
|
Lease maturities were as follows:
|
Maturity of lease liabilities
|
|
|
|
|
|
12 months ending March 31,
|
|
Finance leases
|
|
Operating leases
|
|
2022
|
$
|
119,542
|
$
|
121,588
|
|
2023
|
|
126,545
|
|
32,919
|
|
2024
|
|
95,883
|
|
-
|
|
2025
|
|
82,029
|
|
-
|
|
2026
|
|
47,321
|
|
-
|
|
Total
|
|
471,320
|
|
154,507
|
|
Less: Current maturities
|
|
119,542
|
|
121,588
|
|
Long-term liability
|
$
|
351,778
|
$
|
32,919
|
19
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2021 and 2020
Note 7 – Convertible notes receivable
Convertible notes receivable consists of the following:
|
|
|
March 31,
|
|
December 31,
|
|
2021
|
2020
|
|
November 22, 2017, NeuCourt, Inc. convertible note receivable including accrued interest of $1,774 and $1,454 at March 31, 2021 and December 31, 2020. The note bears interest at 5% per annum, originally matured November 22, 2019, and was extended to mature November 22, 2021. Principal and accrued interest are due at maturity. Upon extension, the Company received a cash payment of $2,496 for interest accrued through November 4, 2019. 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 (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) on election of Mentor following NeuCourt’s election to prepay the Note. *
|
$
|
26,774
|
$
|
26,454
|
|
|
|
|
|
|
|
October 31, 2018, NeuCourt, Inc. convertible note receivable including accrued interest of $6,257 and $5,584 at March 31, 2021 and December 31, 2020. The note bears interest at 5% per annum and matures October 31, 2022. Principal and accrued interest are due at 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 (i) on closing of a future financing round of at least $750,000, (ii) on the election of NeuCourt on the maturity of the Note, or (iii) on the election of Mentor following NeuCourt’s election to prepay the Note. *
|
|
56,257
|
|
55,584
|
|
|
|
|
|
|
|
Total convertible notes receivable
|
|
83,031
|
|
82,038
|
|
|
|
|
|
|
|
Less current portion
|
|
(26,774)
|
|
(26,454)
|
|
|
|
|
|
|
|
Long term portion
|
$
|
56,257
|
$
|
55,584
|
*The Conversion Price for each 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 November 22, 2017 Note would convert into 99,959 Conversion Shares and the October 31, 2018 Note would convert into 210,027 Conversion Shares at March 31, 2021. In the event of a Corporate Transaction prior to repayment or conversion of the Note, the Company shall receive back two times the outstanding principal on the Note, plus all accrued unpaid interest.
20
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2021 and 2020
Note 8 – Finance leases receivable
Partner II entered into a Master Equipment Lease Agreement with Pueblo West, dated February 11, 2018, 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 did not record any sales revenue for the three months ended March 31, 2021 and 2020. At March 31, 2021, all Partner II leased equipment under finance leases receivable is located in Colorado.
Performing net finance leases receivable consisted of the following:
|
|
|
March 31,
|
|
December 31,
|
|
2021
|
2020
|
|
Gross minimum lease payments receivable
|
$
|
450,136
|
$
|
477,680
|
|
Accrued interest
|
|
2,055
|
|
2,141
|
|
Less: unearned interest
|
|
(94,539)
|
|
(103,870)
|
|
Finance leases receivable
|
|
357,652
|
|
375,951
|
|
Less current portion
|
|
(70,896)
|
|
(69,053)
|
|
Long term portion
|
$
|
286,756
|
$
|
306,898
|
Finance lease revenue recognized on Partner II finance leases for the three months ended March 31, 2021 and 2020 was $10,956 and $12,538, respectively.
At March 31, 2021, minimum future payments receivable for performing finance leases receivable were as follows:
|
12 months ending March 31,
|
|
Lease Receivable
|
|
Interest
|
|
2022
|
$
|
70,529
|
$
|
39,646
|
|
2023
|
|
83,163
|
|
27,012
|
|
2024
|
|
92,048
|
|
18,127
|
|
2025
|
|
93,977
|
|
8,346
|
|
2026
|
|
14,664
|
|
1,295
|
|
Thereafter
|
|
1,216
|
|
113
|
|
|
$
|
355,597
|
$
|
94,539
|
Note 9 - Contractual interests in legal recoveries
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, Mentor’s corporate legal counsel, Electrum, and Electrum’s legal counsel.
On October 30, 2018, Mentor entered into a Recovery Purchase Agreement (“Recovery Agreement”) with Electrum under which Mentor purchased a portion of Electrum’s 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, 2021 and December 31, 2020, Mentor invested an additional $81,529 and $81,529, respectively, of capital in Electrum for payment of legal retainers and fees in consideration for an additional eight percent (8%) of the Recovery. At March 31, 2021 and December 31, 2020, the Recovery Agreement investment is reported in the condensed consolidated balance sheets at our cost of $181,529 and $181,529, 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, 2019 and December 31, 2020.
21
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2021 and 2020
Note 9 - Contractual interests in legal recoveries (continued)
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 Mentor’s 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, 2021 and December 31, 2020.
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 Mentor’s 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, 2021 and December 31, 2020. 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.
Recovery on this claim has been delayed due to COVID-19. The Company’s interest in the Electrum Partners, LLC legal recovery, carried at cost, at March 31, 2021 and December 31, 2020 is summarized as follows:
|
|
|
March 31,
|
|
December 31,
|
|
2021
|
2020
|
|
October 30, 2018 Recovery Purchase Agreement
|
$
|
181,529
|
$
|
181,529
|
|
October 31, 2018 secured Capital Agreement
|
|
100,000
|
|
100,000
|
|
January 28, 2019 secured Capital Agreement
|
|
100,000
|
|
100,000
|
|
Total Invested
|
$
|
381,529
|
$
|
381,529
|
22
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2021 and 2020
Note 10 – Investments and fair value
The hierarchy of Level 1, Level 2 and Level 3 Assets are listed as following:
|
|
|
|
|
Fair Value Measurement Using
|
|
|
|
Unadjusted
Quoted
Market
Prices
|
|
Quoted
Prices for Identical
or Similar
Assets in
Active
Markets
|
|
Significant
Unobservable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
(Level 3)
|
|
(Level 3)
|
|
|
|
Investment
in
Securities
|
|
|
|
Contractual
interest
Legal
Recovery
|
|
Investment
in Common
Stock
Warrants
|
|
Other
Equity
Investments
|
|
Balance at December 31, 2019
|
|
-
|
|
-
|
|
346,195
|
|
5,669
|
|
204,028
|
|
Total gains or losses
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
(or changes in net assets)
|
|
(10,292)
|
|
-
|
|
-
|
|
(4,669)
|
|
-
|
|
Purchases, issuances, sales,
and settlements
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
83,536
|
|
-
|
|
50,717
|
|
-
|
|
-
|
|
Issuances
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Sales
|
|
(38,418)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Settlements
|
|
-
|
|
-
|
|
(15,383)
|
|
-
|
|
-
|
|
Balance at December 31, 2020
|
$
|
34,826
|
$
|
-
|
$
|
381,529
|
$
|
1,000
|
$
|
204,028
|
|
Total gains or losses
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
(or changes in net assets)
|
|
4,850
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Purchases, issuances, sales,
and settlements
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Issuances
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Sales
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Settlements
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Balance at March 31, 2021
|
$
|
39,676
|
$
|
-
|
$
|
381,529
|
$
|
1,000
|
$
|
204,028
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized costs, gross unrealized holding gains and losses, and fair values of the Company’s investment securities classified as equity securities, at fair value, at March 31, 2021 consists of the following:
|
Type
|
|
Amortized Costs
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Values
|
|
NYSE listed company stock
|
$
|
10,080
|
$
|
(1,167)
|
$
|
-
|
$
|
8,913
|
|
NASDAQ listed company stock
|
|
35,341
|
|
(4,578)
|
|
-
|
|
30,763
|
|
|
$
|
45,421
|
$
|
(5,745)
|
$
|
-
|
$
|
39,676
|
23
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2021 and 2020
Note 10 – Investments and fair value (Continued)
The portion of unrealized gains and losses for the period related to equity securities still held at the reporting date is calculated as follows:
|
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
2020
|
|
Net gains and losses recognized during the period on equity securities
|
$
|
4,849
|
$
|
(5,037)
|
|
|
|
|
|
|
|
Less: Net gains (losses) recognized during the period on equity securities sold during the period
|
|
-
|
|
-
|
|
|
|
|
|
|
|
Unrealized gains and losses recognized during the reporting period on equity securities still held at the reporting date
|
$
|
4,849
|
$
|
(5,037)
|
Note 11 - Common stock warrants
On August 21, 1998, the Company filed for voluntary reorganization with the United States Bankruptcy Court for the Northern District of California, and on January 11, 2000, the Company’s Plan of Reorganization was approved. Among other things, the Company’s Plan of Reorganization allowed creditors and claimants to receive new Series A, B, C, and D warrants in settlement of their prior claims. The warrants expire on May 11, 2038.
All Series A, B, C, and D warrants have been called, and all Series A and C warrants have been exercised. The Company intends to allow warrant holders or Company designees, in place of original holders, additional time as needed to exercise the remaining series B and D warrants. The Company may lower the exercise price of all or part of a warrant series at any time. Similarly, the Company could reverse split the stock to raise the stock price above the warrant exercise price. The warrants are specifically not affected and do not split with the shares in the event of a reverse split. If the called warrants are not exercised, the Company has the right to designate the warrants to a new holder in return for a $0.10 per share redemption fee payable to the original warrant holders. All such changes in the exercise price of warrants were provided for by the court in the Plan of Reorganization to provide a mechanism for all debtors to receive value even if they could not or did not exercise their warrant. Therefore, Management believes that the act of lowering the exercise price is not a change from the original warrant grants and the Company did not record an accounting impact as the result of such change in exercise prices.
All Series A and Series C warrants were exercised by December 31, 2014. Exercise prices in effect at January 1, 2015 through March 31, 2021 for Series B warrants were $0.11 and Series D warrants were $1.60.
In 2009, the Company entered into an Investment Banking agreement with Network 1 Financial Securities, Inc. and a related Strategic Advisory Agreement with Lenox Hill Partners, LLC with regard to a potential merger with a cancer development company. In conjunction with those related agreements, the Company issued 689,159 Series H ($7) Warrants, with a 30-year life. The warrants are subject to cashless exercise based upon the ten-day trailing closing bid price preceding the exercise as interpreted by the Company.
As of March 31, 2021 and December 31, 2020, the weighted average contractual life for all Mentor warrants was 17.3 years and 17.5 years, respectively, and the weighted average outstanding warrant exercise price was $2.11 and $2.11 per share, respectively.
During the three months ended March 31, 2021 and 2020, there were no warrants exercised and there were no warrants issued. The intrinsic value of outstanding warrants at March 31, 2021 and December 31, 2020 was $5,247 and $0, respectively.
24
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2021 and 2020
Note 11 - Common stock warrants (Continued)
The following table summarizes Series B and Series D common stock warrants as of each period:
|
|
|
Series B
|
|
Series D
|
|
B and D Total
|
|
Outstanding at December 31, 2019
|
|
87,456
|
|
6,252,954
|
|
6,340,410
|
|
Issued
|
|
-
|
|
-
|
|
-
|
|
Exercised
|
|
-
|
|
-
|
|
-
|
|
Outstanding at December 31, 2020
|
|
87,456
|
|
6,252,954
|
|
6,340,410
|
|
Issued
|
|
-
|
|
-
|
|
-
|
|
Exercised
|
|
-
|
|
-
|
|
-
|
|
Outstanding at March 31, 2021
|
|
87,456
|
|
6,252,954
|
|
6,340,410
|
Series E, F, G, and H warrants were issued for investment banking and advisory services during 2009. Series E, F, and G warrants were exercised in 2014. The following table summarizes Series H ($7) warrants as of each period:
|
|
|
Series H
$7.00
exercise price
|
|
Outstanding at December 31, 2019
|
|
689,159
|
|
Issued
|
|
-
|
|
Exercised
|
|
-
|
|
Outstanding at December 31, 2020
|
|
689,159
|
|
Issued
|
|
-
|
|
Exercised
|
|
-
|
|
Outstanding at March 31, 2021
|
|
689,159
|
On February 9, 2015, in accordance with Section 1145 of the United States Bankruptcy Code and the Company’s Plan of Reorganization, the Company announced a minimum 30-day partial redemption of up to 1% (approximately 90,000) of the already outstanding Series D warrants to provide for the court specified redemption mechanism for warrants not exercised timely by the original holder or their estates. Company designees that applied during the 30 days paid 10 cents per warrant to redeem the warrant and then exercised the Series D warrant to purchase a share at the court specified formula of not more than one-half of the closing bid price on the day preceding the 30-day exercise period. In the Company’s October 7, 2016 press release, Mentor stated that the 1% redemptions which were formerly priced on a calendar month schedule would subsequently be initiated and be priced on a random date to be scheduled after the prior 1% redemption is completed to prevent potential third-party manipulation of share prices at month-end. The periodic partial redemptions will continue to be periodically recalculated and repeated until such unexercised warrants are exhausted, or the partial redemption is otherwise paused, suspended or truncated by the Company. For the three months ended March 31, 2021 and 2020, no warrants were redeemed.
Note 12 - Warrant redemption liability
The Plan of Reorganization provides the right for the Company to call, and the Company or its designee to redeem warrants that are not exercised timely, as specified in the Plan, by transferring a $0.10 redemption fee to the former holders. Certain individuals desiring to become a Company designee to redeem warrants have deposited redemption fees with the Company that, when warrants are redeemed, will be forwarded to the former warrant holders through DTCC or at their last known address 30 days after the last warrant of a class is exercised, or earlier at the discretion of the Company. The Company has arranged for a service to process the redemption fees in offset to an equal amount of liability.
In prior years the Series A, Series B, and Series C redemption fees have been distributed through DTCC into holder’s brokerage accounts or directly to the holders. All Series A and Series C warrants have been exercised and are no longer outstanding. There are 87,456 Series B warrants outstanding which are held by Chet Billingsley, the Company’s Chief Executive Officer (“CEO”).
25
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2021 and 2020
Note 12 - Warrant redemption liability (Continued)
Once the Series D warrants have been fully redeemed and exercised, the fees for the Series D warrant series will likewise be distributed. Mr. Billingsley has agreed to assume liability for paying these redemption fees and therefore warrant redemption fees received are retained by the Company for operating costs. Should Mr. Billingsley be incapacitated or otherwise become unable to pay the warrant redemption fees, the Company will remit the warrant redemption fees to former holders from amounts due to Mr. Billingsley from the Company, which are sufficient to cover the redemption fees at March 31, 2021 and December 31, 2020.
Note 13 - Stockholders’ equity
Common Stock
The Company was incorporated in California in 1994 and was redomiciled as a Delaware corporation, effective September 24, 2015. There are 75,000,000 authorized shares of Common Stock at $0.0001 par value. The holders of Common Stock are entitled to one vote per share on all matters submitted to a vote of the stockholders.
On August 8, 2014, the Company announced that it was initiating the repurchase of 300,000 shares of its Common Stock (approximately 2% of the Company’s common shares outstanding at that time). As of March 31, 2021 and December 31, 2020, 44,748 and 44,748 shares have been repurchased and retired, respectively.
Preferred Stock
Mentor has 5,000,000, $0.0001 par value, preferred shares authorized.
On July 13, 2017, the Company filed a Certificate of Designation of Rights, Preferences, Privileges and Restrictions of Series Q Preferred Stock (“Certificate of Designation”) with the Delaware Secretary of State to designate 200,000 preferred shares as Series Q Preferred Stock, such series having a par value of $0.0001 per share. Series Q Preferred Stock is convertible into Common Stock, at the option of the holder, at any time after the date of issuance of such share and prior to notice of redemption of such share of Series Q Preferred Stock by the Company, into such number of fully paid and nonassessable shares of Common Stock as determined by dividing the Series Q Conversion Value by the Conversion Price at the time in effect for such share.
The per share “Series Q Conversion Value,” as defined in the Certificate of Designation, shall be calculated by the Company at least once each calendar quarter as follows: The per share Series Q Conversion Value shall be equal to the quotient of the “Core Q Holdings Asset Value” divided by the number of issued and outstanding shares of Series Q Preferred Stock. The “Core Q Holdings Asset Value” shall equal the value, as calculated and published by the Company, of all assets that constitute Core Q Holdings which shall include such considerations as the Company designates and need not accord with any established or commonly employed valuation method or considerations. “Core Q Holdings” consists of all proceeds received by the Company on the sale of shares of Series Q Preferred Stock and all securities, acquisitions, and business acquired from such proceeds by the Company. The Company shall periodically, but at least once each calendar quarter, identify, update, account for and value, the assets that comprise the Core Q Holdings.
The “Conversion Price” of the Series Q Preferred Stock shall be at the product of 105% and the closing price of the Company’s Common Stock on a date designated and published by the Company. The Series Q Preferred Stock is intended to allow for a pure play investment in cannabis companies that have the potential to go public. The Series Q Preferred Stock will be available only to accredited, institutional or qualified investors.
The Company sold and issued 11 shares of Series Q Preferred Stock on May 30, 2018, at a price of $10,000 per share, for an aggregate purchase price of $110,000 (“Series Q Purchase Price”). The Company invested the Series Q Purchase Price as capital in Partner II to purchase equipment to be leased to Pueblo West. Therefore, the Core Q Holdings at March 31, 2021 and December 31, 2020 include this interest. The Core Q Holdings Asset Value at March 31, 2021 and December 31, 2020 was $16,670 and $16,207 per share, respectively. There is no contingent liability for the Series Q Preferred Stock conversion at March 31, 2021 and December 31, 2020. At March 31, 2021 and December 31, 2020, the Series Q Preferred Stock could have been converted at the Conversion Price of $0.173 and $0.085, respectively, into an aggregate of 1,059,969 and 2,097,358 shares of the Company’s Common Stock, respectively. Because there were net losses for the three month periods ended March 31, 2021 and 2020, these shares were anti-dilutive and therefore are not included in the weighted average share calculation for these periods.
26
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2021 and 2020
Note 14 - Term Loan
Term debt as of March 31, 2021 and December 31, 2020 consists of the following:
|
|
|
March 31,
2021
|
|
December 31,
2020
|
|
Bank of America auto loan, interest at 2.37% per annum, monthly principal and interest payments of $1,448, maturing December 2025, collateralized by vehicle.
|
|
77,983
|
$
|
81,812
|
|
|
|
|
|
|
|
Less: Current maturities
|
|
(15,696)
|
|
(15,566)
|
|
|
|
|
|
|
|
|
$
|
62,287
|
$
|
66,246
|
Note 15 – Paycheck Protection Plan Loans and Economic Injury Disaster Loans
Paycheck protection plan loans
In 2020, the Company and WCI each received loans in the amount of $76,500 and $383,342, respectively, from the Bank of Southern California and the Republic Bank of Arizona (collectively, the “PPP Loans”). The PPP Loans were forgiven in November 2020, except for $10,000 of WCI’s loan that was not eligible for forgiveness due to receipt of a $10,000 Economic Injury Disaster Loan Advance (“EIDL Advance”). However, on December 27, 2020, Section 1110(e)(6) of the CARES Act was repealed by Section 333 of the Economic Aid Act. As a result, the SBA automatically remitted a reconciliation payment to WCI’s PPP lender, the Republic Bank of Arizona, for the previously-deducted EIDL Advance amount, plus interest through the remittance date. On March 16, 2021, The Republic Bank of Arizona notified WCI of receipt of the reconciliation payment and full forgiveness of the EIDL Advance. The $10,000 forgiveness is reflected as other income for the three months ended March 31, 2021, in the condensed consolidated income statements.
On February 17, 2021, Mentor received a second PPP Loan in the amount of $76,593 (“Second PPP Loan) pursuant to Division N, Title III, of the Consolidated Appropriations Act, 2021 (the “Economic Aid Act”) as further set forth at Section 311 et. seq. of the Economic Aid Act.
The Second PPP Loan is forgivable so long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent, utilities, and other covered operations expenditures, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the forgiveness period.
The Company records PPP Loans as a liability in accordance with FASB ASC 470, “Debt” and records accrued interest through the effective date of forgiveness on the PPP Loans. Total gain on extinguishment of the PPP Loans and accrued interest is reported in other income and expense in the consolidated income statement.
27
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2021 and 2020
Note 15 – Paycheck Protection Plan Loans and Economic Injury Disaster Loans (Continued)
PPP loan balances consist of the following:
|
|
|
March 31,
2021
|
|
December 31,
2020
|
|
May 5, 2020, PPP loan from Republic Bank of Arizona to Waste Consolidators, Inc., revised December 1, 2020. The note bears interest at 1% per annum, with a revised maturation date of May 15, 2020, with monthly principal and interest payments of $560 beginning December 15, 2020. On March 16, 2021, WCI was notified of full forgiveness of the note.
|
$
|
-
|
$
|
9,449
|
|
|
|
|
|
|
|
February 17, 2021, Second PPP loan from the Bank of Southern California, with accrued interest of $88 at March 31, 2021. The loan bears interest at 1% per annum and matures January 16, 2026. Mentor may apply for forgiveness for amounts disbursed for covered costs. Payment on any unforgiven amount begins within ten months after last day of the loan forgiveness covered period (i) beginning on the date that is 8 weeks after the date of disbursement and (ii) ending on the date that is 24 weeks after the date of disbursement.
|
|
76,681
|
|
-
|
|
|
|
|
|
|
|
Total
|
|
76,681
|
|
9,449
|
|
|
|
|
|
|
|
Less: Current maturities
|
|
-
|
|
(6,658)
|
|
|
|
|
|
|
|
Long-term portion of paycheck protection plan loans
|
$
|
76,681
|
$
|
2,791
|
Interest expense on PPP Loans for the three months ended March 31, 2021 and 2020 was $88 and $0, respectively.
Economic injury disaster loan
On July 9, 2020, WCI received an additional Economic Injury Disaster Loan in the amount of $150,000 through the SBA. The loan is secured by all tangible and intangible personal property of WCI, bears interest at 3.75% per annum, requires monthly installment payments of $731 beginning July 2020, and matures July 2050. The loan is collateralized by all tangible and intangible assets of WCI.
EIDL loan balances at March 31, 2021 consist of the following:
|
|
|
March 31,
2021
|
|
December 31,
2020
|
|
July 9, 2020, WCI received an additional Economic Injury Disaster Loan, including accrued interest of $4,093 and $2,502 as of March 31, 2021 and December 31, 2020, respectively. The note is secured by all tangible and intangible personal property of WCI, bears interest at 3.75% per annum, requires monthly installment payments of $731 beginning July 2021, and matures July 2050.
|
$
|
$ 153,993
|
$
|
152,602
|
|
|
|
|
|
|
|
Less: Current maturities
|
|
-
|
|
-
|
|
|
|
|
|
|
|
Long-term portion of economic injury disaster loan
|
$
|
$ 153,993
|
$
|
152,602
|
Interest expense on the EIDL Loan for the three months ended March 31, 2021 and 2020 was $1,392 and $0, respectively.
28
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2021 and 2020
Note 16 - Accrued salary, accrued retirement, and incentive fee - related party
The Company had an outstanding liability to its CEO as follows:
|
|
|
March 31,
|
|
December 31,
|
|
2021
|
2020
|
|
Accrued salaries and benefits
|
$
|
856,784
|
$
|
848,796
|
|
Accrued retirement and other benefits
|
|
510,538
|
|
550,191
|
|
Offset by shareholder advance
|
|
(261,653)
|
|
(261,653)
|
|
|
$
|
1,105,669
|
$
|
1,137,334
|
As approved by resolution of the Board of Directors in 1998, the CEO will be paid an incentive fee and a bonus which are payable in installments at the CEO’s option. The incentive fee is 1% of the increase in market capitalization based on the bid price of the Company’s stock beyond the book value at confirmation of the bankruptcy, which was approximately $260,000. The bonus is 0.5% of the increase in market capitalization for each $1 increase in stock price up to a maximum of $8 per share (4%) based on the bid price of the stock beyond the book value at confirmation of the bankruptcy. For the three months ended March 31, 2021 and 2020, the incentive fee expense was $0 and $0, respectively.
Note 17 – Related party transactions
On December 15, 2020, WCI received a $20,000 short term loan from an officer of WCI, which is reflected as a related party payable at March 31, 2021 and December 31, 2020.
On March 12, 2021, Mentor received a $100,000 loan from its CEO, which bears interest at 7.8% per annum compounded quarterly and is due upon demand. The loan from the related party and accrued interest of $196 is reflected as a long-term liability at March 31, 2021. For the three months ended March 31, 2021, the interest expense on the long-term loan from the related party was $196.
Note 18 – Commitments and contingencies
G FarmaLabs Limited, a Nevada corporation (“G Farma”) has not made scheduled payments on the finance lease receivable or the notes receivable summarized below since February 19, 2019. All amounts due from G Farma are fully impaired at March 31, 2021 and December 31, 2020. A complete description of the agreements can be found in the Company’s Annual Report for the period ended December 31, 2020 on Form 10-K as filed with the SEC on April 15, 2021.
On March 17, 2017, the Company entered into a Notes Purchase Agreement with G Farma, with operations in Washington that had 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 face amount of $500,000. Subsequent to the initial investment, the Company executed eight addenda. Addendum II through Addendum VIII increased the aggregate principal face amount of the two notes to $1,100,000 and increased the combined monthly payments of the notes to $10,239 per month beginning March 15, 2019 with a balloon payment on the notes of approximately $894,172 due at maturity.
On September 6, 2018, the Company entered into an Equity Purchase and Issuance Agreement with G FarmaLabs Limited, G FarmaLabs DHS, LLC, GFBrands, Inc., Finka Distribution, Inc., and G FarmaLabs, WA, LLC under which Mentor was supposed to receive equity interests in the G Farma Equity Entities and their affiliates (together, the “G Farma Equity Entities”) equal to 3.75% of the G Farma Equity Entities’ interests. On March 4, 2019, Addendum VIII increased the G Farma Equity Entities’ equity interest to which Mentor is immediately entitled to 3.843%, and added Goya Ventures, LLC as a G Farma Equity Entity. We are now in litigation with these entities;the equity investment was fully impaired at March 31, 2021 and December 31, 2020.
Partner I acquired and delivered manufacturing equipment as selected by the G Farma Entities under sales-type finance leases. The finance leases resulting from this investment have been fully impaired at March 31, 2021 and December 31, 2020.
29
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2021 and 2020
Note 18 – Commitments and contingencies (Continued)
On May 28, 2019, the Company and Mentor Partner I, LLC filed suit against the G Farma Entities and three guarantors to the G Farma agreements, summarized above, in the California Superior Court in and for the County of Marin. The Company is primarily seeking monetary damages for breach of the G Farma agreements, including promissory notes, leases, and other agreements, to recover collateral under a security agreement and to collect from guarantors on the agreements. The Company previously sought, and on January 22, 2020, the Court granted the Company’s request for a writ of possession to recover leased equipment within G Farma’s possession. On November 4, 2020, the Court granted Mentor Capital, Inc.’s and Mentor Partner I’s motion for summary adjudication as to all four causes of action, including both causes of action against G FarmaLabs Limited for liability for breach of the two promissory notes and one cause of action against each of Mr. Gonzalez and Ms. Gonzalez related to their duties as guarantors of G FarmaLabs Limited’s obligations under the promissory notes.
On November 13, 2019, G Farma filed a Cross-Complaint for declaratory relief and breach of contract relating to the consulting agreement between Mentor and G Farma. The Company filed an answer on December 6, 2019, denying each and every allegation of the Cross-Complaint and intends to vigorously defend itself in this matter. Mentor is currently in the process of preparing for trial on the remaining causes of action against the G Farma Entities and their guarantors.
The Company also plans to vigorously pursue its remaining claims against the G Farma Entities; however, collection is uncertain at this time. Due to uncertainty of collection, the Company has fully reserved against the finance leases receivable (more fully described in the Company’s Annual Report for the period ended December 31, 2020 on Form 10-K, Footnote 8, as filed with the SEC April 15, 2021) and has fully impaired all other notes receivables and investments in G Farma (described in the Company’s Annual Report for the period ended December 31, 2020 on Form 10-K, Footnotes 7, 9 and 10.
On January 31, 2020, as authorized by court order, all remaining equipment leased to G Farma by Mentor Partner I was repossessed by the Company and moved to storage under the Company’s control. In the quarter ended March 31, 2020, the Company sold a portion of the recovered equipment, with an original cost of $495,967, for net proceeds of $222,031. In the quarter ended June 30, 2020, the Company sold all remaining recovered equipment, with an original cost of $126,703, for net proceeds of $27,450, after deducting shipping and delivery costs. All proceeds from the sale of repossessed equipment have been applied to the G Farma lease receivable balance that is fully reserved at March 31, 2021 and December 30, 2020.
The Company will continue to legally pursue award and collection of damages in the amount of $1,166,570.62 related to the G Farma promissory notes from the G Farma Entities and three guarantors. The Company and Partner I will continue to pursue the the remaining causes of action in the litigation and award and collection of the $1,290,174 lease payments remaining from the G Farma Lease Entities and the G Farma guarantors after applying proceeds from the sale of Partner I’s recovered equipment assets.
30
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2021 and 2020
Note 19 – Segment Information
The Company is an operating, acquisition, and investment business. Subsidiaries in which the Company has a controlling financial interest are consolidated. The Company generally has two reportable segments; 1) the cannabis and medical marijuana segment, which includes the cost basis of membership interests of Electrum, the contractual interest in the Electrum legal recovery, and the operation of subsidiaries in the cannabis and medical marijuana sector; and 2) the Company’s long standing investment in WCI which works with business park owners, governmental centers, and apartment complexes to reduce their facility-related operating costs. The Company also had small investments in securities listed on the NYSE and NASDAQ, an investment in note receivable from a non-affiliated party, the fair value of convertible notes receivable and accrued interest from NeuCourt, and the investment in NeuCourt that is included in the Corporate, Other, and Eliminations section below. The NeuCourt investments were previously reported as an investment that would be useful in the cannabis space; however, NeuCourt has determined that its legal services would likely be more useful to users outside of the cannabis space. Prior period segment information presented below contains reclassification of NeuCourt investments from the cannabis and medical marijuana segment to the Corporate, other, and eliminations segment.
|
|
|
Cannabis and
Medical
Marijuana
Segment
|
|
Facility
Operations
Related
|
|
Corporate,
Other and
Eliminations
|
|
Consolidated
|
|
Three months ended March 31, 2021
|
|
|
|
|
|
|
|
|
|
Net revenue
|
$
|
10,871
|
$
|
1,309,753
|
$
|
-
|
$
|
1,320,624
|
|
Operating income (loss)
|
|
6,125
|
|
(3,946)
|
|
(166,922)
|
|
(164,743)
|
|
Interest income
|
|
-
|
|
-
|
|
16,489
|
|
16,489
|
|
Interest expense
|
|
-
|
|
8,498
|
|
3,572
|
|
12,070
|
|
Property additions
|
|
-
|
|
6,595
|
|
1,264
|
|
7,859
|
|
Depreciation and amortization
|
|
-
|
|
7,960
|
|
1,461
|
|
9,421
|
|
Total assets
|
|
1,005,990
|
|
2,124,769
|
|
1,644,546
|
|
4,775,305
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
Net revenue
|
$
|
12,538
|
$
|
1,136,924
|
$
|
-
|
$
|
1,149,462
|
|
Operating income (loss)
|
|
(8,905)
|
|
34,176
|
|
(261,994)
|
|
(236,723)
|
|
Interest income
|
|
24
|
|
-
|
|
19,379
|
|
19,403
|
|
Interest expense
|
|
-
|
|
8,471
|
|
(1,134)
|
|
7,337
|
|
Property additions
|
|
-
|
|
3,329
|
|
-
|
|
3,329
|
|
Depreciation and amortization
|
|
-
|
|
2,640
|
|
1,202
|
|
3,842
|
|
Total assets
|
|
2,343,236
|
|
1,657,984
|
|
764,633
|
|
4,765,853
|
The following table reconciles operating segments and corporate-unallocated operating income (loss) to consolidated income before income taxes, as presented in the unaudited condensed consolidated income statements:
|
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
2020
|
|
Operating loss
|
$
|
(164,743)
|
$
|
(236,723)
|
|
Gain (loss) on investments in securities
|
|
4,849
|
|
(5,037)
|
|
Gain (loss) on long-term investments
|
|
-
|
|
(5,169)
|
|
Paycheck Protection Program Loan forgiveness
|
|
10,000
|
|
-
|
|
Interest income
|
|
16,849
|
|
19,403
|
|
Interest expense
|
|
(12,070)
|
|
(7,337)
|
|
Loss on ROU asset disposal
|
|
(643)
|
|
-
|
|
Other income (expense)
|
|
(1,053)
|
|
12,084
|
|
|
|
|
|
|
|
Income before income taxes
|
$
|
(147,171)
|
$
|
(222,779)
|
31
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2021 and 2020
Note 20 – Subsequent events
Effective upon filing this Form 10-Q, Lori Stansfield will no longer serve as the Company’s Chief Financial Officer. The transition between Ms. Stansfield, a California resident, and the Company, now relocated to Plano, Texas, is amicable, and there are no accounting disagreements. As needed, Ms. Stansfield will continue to provide transition support to the Company to assist with its reporting obligations. Ms. Stansfield will remain a Director and the Treasurer of the Company’s board of directors. Ms. Stansfield continues to be a significant shareholder of the Company.
Because of his employer's acquisition by a prominent public company, effective May 15, 2021, Stan Shaul will no longer be able to serve as a board member and audit committee member of Mentor Capital or any other public company. Mr. Shaul expressed that it was a pleasure to serve as a Director of the Company for over twenty years, since his appointment to the board on November 24, 1998. Mr. Shaul remains a significant shareholder of the Company.
32
