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 in 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 broad target industry focus includes energy, manufacturing, and management services with the goal of ensuring increased
market opportunities.
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. 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.
R. L. Larson and MCIP continue their efforts to license or sell their exclusive patent rights in the United States and Canada for THC
and CBD cannabis vape pens for various THC and CBD percentage ranges and concentrations. Patent application and 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 September 30, 2022 and December 31, 2021.
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 September 30, 2022 and December
31, 2021.
Note
1 - Nature of operations (continued)
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 company 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. On September 27, 2022, Pueblo West exercised
its lease prepayment option and purchased the manufacturing equipment for $245,369.35. On September 28, 2022 Partner II transferred full
title to the equipment to Pueblo West. See Note 8.
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 September 30, 2022 and December 31, 2021, respectively.
On
October 30, 2018, the Company entered into a secured Recovery Purchase Agreement with Electrum. Electrum is the plaintiff in an ongoing
legal action 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 $196,666 and $181,529 as of December 31, 2021 and 2020, respectively. After repayment
to Mentor of all funds invested for payment of Litigation costs, Mentor will receive 19% 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.
Due to the coronavirus and the resulting delay in the trial date of the Litigation, on November 1, 2021 the parties amended the October
31, 2018 Capital Agreement for the purpose of extending the payment to the earlier of November 1, 2023, or the final resolution of the
Litigation and increasing the monthly payment payable by Electrum to $834. Under the amended 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 the monthly payment is not paid to Mentor in full. The
payment date is the earlier of November 1, 2023, 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. On November 1, 2021, the parties also amended the January
28, 2019 Capital Agreement to extend the payment date to the earlier of November 1, 2023, or the final resolution of the Litigation and
increasing the monthly payment payable by Electrum to $834. 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 $194,028 plus an additional 19.4% of the Recovery.
See Note 9.
On
or about September 14, 2022, Electrum and Aurora Cannabis, Inc. settled the Litigation claims and Electrum received CAD $800,000,
or approximately USD $584,000,
in settlement funds from Aurora Cannabis, Inc . (“Settlement Funds”), which have been placed in escrow. Pursuant to an
escrow agreement entered into by and between Electrum, Mentor, and the escrow agent, Mentor was to be paid amounts due and owing to
it under the Capital Agreements and Recovery Purchase Agreements from the Settlement Funds before any remaining amounts are to be
distributed to Electrum. To date, such payment has not been received. On or about September 20, 2022, the escrow agent resigned and
Electrum has refused to agree to a successor escrow agent in accordance with the terms of the escrow
agreement.
Subsequent to quarter end, on October 21, 2022, the Company filed suit against the escrow agent, Electrum, and Does 1 through 10, seeking declaratory relief from the California Superior Court in the County of San Mateo that the escrow agent shall either distribute the Settlement Funds or transfer the Settlement Funds to the successor escrow agent, all in accordance with the escrow agreement. See Note 20.
On
December 21, 2018, Mentor paid $10,000 to purchase 500,000 shares of NeuCourt, Inc. common stock, representing approximately 6.13% of
NeuCourt’s issued and outstanding common stock as of September 30, 2022. NeuCourt is a Delaware corporation that is developing
a technology that is expected to be useful to the dispute resolution industry.
Note
2 - Summary of significant accounting policies
Condensed
consolidated financial statements
The
unaudited condensed consolidated financial statements of the Company for the nine month period ended September 30, 2022 and 2021 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,
2021 was derived from the audited financial statements included in the Company’s financial statements as of and for the year ended
December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”)
on March 24, 2022. 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 $10,898,055 as of September 30,
2022. The Company continues to experience negative cash flows from operations.
Going
Concern Uncertainties
The
Company may seek to recover unused funds from its affiliated entities, sell one or more investments that management has determined
are at the end of their lifecycle or no longer fit within the Company’s desired focus, or raise additional capital to fund its
operations. Mentor 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 6,250,000
Series D 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 monetizing existing mature business projects and increasing revenues through acquisition, investment, and organic growth.
Management anticipates funding new activities by raising additional capital through the sale of equity securities and debt.
Note
2 - Summary of significant accounting policies (continued)
Impact
Related to COVID-19 and Global Economic Factors
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. The ongoing worldwide economic situation, including
the COVID-19 outbreak, economic sanctions, cybersecurity risks, the outbreak of war in Ukraine, 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. Additionally, due to a reduction in expected collections, the collectability
of our investment in accounts receivable was impaired by $116,430 at December 31, 2021, and on February 15, 2022, the terms of the investment
were modified, resulting in an additional loss of $41,930, see Note 3.
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. Supply chain disruptions,
inflation, high energy prices, and supply-demand imbalances are expected to continue in 2022. 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 has
been directly affected by rapid increases to direct costs of fuel, labor, and landfill usage in 2020, 2021 and 2022. 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 19, 2020, as amended,
August 10, 2021, “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.
The
Company has taken preventative measures to protect itself from potentially malicious cyber wiper malware attacks in response to the “Shields
Up” February 26, 2022, Cybersecurity and Infrastructure Security Agency warning following Russia’s February 24, 2022 invasion
of Ukraine.
We
anticipate that current cash and associated resources will be sufficient to execute our business plan for the next twelve months. The
ultimate impact of COVID-19, the outbreak of war in Ukraine, and inflation on our business, results of operations, cybersecurity, financial
condition, and cash flows are dependent on future developments, including the duration of COVID-19 and the crisis in Ukraine, government
responses, and the related length of this impact on the 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.
Note
2 - Summary of significant accounting policies (continued)
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.
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 nine months ended September 30, 2022, 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 September 30, 2022 and December 31, 2021.
Accounts
receivable
Accounts
receivable consists 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 September 30, 2022 and December 31, 2021, the Company has an allowance for doubtful
receivables in the amount of $64,692 and $74,676, 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.
Note
2 - Summary of significant accounting policies (continued)
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 consisted of two convertible notes receivable from NeuCourt, Inc., which were recorded
at the aggregate principal face amount of $0 and $71,850 plus accrued interest of $0 and $13,225 at September 30, 2022 and December 31,
2021, respectively, as presented in Note 7. On June 13, 2022, the Company sold $2,160.80 of note principal to a third party.
On
July 15, 2022, the Company and NeuCourt, Inc. entered into an Exchange Agreement by which the $25,000
and $47,839
principal amounts of the NeuCourt November 22, 2017 and October 31, 2018 convertible notes and accrued unpaid interest in the
amounts of $3,518
and $9,673
respectively, were exchanged for a Simple Agreement for Future Equity (“SAFE”), a security providing for conversion of
the SAFE into shares of NeuCourt common or preferred stock (“Capital Stock”) at some future date. As of July 15, 2022,
the Company received SAFEs in the aggregate face amount of $86,030
(the “Purchase Amount”).
The
valuation cap of the SAFE is $3,000,000 (“Valuation Cap”), and the discount rate is 75% (“Discount Rate”).
If,
prior to termination, conversion, or expiration of the SAFE, NeuCourt sells a series of preferred stock (“Equity Preferred Stock”)
to investors in an equity financing raising not less than $500,000, Mentor’s SAFE shall be converted into shares equal to the Purchase
Amount divided by the lessor of (x) the price per share of the Equity Preferred Stock multiplied by the Discount Rate and (y) the price
per share equal to the Valuation Cap divided by the number of outstanding shares of NeuCourt on a fully diluted, as-converted basis (“Conversion
Shares”). The Conversion Shares shall consist of (a) the number of shares of Equity Preferred Stock equal to the Purchase Amount
divided by the price per share of the Equity Preferred Stock (“Preferred Stock”) and (b) the number of shares of common stock
equal to the Conversion Shares minus the Preferred Stock.
The
SAFE will expire and terminate upon i) conversion or ii) repayment. The SAFE may be repaid by NeuCourt upon sixty (60) days prior notice
(“Repayment Notice”) to the Company unless the Company elects during that period to convert the SAFE.
If
NeuCourt does not close an equity financing round raising $500,000 or more prior to expiration or termination of the SAFE, the Company
may elect to convert the SAFE into the number of shares of a to-be-created series of preferred stock equal to the (x) Purchase Amount
divided by (y) the Valuation Cap divided by the number of outstanding shares of NeuCourt on a fully diluted, as-converted basis (“Default
Conversion”). Additionally, if NeuCourt experiences a change of control, initial public offering, ceases operations, or enters
into a general assignment for the benefit of its creditors, prior to conversion, termination, or expiration of the SAFE, the Company
will receive the greater of (a) a cash payment equal to the Purchase Amount and (b) the value of the shares issuable on Default Conversion.
On
July 22, 2022, the Company sold $989
of the SAFE Purchase Amount to a third party. On August 1, 2022, the Company sold an additional $1,285
of the SAFE Purchase Amount to a third party, thereby reducing the outstanding aggregate SAFE Purchase Amount to $83,756.
Note
2 - Summary of significant accounting policies (continued)
Investment
in account receivable, net of discount
The
Company’s investment in account receivable are 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. Due to a
reduction in expected collections, the collectability of our investment in accounts receivable was impaired by $116,430 at December 31,
2021, and on February 15, 2022, the terms of the investment were modified, resulting in an additional loss of $41,930, see Note 3.
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.
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 on or after 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 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 to determine the present value
of lease payments.
Note
2 - Summary of significant accounting policies (continued)
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 are 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.
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 was derived from 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.
Note
2 - Summary of significant accounting policies (continued)
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 September 30, 2022 and December 31, 2021.
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.
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.
Note
2 - Summary of significant accounting policies (continued)
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 September 30, 2022 and December 31, 2021, respectively. There were 0 and
87,456 potentially dilutive shares outstanding at September 30, 2022 and December 31, 2021, respectively.
Conversion
of Series Q Preferred Stock into Common Stock would be anti-dilutive for the nine months ended September 30, 2022 and 2021 and is not
included in calculating the diluted weighted average number of shares outstanding.
Note
3 – 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 the 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 $116,430 at December 31, 2021.
On
February 16, 2022, subject to effecting certain agreed upon payment changes, the parties agreed to modify the terms of the installment
payments. The Company will retain annual payments of $100,000 for the remaining four years of the agreement and will also receive an
additional $100 per month through the end of the agreement term. The modification was accounted for using the same original discount
rate, and a loss of $41,930 was recognized in the quarter ended March 31, 2022.
The
investment in account receivable consists of the following at September 30, 2022 and December 31, 2021:
Schedule
of receivables with imputed interest
| | |
September
30,
2022 | | |
December
31,
2021 | |
| Face value | |
$ | 403,900 | | |
$ | 585,000 | |
| Impairment | |
| - | | |
| (116,430 | ) |
| Total | |
| 403,900 | | |
| 468,570 | |
| Unamortized
discount | |
| (106,343 | ) | |
| (167,137 | ) |
| Net balance | |
| 297,557 | | |
| 301,433 | |
| Current
portion | |
| (101,200 | ) | |
| - | |
| Long
term portion | |
$ | 196,357 | | |
$ | 301,433 | |
For
the three months ended September 30, 2022 and 2021, $12,916 and $15,228 of discount amortization is included in interest income, respectively.
For the nine months ended September 30, 2022 and 2021, $38,754 and $45,684 of discount amortization is included in interest income, respectively.
Note
4 – Other receivable
Other
receivable consisted of the following:
Schedule
of other receivable
| | |
September
30,
2022 | | |
December
31,
2021 | |
| Employee retention
tax credits | |
$ | 77,898 | | |
$ | 33,222 | |
| Accrued sales tax receivable
from customers | |
| 248,243 | | |
| - | |
| Other | |
| 4,430 | | |
| - | |
| | |
| | | |
| | |
| Total
Other receivable | |
$ | 330,571 | | |
$ | 33,222 | |
In
2022, WCI received an Employee Retention Tax Credit (“ERTC”) in the amount of $1,350,161, in conjunction with WCI’s
professional employer organization’s receipt and application of the same to WCI leased employees. The ERTC was initially established
by Section 2301 of Coronavirus Aid, Relief and Economic Security Act of 2020, as amended by Sections 206-207 of the Taxpayer Certainty
and Disaster Relief Act and by Division EE of Consolidated Appropriation Act of 2021 and Section 9651 of American Rescue Plan Act of
2021; which is authorized by Section 3134 of the Internal Revenue Code. The Consolidated Appropriation Act of 2021 and American Rescue
Plan Act of 2021 amendments to the ERTC program provided eligible employers with a tax credit in an amount equal to 70% of qualified
wages (including certain health care expenses) that eligible employers pay their employees after January 1, 2021 through December 31,
2021. The maximum amount of qualified wages taken into account with respect to each employee for each calendar quarter is $10,000 so
that the maximum credit that an eligible employer may claim for qualified wages paid to any employee is $7,000 per quarter. The credit
is taken against an employer’s share of social security tax after WCI’s professional employer organization files applicable
amended quarterly tax filings on Form 941-X for each applicable quarter. The receipt of the tax credit is expected to improve WCI’s
liquidity due to the effects of the credit. Although WCI’s professional employer organization currently anticipates receiving credits
for wages paid in 2020 and 2021, there can be no assurances that WCI or WCI’s professional employer organization will continue
to meet the requirements or that changes in the ERTC regulations including changes in guidance provided by the IRS with respect to the
implementation and operation of the ERTC, will not be adopted that could reduce or eliminate the benefits that WCI and WCI’s professional
employer organization may receive or qualify for.
ERTC
income of $0 and $1,350,161 is reflected in other income for the three and nine months ended September 30, 2022 in the condensed consolidated
income statement. WCI received the ERTC based on qualitative information submitted. During the three months ended September 30, 2022,
$1,272,2693 was claimed against current payroll tax liabilities as they became due, and the remaining credit of $77,898 is included in
other receivable in the condensed consolidated balance sheet at September 30, 2022.
The
December 31, 2021, ERTC balance of $33,222, was received by Mentor as a refund in the first nine months of 2022. The balance at December
31, 2022 is $0.
Note
5 - Property and equipment
Property
and equipment are comprised of the following:
Schedule
of property, plant and equipment
| | |
September
30,
2022 | | |
December
31,
2021 | |
| Computers | |
$ | 32,312 | | |
$ | 31,335 | |
| Furniture and fixtures | |
| 15,966 | | |
| 15,966 | |
| Machinery
and vehicles | |
| 294,846 | | |
| 252,225 | |
| Gross
Property and equipment | |
| 343,124 | | |
| 299,526 | |
| Accumulated
depreciation and amortization | |
| (192,712 | ) | |
| (144,480 | ) |
| | |
| | | |
| | |
| Net
Property and equipment | |
$ | 150,412 | | |
$ | 155,046 | |
Note
5 - Property and equipment (continued)
Depreciation
and amortization expense were $18,207 and $15,031 for the three months ended September 30, 2022 and 2021, respectively. Depreciation
and amortization expense were $51,847 and $34,305 for the nine months ended September 30, 2022 and 2021, 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.
Note
6 – Lessee Leases
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 on or after 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 $1,176,653 and $882,081 as of September 30,
2022 and December 31, 2021, respectively. Accumulated amortization associated with finance leases was $389,795 and $236,470 as of September
30, 2022 and December 31, 2021, respectively.
Lease
costs recognized in our consolidated statements of operations is summarized as follows:
Schedule
of lease costs recognized in consolidated statements of operations
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| | |
Three
Months Ended
September 30, | | |
Nine
Months Ended
September 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Operating
lease cost included in cost of goods | |
$ | 976 | | |
$ | 27,868 | | |
$ | 14,030 | | |
$ | 90,569 | |
| Operating
lease cost included in operating costs | |
| 7,500 | | |
| 13,496 | | |
| 22,200 | | |
| 35,788 | |
| Total
operating lease cost (1) | |
| 8,476 | | |
| 41,364 | | |
| 36,230 | | |
| 126,357 | |
| Finance
lease cost, included in cost of goods: | |
| | | |
| | | |
| | | |
| | |
| Amortization
of lease assets | |
| 54,855 | | |
| 41,111 | | |
| 153,324 | | |
| 90,082 | |
| Interest
on lease liabilities | |
| 7,258 | | |
| 6,765 | | |
| 21,745 | | |
| 18,595 | |
| Total
finance lease cost | |
| 62,113 | | |
| 47,876 | | |
| 175,069 | | |
| 108,677 | |
| Short-term
lease cost | |
| - | | |
| - | | |
| - | | |
| 2,300 | |
| Total
lease cost | |
$ | 70,589 | | |
$ | 89,240 | | |
$ | 211,299 | | |
$ | 237,334 | |
| |
(1) |
Right
of use asset amortization under operating agreements was $7,214 and $39,006 for the three months ended September 30, 2022 and 2021,
respectively. Right of use asset amortization under operating agreements was $32,847 and $106,545 for the nine months ended September
30, 2022 and 2021, respectively. |
Other
information about lease amounts recognized in our condensed consolidated financial statements is summarized as follows:
Schedule
of other information about lease amounts recognized in Condensed Consolidated Financial Statements
| | |
September
30,
2022 | | |
December
31,
2021 | |
| Weighted-average remaining
lease term – operating leases | |
| 0.41
years | | |
| 0.95
years | |
| Weighted-average remaining
lease term – finance leases | |
| 3.80
years | | |
| 3.83
years | |
| Weighted-average
discount rate – operating leases | |
| 4.0 | % | |
| 5.7 | % |
| Weighted-average discount
rate – finance leases | |
| 5.5 | % | |
| 3.8 | % |
Note
6 – Lessee Leases (continued)
Finance
lease liabilities were as follows:
Schedule
of finance lease liabilities
| | |
September
30,
2022 | | |
December
31,
2021 | |
| Gross finance
lease liabilities | |
$ | 759,561 | | |
$ | 634,192 | |
| Less:
imputed interest | |
| (56,503 | ) | |
| (51,212 | ) |
| Present value of finance
lease liabilities | |
| 703,058 | | |
| 582,980 | |
| Less:
current portion | |
| (200,310 | ) | |
| (167,515 | ) |
| Long-term
finance lease liabilities | |
$ | 502,748 | | |
$ | 415,465 | |
Operating
lease liabilities were as follows:
Schedule
of operating lease liabilities
| | |
September
30,
2022 | | |
December
31,
2021 | |
| Gross operating
lease liabilities | |
$ | 12,500 | | |
$ | 55,865 | |
| Less:
imputed interest | |
| (124 | ) | |
| (8,832 | ) |
| Present value of operating
lease liabilities | |
| 12,376 | | |
| 47,033 | |
| Less:
current portion | |
| (12,376 | ) | |
| (42,058 | ) |
| Long-term
operating lease liabilities | |
$ | - | | |
$ | 4,975 | |
Lease
maturities were as follows:
Schedule
of lease maturities
Maturity
of lease liabilities
| 12
months ending September 30, | |
| Finance
leases | | |
| Operating
leases | |
| 2022 | |
$ | 200,310 | | |
$ | 12,376 | |
| 2023 | |
| 187,397 | | |
| - | |
| 2024 | |
| 168,143 | | |
| - | |
| 2025 | |
| 102,522 | | |
| - | |
| 2026 | |
| 44,686 | | |
| - | |
| Total | |
| 703,058 | | |
| 12,376 | |
| Less:
Current maturities | |
| (200,310 | ) | |
| (12,376 | ) |
| Long-term
liability | |
$ | 502,748 | | |
$ | -
| |
Note
7 – Convertible notes receivable
Convertible
notes receivable consist of the following:
Schedule
of convertible notes receivable
| | |
September
30,
2022 | | |
December
31,
2021 | |
| | |
| | |
| |
| November
22, 2017, NeuCourt, Inc. convertible note receivable included accrued interest of $2,834 at December 31, 2021. The convertible note
plus accrued interest of $3,518 was converted to a SAFE investment in NeuCourt as further described in the note below. The note bore
interest at 5% per annum, originally matured November 22, 2019, and was extended to mature November 22, 2021, and subsequently to
November 22, 2023. Principal and accrued interest were due at maturity. Upon extension, the Company received a cash payment of $2,496
for interest accrued through November 4, 2019. The convertible note and accrued interest were exchanged for a SAFE security as further
described below. * | |
$ | - | | |
$ | 27,834 | |
| | |
| | | |
| | |
| The
October 31, 2018, NeuCourt, Inc. convertible note receivable included accrued interest of $8,491 at December 31, 2021. The note bore
interest at 5% per annum and was to mature on October 31, 2022. Principal and accrued interest were due at maturity. On July 15,
2022, the convertible note and accrued interest of $9,673 were exchanged for a SAFE security as further described below. * | |
| - | | |
| 58,491 | |
| | |
| | | |
| | |
| Total convertible notes
receivable | |
| - | | |
| 86,325 | |
| | |
| | | |
| | |
| Less
current portion | |
| - | | |
| (58,491 | ) |
| | |
| | | |
| | |
| Long
term portion | |
$ | - | | |
$ | 27,834 | |
| * |
On
July 15, 2022 the convertible notes were exchanged for a Simple Agreement for Future Equity
(“SAFE”). Prior to the exchange, the Conversion Price for each Note was 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 to be
issued on conversion was 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 consisted 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.
On
July 15, 2022, the Company and NeuCourt, Inc. entered into an Exchange Agreement by which the $25,000
and $47,839
principal amounts of the NeuCourt November 22, 2017 and October 31, 2018 convertible notes and accrued unpaid interest in the
amounts of $3,518
and $9,673,
respectively, were exchanged for a Simple Agreement for Future Equity (“SAFE”), a security providing for conversion of
the SAFE into shares of NeuCourt common or preferred stock (“Capital Stock”) at some future date. As of July 15, 2022,
the Company received SAFEs in the aggregate face amount of $86,030
(the “Purchase Amount”).
The
valuation cap of the SAFE is $3,000,000 (“Valuation Cap”), and the discount rate is 75% (“Discount Rate”).
If,
prior to termination, conversion, or expiration of the SAFE, NeuCourt sells a series of preferred stock (“Equity Preferred
Stock”) to investors in an equity financing raising not less than $500,000, Mentor’s SAFE shall be converted into shares
equal to the Purchase Amount divided by the lessor of (x) the price per share of the Equity Preferred Stock multiplied by the Discount
Rate and (y) the price per share equal to the Valuation Cap divided by the number of outstanding shares of NeuCourt on a fully diluted,
as-converted basis (“Conversion Shares”). The Conversion Shares shall consist of (a) the number of shares of Equity Preferred
Stock equal to the Purchase Amount divided by the price per share of the Equity Preferred Stock (“Preferred Stock”) and
(b) the number of shares of common stock equal to the Conversion Shares minus the Preferred Stock.
The
SAFE will expire and terminate upon i) conversion or ii) repayment. The SAFE may be repaid by NeuCourt upon sixty (60) days prior
notice (“Repayment Notice”) to the Company unless the Company elects during that period to convert the SAFE.
If
NeuCourt does not close an equity financing round raising $500,000 or more prior to expiration or termination of the SAFE, the Company
may elect to convert the SAFE into the number of shares of a to-be-created series of preferred stock equal to the (x) Purchase Amount
divided by (y) the Valuation Cap divided by the number of outstanding shares of NeuCourt on a fully diluted, as-converted basis (“Default
Conversion”). Additionally, if NeuCourt experiences a change of control, initial public offering, ceases operations, or enters
into a general assignment for the benefit of its creditors, prior to conversion, termination, or expiration of the SAFE, the Company
will receive the greater of (a) a cash payment equal to the Purchase Amount and (b) the value of the shares issuable on Default Conversion.
On
July 22, 2022, the Company sold $989
of the SAFE Purchase Amount to a third party. On August 1, 2022, the Company sold an additional $1,285
of the SAFE Purchase Amount to a third party, thereby reducing the aggregate outstanding SAFE Purchase Amount to $83,756.
|
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. On September
27, 2022, Pueblo West exercised its lease prepayment option and purchased the manufacturing equipment for $245,369.35. On September 28,
2022 Partner II transferred full title to the equipment to Pueblo West.
Performing
net finance leases receivable consisted of the following:
Schedule
of net finance leases receivable, non-performing
| | |
September
30,
2022 | | |
December
31,
2021 | |
| Gross minimum
lease payments receivable | |
$ | - | | |
$ | 367,505 | |
| Accrued interest | |
| - | | |
| 1,783 | |
| Less:
unearned interest | |
| - | | |
| (62,638 | ) |
| Finance leases receivable | |
| - | | |
| 306,650 | |
| Less
current portion | |
| - | | |
| (76,727 | ) |
| Long
term portion | |
$ | - | | |
$ | 229,923 | |
Finance
lease revenue recognized on Partner II finance leases for the three months ended September 30, 2022 and 2021 was $20,168 and $9,957,
respectively. Interest income recognized on Partner II finance leases for the nine months ended September 30, 2022 and 2021 was $37,659
and $ 31,176, respectively.
Note
9 - Contractual interests in legal recoveries
Interest
in Electrum Partners, LLC legal recovery
Electrum
was the plaintiff in that certain legal action captioned Electrum Partners, LLC, Plaintiff, and Aurora Cannabis Inc., Defendant,
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 secured 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 September 30, 2022 and December 31, 2021, Mentor has invested an additional
$96,666 and $96,666, respectively, in capital for payment of legal retainers and fees in consideration for an additional nine percent
(9%) of the Recovery. At September 30, 2022 and December 31, 2021, the Recovery Agreement investment is reported in the condensed consolidated
balance sheets at cost of $196,666 and $196,666, respectively. This investment was subject to loss should Electrum not prevail in the
Litigation.
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. Due to the coronavirus and the resulting delay in the trial date of the Litigation, on November 1, 2021 the parties
amended the October 31, 2018 Capital Agreement for the purpose of extending the payment to the earlier of November 1, 2023, or the final
resolution of the Litigation and increasing the monthly payment payable by Electrum to $834. 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 the monthly payment is not paid to
Mentor in full. The payment date under the amended October 31, 2018 Capital Agreement is the earlier of November 1, 2023, 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 September 30, 2022 and December 31, 2021.
On
January 28, 2019, Mentor entered into a second secured Capital Agreement with Electrum. On November 1, 2021, the parties also amended
the January 28, 2019 Capital Agreement to extend the payment date to the earlier of November 1, 2023, or the final resolution of the
Litigation and increased the monthly payment payable by Electrum to $834. Under the amended 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 January 28, 2019 until the payment date if the Recovery occurs prior to the payment date, and (B) the monthly payment
for each full month from January 28, 2019 until the payment date. The payment date is the earlier of November 1, 2023, 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 September 30, 2022 and December 31, 2021. 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.
On or about September 14, 2022,
Electrum and Aurora Cannabis, Inc. settled the Litigation claims and Electrum received CAD $800,000,
or approximately USD $584,000,
in settlement funds from Aurora Cannabis, Inc. (“Settlement Funds”), which have been placed in escrow. Pursuant to an
escrow agreement entered into by and between Electrum, Mentor, and the escrow agent, Mentor was to be paid amounts due and owing to
it under the Capital Agreements and Recovery Purchase Agreements from the Settlement Funds before any remaining amounts are to be
distributed to Electrum. To date, such payment has not been received. On or about September 20, 2022, the escrow agent resigned and
Electrum has refused to agree to a successor escrow agent in accordance with the terms of the escrow agreement.
Subsequent
to quarter end, on October 21, 2022, the Company filed suit against the escrow agent, Electrum, and Does 1 through 10, seeking declaratory relief from the California Superior Court in the County of San Mateo that the escrow agent shall either distribute the Settlement Funds or transfer the Settlement Funds to the successor escrow agent, all in accordance with the escrow agreement. See Note 20.
Company management estimates that collection from the Settlement Funds
is more likely than not, and no impairment has been recorded at September 30, 2022 and December 31, 2021.
The
Company’s interest in the Electrum Partners, LLC legal recovery, carried at cost, at September 30, 2022 and December 31, 2021 is
summarized as follows:
Schedule
of interest in legal recovery carried at cost
| | |
September
30,
2022 | | |
December
31,
2021 | |
| October 30, 2018 Recovery Purchase
Agreement | |
$ | 196,666 | | |
$ | 196,666 | |
| October 31, 2018 secured Capital Agreement | |
| 100,000 | | |
| 100,000 | |
| January
28, 2019 secured Capital Agreement | |
| 100,000 | | |
| 100,000 | |
| Total
Invested | |
$ | 396,666 | | |
$ | 396,666 | |
Note
10 – Investments and fair value
The
hierarchy of Level 1, Level 2 and Level 3 Assets are listed as following:
Schedule
of hierarchy of level 1, level 2 and level 3 assets
| |
|
(Level
1) |
|
|
(Level
2) |
|
|
(Level
3) |
|
|
(Level
3) |
|
|
(Level
3) |
|
| |
|
|
|
|
|
|
|
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, 2020 |
|
$ |
34,826 |
|
|
$ |
- |
|
|
$ |
381,529 |
|
|
$ |
1,000 |
|
|
$ |
204,028 |
|
| Total gains or losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Included in earnings (or changes in net assets) |
|
|
842 |
|
|
|
- |
|
|
|
- |
|
|
|
175 |
|
|
|
- |
|
| Purchases, issuances, sales, and settlements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Purchases |
|
|
38,470 |
|
|
|
- |
|
|
|
15,137 |
|
|
|
- |
|
|
|
- |
|
| Issuances |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Sales |
|
|
(73,129 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Settlements |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Balance at December 31, 2021 |
|
$ |
1,009 |
|
|
$ |
- |
|
|
$ |
396,666 |
|
|
$ |
1,175 |
|
|
$ |
204,028 |
|
| Beginning balance |
|
$ |
1,009 |
|
|
$ |
- |
|
|
$ |
396,666 |
|
|
$ |
1,175 |
|
|
$ |
204,028 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total gains or losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Included in earnings (or changes in net assets) |
|
|
(751 |
) |
|
|
- |
|
|
|
- |
|
|
|
(500 |
) |
|
|
- |
|
| Purchases, issuances, sales, and settlements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Purchases |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
83,756 |
|
| Issuances |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Sales |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Settlements |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Balance at September 30, 2022 |
|
$ |
258 |
|
|
$ |
- |
|
|
$ |
396,666 |
|
|
$ |
675 |
|
|
$ |
287,784 |
|
| Ending balance |
|
$ |
258 |
|
|
$ |
- |
|
|
$ |
396,666 |
|
|
$ |
675 |
|
|
$ |
287,784 |
|
Note
10 – Investments and fair value (continued)
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 September 30, 2022 consist of the following:
Schedule
of amortized costs, gross unrealized holding gains and losses, and fair values of investment securities
| Type | |
Amortized
Costs | | |
Gross
Unrealized
Gains | | |
Gross
Unrealized Losses | | |
Fair
Values | |
| | |
| | |
| | |
| | |
| |
| NASDAQ
listed company stock | |
$ | 1,637 | | |
$ | - | | |
$ | (1,379 | ) | |
$ | 258 | |
| | |
$ | 1,637 | | |
$ | - | | |
$ | (1,379 | ) | |
$ | 258 | |
The
portion of unrealized gains and losses for the period related to equity securities still held at the reporting date is calculated as
follows:
Schedule
of portion of unrealized gains and losses related to equity securities
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| | |
Three
Months Ended September 30, | | |
Nine
Months Ended September 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Net gains and
losses recognized during the period on equity securities | |
$ | (501 | ) | |
$ | (2,427 | ) | |
$ | (751 | ) | |
$ | (9,001 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Less:
Net gains (losses) recognized during the period on equity securities sold during the period | |
| - | | |
| - | | |
| - | | |
| (2,508 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Unrealized
gains and losses recognized during the reporting period on equity securities still held at the reporting date | |
$ | (501 | ) | |
$ | (2,427 | ) | |
$ | (751 | ) | |
$ | (6,493 | ) |
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, B, 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 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.
The
exercise price in effect at January 1, 2015 through September 30, 2022 for the Series D warrants is $1.60.
Note
11 - Common stock warrants (continued)
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 regarding 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 September 30, 2022 and December 31, 2021, the weighted average contractual life for all Mentor warrants was 15.75 years and 16.5 years,
respectively, and the weighted average outstanding warrant exercise price was $2.14 and $2.11 per share, respectively.
During
the nine months ended September 30, 2022 and 2021, there were 87,456 and 0 Series B and 2,954 and 0 Series D warrants exercised, respectively;
there were no warrants issued. The intrinsic value of outstanding warrants at September 30, 2022 and December 31, 2021 was $0 and $0,
respectively.
The
following table summarizes Series B and Series D common stock warrants as of each period:
Schedule of common stock warrants
| | |
Series
B | | |
Series
D | | |
B
and D Total | |
| Outstanding at December 31, 2020 | |
| 87,456 | | |
| 6,252,954 | | |
| 6,340,410 | |
| Issued | |
| - | | |
| - | | |
| - | |
| Exercised | |
| - | | |
| - | | |
| - | |
| Outstanding at December 31, 2021 | |
| 87,456 | | |
| 6,252,954 | | |
| 6,340,410 | |
| Issued | |
| - | | |
| - | | |
| - | |
| Exercised | |
| (87,456 | ) | |
| (2,954 | ) | |
| (90,410 | ) |
| Outstanding at September
30, 2022 | |
| 0 | | |
| 6,250,000 | | |
| 6,250,000 | |
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, 2020 | |
| 689,159 | |
| Issued | |
| - | |
| Exercised | |
| - | |
| Outstanding at December
31, 2021 | |
| 689,159 | |
| Outstanding | |
| 689,159 | |
| | |
| | |
| Issued | |
| - | |
| Exercised | |
| - | |
| Outstanding at September
30, 2022 | |
| 689,159 | |
| Outstanding | |
| 689,159 | |
Note
11 - Common stock warrants (continued)
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 shares at that time) 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 nine months ended September 30, 2022 and 2021, 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, Series B, and Series C warrants have been exercised and are no longer outstanding.
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 September 30, 2022 and December 31, 2021.
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 September 30, 2022 and December 31, 2021, 44,748 and 44,748 shares
have been repurchased and retired, respectively.
Note
13 - Stockholders’ equity(continued)
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.
Preferred
Stock (continued)
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. On September
27, 2022, Pueblo West exercised its lease prepayment option and purchased the manufacturing equipment for $245,369.35.
On September 28, 2022 Partner II transferred full title to the equipment to Pueblo West. Therefore, the Core Q Holdings at September
30, 2022 and December 31, 2021 include this interest. The Core Q Holdings Asset Value at September 30, 2022 and December 31, 2021 was
$20,843
and $18,082
per share, respectively. There is $0
and $0
contingent liability for the Series Q Preferred
Stock conversion at September 30, 2022 and December 31, 2021. At September 30, 2022 and December 31, 2021, the Series Q Preferred Stock
could have been converted at the Conversion Price of $0.063
and $0.053,
respectively, into an aggregate of 3,639262
and 3,752,930
shares of the Company’s Common Stock, respectively.
Because there were net losses for the nine-month period ended September 30, 2022 and December 31, 2021, the shares were anti-dilutive
and therefore are not included in the weighted average share calculation for that period.
Note
14 - Term Loan
Term
debt as of September 30, 2022 and December 31, 2021 consists of the following:
Schedule of term debt
| | |
September
30,
2022 | | |
December
31,
2021 | |
| Bank of America
auto loan, interest at 2.49% per annum, monthly principal and interest payments of $1,505, maturing July 2025, collateralized by
vehicle. | |
$ | 48,738 | | |
$ | 61,710 | |
| | |
| | | |
| | |
| Bank of America auto loan,
interest at 2.24% per annum, monthly principal and interest payments of $654, maturing October 2025, collateralized by vehicle. | |
| 22,755 | | |
| 28,162 | |
| | |
| | | |
| | |
| Bank
of America auto loan, interest at 2.84% per annum, monthly principal and interest payments of $497, maturing March 2026, collateralized
by vehicle. | |
| 19,775 | | |
| - | |
| | |
| | | |
| | |
| Total notes payable | |
| 91,268 | | |
| 89,872 | |
| Less:
Current maturities | |
| (29,236 | ) | |
| (23,203 | ) |
| | |
| | | |
| | |
| Long
term debt | |
$ | 62,031 | | |
$ | 66,669 | |
Note
15 – Paycheck Protection Program Loans and Economic Injury Disaster Loans
Paycheck
Protection Program 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 nine months ended September 30, 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 was forgiven effective October 26, 2021.
There
were no outstanding balances due on PPP loans at September 30, 2022 or December 31, 2021.
Note
15 – Paycheck Protection Program loans and Economic Injury Disaster Loan (continued)
Economic
injury disaster loan
On
July 9, 2020, WCI received an additional Economic Injury Disaster Loan in the amount of $149,900 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 2021, and matures July 2050. In March 2021, the SBA extended the deferment period for payments which extended the
initial payment until July 2022. The loan is collateralized by all tangible and intangible assets of WCI.
EIDL
loan balances at September 30, 2022 consist of the following:
Schedule of EIDL loan balances
| | |
September
30,
2022 | | |
December
31,
2021 | |
| July 9, 2020,
WCI received an additional Economic Injury Disaster Loan, including accrued interest of $12,043 and $8,424 as of September 30, 2022
and December 31, 2021, 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 2022, and matures July 2050. | |
| 161,943 | | |
| 158,324 | |
| Long
term debt | |
| 161,943 | | |
| 158,324 | |
| | |
| | | |
| | |
| Less:
Current maturities | |
| (3,343 | ) | |
| - | |
| | |
| | | |
| | |
| Long-term
portion of economic injury disaster loan | |
$ | 158,600 | | |
$ | 158,324 | |
Interest
expense on the EIDL Loan for the three months ended September 30, 2022 and 2021 was $1,501 and $1,449, respectively.
Interest
expense on the EIDL Loan for the nine months ended September 30, 2022 and 2021 was $4,418 and $4,260, respectively.
Note
16 - Accrued salary, accrued retirement, and incentive fee - related party
The
Company had an outstanding liability to its CEO as follows:
Schedule of outstanding liability
| | |
September
30,
2022 | | |
December
31,
2021 | |
| Accrued salaries
and benefits | |
$ | 905,864 | | |
$ | 881,125 | |
| Accrued retirement and other
benefits | |
| 503,240 | | |
| 508,393 | |
| Offset
by shareholder advance | |
| (261,653 | ) | |
| (261,653 | ) |
| Total
outstanding liability | |
$ | 1,147,451 | | |
$ | 1,127,865 | |
As
approved by a 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 nine months ended September 30, 2022 and 2021, 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 was reflected as a related party payable at December
31, 2021. On February 15, 2022, the loan plus accrued interest of $1,950 was paid in full.
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. On June 17, 2021 and June 5, 2022, Mentor received additional $100,000 and $50,000 loans from its CEO with the same terms
as the original loan. Accrued interest on the related party loans was $24,456 and $12,244 at September 30, 2022 and December 31, 2021,
respectively. Interest expense on the related party loans for the three months ended September 30, 2022 and 2021 was $5,250 and $4,006
respectively. Interest expense on the related party loans for the nine months ended September 30, 2022 and 2021 was $13,812 and $6,442
respectively.
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 September 30, 2022 and
December 31, 2021. A complete description of the agreements can be found in the Company’s Annual Report for the period ended December
31, 2021 on Form 10-K as filed with the SEC on March 24, 2022.
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. The G Farma Entities failed to perform their
obligations under the Equity Purchase and Issuance Agreement and the equity investment was fully impaired at September 30, 2022 and December
31, 2021.
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 September 30, 2022 and December 31, 2021.
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 primarily sought 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 obtained, in January 2020, a writ of possession to recover leased equipment
within G Farma’s possession. On January 31, 2020, all remaining equipment leased to G Farma by Mentor Partner I was repossessed
by the Company. In the quarter ended June 30, 2020, the Company sold all of the recovered equipment, with an original cost of $622,670,
for net proceeds of $249,481, 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 September 30, 2022 and December 31, 2021.
On
November 4, 2020, the Court granted Mentor Capital, Inc.’s and Mentor Partner I’s motion for summary adjudication as to 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
August 27, 2021, the Company and Mentor Partner I entered into a Settlement Agreement and Mutual Release with the G Farma Entities and
guarantors (collectively, “G Farma Settlors”) to resolve and settle all outstanding claims (“Settlement Agreement”). The
Settlement Agreement requires the G Farma Settlors to pay the Company an aggregate of $500,000 plus interest, payable monthly as follows:
(i) $500 per month for 12 months beginning on September 5, 2021, (ii) $1,000 per month for 12 months beginning September 5, 2022, (iii)
$2,000 per month for 12 months beginning September 5, 2023, and (iv) increasing by an additional $1,000 per month on each succeeding
September 5th thereafter, until the settlement amount and accrued unpaid interest is paid in full. Interest on the unpaid
balance shall initially accrue at the rate of 4.25%, commencing February 25, 2021, and shall be adjusted on February 25th
of each year to equal the Prime Rate as published in the Wall Street Journal plus 1%.
In the event that the G Farma Settlors fail to make any monthly payment and have not cured such default within 10 days of notice from
the Company, the parties have stipulated that an additional $2,000,000 will be immediately added to the amount payable by the G Farma
Settlors.
In
August 2022 and September 2022, the G Farma Settlors failed to make monthly payments, and failed to cure each default within 10
days’ notice from Company pursuant to the Settlement Agreement. Subsequent to quarter end, the G Farma Settlors failed to make
the October 2022 monthly payment and also failed to cure such default within 10 days’ notice from the Company. As a result,
$2,000,000 will
be added to the amount payable by the G Farma Settlors in accordance with the terms of the Settlement Agreement. The Company intends
to seek entry of a stipulated judgment against the G Farma Settlors for (1) the remaining amount of the $500,000 settlement amount
which has not yet been paid by the G Farma Settlors plus $2,000,000 and all accrued unpaid interest, (2) the Company’s incurred costs, and (3)
attorneys’ fees paid by the Company to obtain the judgment.
The
Company has retained the reserve on collections of the unpaid lease receivable balance due to the long history of uncertain payments
from G Farma. See the Company’s Annual Report for the period ended December 31, 2021 on Form 10-K, Footnotes 7 and 8, as filed
with the SEC March 24, 2022, for a discussion of the reserve against the finance lease receivable.
For
the G Farma notes receivable, we will continue to pursue collection of the settlement payments from the G Farma Settlors for the notes that are fully impaired at September 30, 2022 and December 31, 2021. We will
continue to pursue collection for lease payments remaining, after applying proceeds from the sale of recovered assets, that are fully
impaired at September 30, 2022 and December 31, 2021, from the G Farma Lease Entities and G Farma Lease Guarantors. See the Company’s
Annual Report for the period ended December 31, 2021 on Form 10-K, Footnotes 7 and 8, as filed with the SEC March 24, 2022, for a discussion
of the reserve against the finance lease receivable.
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 NASDAQ, an investment in note receivable from a non-affiliated party, the fair value of convertible notes
receivable and accrued interest from NeuCourt, which on July 15, 2022 was exchanged for a NeuCourt SAFE security investment that will
be carried at cost, and the investment in NeuCourt that are included in the Corporate, Other, and Eliminations section below.
Schedule of segment information
| | |
Cannabis
and Medical Marijuana Segment | | |
Facility
Operations Related | | |
Corporate
and Eliminations | | |
Consolidated | |
| Three months
ended September 30, 2022 | |
| | |
| | |
| | |
| |
| Net revenue | |
$ | 20,168 | | |
$ | 1,910,131 | | |
$ | - | | |
$ | 1,930,299 | |
| Operating income (loss) | |
| 19,507 | | |
| (314,565 | ) | |
| (126,983 | ) | |
| (422,041 | ) |
| Interest income | |
| - | | |
| - | | |
| 12,887 | | |
| 12,887 | |
| Interest expense | |
| - | | |
| 10,564 | | |
| 9,719 | | |
| 20,283 | |
| Property additions | |
| - | | |
| 18,334 | | |
| - | | |
| 18,334 | |
| Depreciation and amortization | |
| - | | |
| 17,687 | | |
| 520 | | |
| 18,207 | |
| | |
| | | |
| | | |
| | | |
| | |
| Three months ended
September 30, 2021 | |
| | | |
| | | |
| | | |
| | |
| Net revenue | |
$ | 9,972 | | |
$ | 1,482,649 | | |
$ | - | | |
$ | 1,492,624 | |
| Operating income (loss) | |
| 6,426 | | |
| 196,565 | | |
| (116,664 | ) | |
| 86,327 | |
| Interest income | |
| - | | |
| - | | |
| 16,269 | | |
| 16,269 | |
| Interest expense | |
| - | | |
| 9,831 | | |
| 7,333 | | |
| 16,714 | |
| Property additions | |
| - | | |
| 92,013 | | |
| 1,264 | | |
| 93,277 | |
| Depreciation and amortization | |
| - | | |
| 13,570 | | |
| 1,461 | | |
| 15,031 | |
| | |
| | | |
| | | |
| | | |
| | |
| Nine months ended
September 30, 2022 | |
| | | |
| | | |
| | | |
| | |
| Net revenue | |
$ | 37,659 | | |
$ | 5,610,158 | | |
$ | - | | |
$ | 5,647,817 | |
| Operating income (loss) | |
| 33,079 | | |
| (360,192 | ) | |
| (727,315 | ) | |
| (1,054,428 | ) |
| Interest income | |
| - | | |
| 5 | | |
| 40,632 | | |
| 40,632 | |
| Interest expense | |
| - | | |
| 31,743 | | |
| 26,309 | | |
| 58,052 | |
| Property additions | |
| - | | |
| 46,236 | | |
| - | | |
| 46,236 | |
| Depreciation and amortization | |
| - | | |
| 50,283 | | |
| 1,564 | | |
| 51,847 | |
| Total assets | |
| 737,847 | | |
| 3,536,780 | | |
| 1,566,378 | | |
| 5,841,005 | |
| | |
| | | |
| | | |
| | | |
| | |
| Nine months ended
September 30, 2021 | |
| | | |
| | | |
| | | |
| | |
| Net revenue | |
$ | 31,176 | | |
$ | 4,154,711 | | |
$ | - | | |
$ | 4,185,887 | |
| Operating income (loss) | |
| 20,876 | | |
| 11,062 | | |
| (417,644 | ) | |
| (385,706 | ) |
| Interest income | |
| - | | |
| - | | |
| 49,003 | | |
| 49,003 | |
| Interest expense | |
| - | | |
| 27,421 | | |
| 16,478 | | |
| 43,899 | |
| Property additions | |
| - | | |
| 107,290 | | |
| 1,264 | | |
| 108,554 | |
| Depreciation and amortization | |
| - | | |
| 29,923 | | |
| 4,382 | | |
| 34,305 | |
| Total assets | |
| 396,907 | | |
| 1,997,786 | | |
| 2,391,748 | | |
| 4,786,441 | |
Note
19 – Segment Information (continued)
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:
Reconciliation of revenue from segments to consolidated
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| | |
Three
Months Ended
September 30, | | |
Nine
Months Ended
September 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Operating loss | |
$ | (422,041 | ) | |
$ | 86,327 | | |
$ | (1,054,428 | ) | |
$ | (385,706 | ) |
| Employee retention credits | |
| - | | |
| - | | |
| 1,350,161 | | |
| - | |
| Gain (loss) on investments | |
| 590 | | |
| (2,427 | ) | |
| (39,661 | ) | |
| (8,001 | ) |
| Interest income | |
| 12,887 | | |
| 16,269 | | |
| 40,632 | | |
| 49,003 | |
| Interest expense | |
| (20,283 | ) | |
| (16,714 | ) | |
| (58,052 | ) | |
| (43,899 | ) |
| Gain on asset disposals | |
| - | | |
| (671 | ) | |
| 56,455 | | |
| 761 | |
| Paycheck protection program loan forgiveness | |
| - | | |
| - | | |
| - | | |
| 10,000 | |
| Other
income | |
| 56,128 | | |
| 4,032 | | |
| 58,026 | | |
| 4,429 | |
| | |
| | | |
| | | |
| | | |
| | |
Note
20 – Subsequent events
On or about September 14, 2022, Electrum and Aurora Cannabis, Inc. settled
the Litigation claims and Electrum received CAD $800,000, or approximately USD $584,000, in settlement funds from Aurora Cannabis, Inc.
(“Settlement Funds”), which have been placed in escrow. Pursuant to an escrow agreement entered into by and between Electrum,
Mentor, and the escrow agent, Mentor was to be paid amounts due and owing to it under the Capital Agreements and Recovery Purchase Agreements
from the Settlement Funds before any remaining amounts are to be distributed to Electrum. To date, such payment has not been received.
On or about September 20, 2022, the escrow agent resigned and Electrum has refused to agree to a successor escrow agent in accordance
with the terms of the escrow agreement.
Subsequent
to quarter end, on October 21, 2022, the Company filed suit against the escrow agent, Electrum, and Does 1 through 10, seeking declaratory relief from the California Superior Court in the County of San Mateo that the escrow agent shall either distribute the Settlement Funds or
transfer the Settlement Funds to the successor escrow agent, all in accordance with the escrow agreement. The Company is also
seeking interest during the period of time that the escrow agent refused to disburse the Settlement Funds and for the
Company’s attorneys’ fees and costs incurred in bringing suit.
Subsequent to quarter end, on
October 1, 2022, WCI entered into a Multi-Lessee Industrial Net Lease for facilities located in Phoenix, Arizona with 5,603 square
feet for an initial lease term of sixty-one months. Monthly base rent will be as follows:
$5,603 for the period
October 1, 2022 to September 30, 2023;
$5,827 for the period
October 1, 2023 to September 30, 2024;
$6,060 for the period
October 1, 2024 to September 30, 2025;
$6,303 for the period
October 1, 2025 to September 30, 2026;
$6,555 for the period
October 1, 2026 to September 30, 2027;
$6,817 for the period October 1, 2027 to October 31, 2027
