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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2022

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______________ to __________________

 

Commission file number 000-55323

 

Mentor Capital, Inc.
(Exact name of registrant as specified in its charter)

 

Delaware   77-0395098

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

5964 Campus Court, Plano, Texas 75093
(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code (760) 788-4700

 

Securities registered pursuant to Section 12(b) of the Act: N/A

 

         
Title of each class to be so registered   Trading Symbols (s)   Name of each exchange on which each class is to be registered

 

Securities registered pursuant to section 12(g) of the Act:

 

Common Stock
(Title of class)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒. No ☐.

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒. No ☐.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

At November 10, 2022, there were 22,941,357 shares of Mentor Capital, Inc.’s common stock outstanding and 11 shares of Series Q Preferred Stock outstanding.

 

 

 

 
 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This report contains “forward-looking statements,” as defined in the United States Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities and Exchange Act 1934, as amended. All statements contained in this report, other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “seek,” “look,” “hope,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations, and objectives and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions. For example, statements in this Form 10-Q regarding the potential future impact of inflation, recession, climate regulation, the COVID-19 outbreak, economic sanctions, cybersecurity risks, and the outbreak of war in Ukraine on the Company’s business and results of operations are forward-looking statements. Moreover, due to our investments in the cannabis-related industry or other industries, we may be subject to heightened scrutiny, and our portfolio companies may be subject to additional laws, rules, regulations, and statutes. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Form 10-Q may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

 

You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.

 

All references in this Form 10-Q to the “Company,” “Mentor,” “we,” “us,” or “our,” are to Mentor Capital, Inc.

 

-2-
 

 

MENTOR CAPITAL, INC.

 

TABLE OF CONTENTS

 

    Page
PART I FINANCIAL INFORMATION  
Item 1. Financial Statements: 4
  Condensed Consolidated Balance Sheets (Unaudited) – September 30, 2022 and December 31, 2021 4
  Condensed Consolidated Income Statements (Unaudited) – Three Months and Nine Months Ended September 30, 2022 and 2021 6
  Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) – Three Months Ended September 30, 2022 and 2021 7
  Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) – Nine Months ended September 30, 2022 and 2021 8
  Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine months Ended September 30, 2022 and 2021 9
  Notes to Condensed Financial Statements 11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 38
Item 3. Quantitative and Qualitative Disclosures about Market Risk 44
Item 4. Controls and Procedures 45
     
PART II OTHER INFORMATION  
Item 1. Legal Proceedings 46
Item 1A. Risk Factors 47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 53
Item 3. Defaults Upon Senior Securities 53
Item 4. Mine Safety Disclosures 53
Item 5. Other Information 53
Item 6. Exhibits 54
     
SIGNATURES 55

 

-3-
 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Mentor Capital, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

 

           
   September 30,   December 31, 
   2022   2021 
ASSETS          
           
Current assets          
Cash and cash equivalents  $1,437,318   $453,939 
Investment in securities at fair value   258    1,009 
Accounts receivable, net   604,688    706,418 
Other receivable   330,571    33,222 
Net finance leases receivable, current portion   -    76,727 
Investment in installment receivable, current portion   101,200    - 
Convertible notes receivable, current portion   -    58,491 
Prepaid expenses and other current assets   87,174    14,284 
Employee advances   4,911    3,750 
           
Total current assets   2,566,120    1,347,840 
           
Property and equipment          
Property and equipment   343,124    299,526 
Accumulated depreciation and amortization   (192,712)   (144,480)
           
Property and equipment, net   150,412    155,046 
           
Other assets          
Operating lease right-of-use assets   12,376    41,128 
Finance lease right-of-use assets   786,858    645,611 
Investment in account receivable, net of discount and current portion   196,357    301,433 
Net finance leases receivable, net of current portion   -    229,923 
Convertible notes receivable, net of current portion   -    27,834 
Contractual interest in legal recovery   396,666    396,666 
Deposits   17,575    9,575 
Long term investments   288,459    205,203 
Goodwill   1,426,182    1,426,182 
           
Total other assets   3,124,473    3,283,555 
           
Total assets  $5,841,005   $4,786,441 

 

See accompanying Notes to Financial Statements

 

-4-
 

 

Mentor Capital, Inc.

Condensed Consolidated Balance Sheets (Unaudited, Continued)

 

   September 30,   December 31, 
   2022   2021 
         
LIABILITIES AND SHAREHOLDERS’ EQUITY          
           
Current liabilities          
Accounts payable  $29,732   $41,278 
Accrued expenses   1,022,256    411,860 
Related party payable   274,456    232,244 
Deferred revenue   -    16,308 
Economic injury disaster loan, current portion   3,343    - 
Finance lease liability, current portion   200,310    167,515 
Operating lease liability, current portion   12,376    42,058 
Current portion of long-term debt   29,236    23,203 
Total current liabilities   1,571,709    934,466 
           
Long-term liabilities          
Accrued salary, retirement, and incentive fee - related party   1,147,451    1,127,865 
Economic injury disaster loan   158,600    158,324 
Finance lease liability, net of current portion   502,748    415,465 
Operating lease liability, net of current portion   -    4,975 
Long term debt, net of current portion   

62,031

    66,669 
Total long-term liabilities   1,870,830    1,773,298 
Total liabilities   3,442,539    2,707,764 
           
Commitments and Contingencies   -    - 
           
Shareholders’ equity          
Preferred stock, $0.0001 par value, 5,000,000 shares authorized; 11 and 11 shares issued and outstanding at September 30, 2022 and December 31, 2021 *   -    - 
Common stock, $0.0001 par value, 75,000,000 shares authorized; 22,941,357 and 22,850,947 shares issued and outstanding at September 30, 2022 and December 31, 2021   2,294    2,285 
Additional paid in capital   13,085,992    13,071,655 
Accumulated deficit   (10,898,055)   (10,874,079)
Non-controlling interest   208,235    (121,184)
Total shareholders’ equity   2,398,466    2,078,677 
Total liabilities and shareholders’ equity  $5,841,005   $4,786,441 

 

* Par value is less than $0.01.

 

See accompanying Notes to Financial Statements

 

-5-
 

 

Mentor Capital, Inc.

Condensed Consolidated Income Statements (Unaudited)

 

                     
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2022   2021   2022   2021 
Revenue                    
Service fees  $1,910,131   $1,482,649   $5,610,158   $4,154,711 
                     
Finance lease revenue   20,168    9,975    37,659    31,176 
                     
Total revenue   1,930,299    1,492,624    5,647,817    4,185,887 
                     
Cost of sales   1,490,712    1,004,040    3,924,380    2,882,275 
                     
Gross profit   439,587    488,584    1,723,437    1,303,612 
                     
Selling, general and administrative expenses   861,628    402,257    2,777,865    1,689,318 
                     
Operating income (loss)   (422,041)   86,327    (1,054,428)   (385,706)
                     
Other income and (expense)                    
Employee retention credits   -    -    1,350,161    - 
Gain (loss) on investments   590    (2,427)   (39,661)   (8,001)
Paycheck Protection Program Loan Forgiven   -    -    -    10,000 
Interest income   12,887    16,269    40,632    49,003 
Interest expense   (20,283)   (16,714)   (58,052)   (43,899)
Gain on asset disposal   -    (671)   56,455    761 
Other income (expense)   56,128    4,032    58,026    4,429 
                     
Total other income and (expense)   49,322    489    1,407,561    12,293 
                     
Income (loss) before provision for income taxes   (372,719)   86,816    353,133    (373,413)
                     
Provision for income taxes   800    2,815    47,690    8,565 
                     
Net income (loss)   (373,519)   84,001    305,443    (381,978)
                     
Gain (loss) attributable to non-controlling interest   (134,695)   87,393    329,419    (15,043)
                     
Net income (loss) attributable to Mentor  $(238,824)  $(3,392)  $(23,976)  $(366,935)
                     
Basic and diluted net income (loss) per Mentor common share:                    
Basic and diluted  $(0.010)  $(0.000)  $(0.001)  $(0.016)
                     
Weighted average number of shares of Mentor common stock outstanding:                    
Basic and diluted   22,941,357    22,850,947    22,932,316    22,850,947 

 

See accompanying Notes to Financial Statements

 

-6-
 

 

Mentor Capital, Inc.

Condensed Consolidated Statement of Shareholders’ Equity (Unaudited)

For the Three Months Ended September 30, 2022 and 2021

 

         *                                    
   Controlling Interest   Non-     
   Preferred stock   Common stock   Additional   Accumulated       controlling     
   Shares   $0.0001 par*   Shares   $0.0001 par   paid in
capital
   equity (deficit)   Total   equity (deficit)   Totals 
                                     
Balances at June 30, 2022   11   $-    22,941,357   $2,294   $13,085,992   $(10,659,231)  $2,429,055   $342,930   $2,771,985 
                                              
Net income (loss)   -    -    -    -    -    (238,824)   (238,824)   (134,695)   (373,519)
                                              
Balance at September 30, 2022   11   $-    22,941,357   $2,294   $13,085,992   $(10,898,055)  $2,190,231   $208,235   $2,398,466 
                                              
Balances at June 30, 2021   11   $-    22,850,947   $2,285   $13,071,655   $(10,964,774)  $2,109,166   $(240,002)  $1,869,164 
                                              
Net income (loss)   -    -    -    -    -    (3,392)   (3,392)   87,393    84,001 
                                              
Balance at September 30, 2021   11   $-    22,850,947   $2,285   $13,071,655   $(10,968,166)  $2,105,774   $(152,609)  $1,953,165 

 

* Par value of series Q preferred shares is less than $1.

 

See accompanying Notes to Financial Statements

 

-7-
 

 

Mentor Capital, Inc.

Condensed Consolidated Statement of Shareholders’ Equity (Unaudited)

For the Nine Months Ended September 30, 2022 and 2021

 

   Controlling Interest   Non-     
   Preferred stock   Common stock   Additional   Accumulated       controlling     
   Shares   $0.0001 par*   Shares   $0.0001 par   paid in  capital   equity (deficit)   Total   equity
(deficit)
   Totals 
                                     
Balances at December 31, 2021   11   $-    22,850,947   $2,285   $13,071,655   $(10,874,079)  $2,199,861   $(121,184)  $2,078,677 
                                              
Conversion of warrants to common stock   -    -    90,410    9    14,337    -    14,346    -    14,346 
                                              
Net income (loss)   -    -    -    -    -    (23,976)   (23,976)   329,419    305,443 
                                              
Balance at September 30, 2022   11   $-    22,941,357   $2,294   $13,085,992   $(10,898,055)  $2,190,231   $208,235   $2,398,466 
                                              
Balances at December 31, 2020   11   $-    22,850,947   $2,285   $13,071,655   $(10,601,231)  $2,472,709   $(137,566)  $2,335,143 
                                              
Net income (loss)   -    -    -    -    -    (366,935)   (336,935)   (15,043)   (381,978)
                                              
Balance at September 30, 2021   11   $-    22,850,947   $2,285   $13,071,655   $(10,968,166)  $2,105,774   $(152,609)  $1,953,165 

 

* Par value of series Q preferred shares is less than $1.

 

See accompanying Notes to Financial Statements

 

-8-
 

 

Mentor Capital, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

           
   For the Nine Months Ended 
   September 30, 
   2022   2021 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net (loss)  $305,443   $(381,978)
Adjustments to reconcile net (loss) to net cash provided by (used by) operating activities:          
Depreciation and amortization   51,847    34,305 
Amortization of right of use asset   147,419    111,307 
PPP loan forgiven   -    (10,000)
(Gain) loss on asset disposal   (26,168)   643 
(Gain) loss on property and equipment disposal   -    (1,404)
Bad debt expense   53,000    19,580 
Amortization of discount on investment in account receivable   (38,754)   (45,684)
Decrease (increase) in accrued investment interest income   86,325    (3,049)
(Gain) loss on investment in securities at fair value   751    9,001 
(Gain) loss on long-term investments   (41,326)   - 
Increase in deposits   (8,000)   - 
Decrease (increase) in operating assets          
Finance leases receivable   306,650    56,342 
Accounts receivable - trade   121,730    (183,477)
Other receivables   (370,349)   - 
Prepaid expenses and other current assets   (46,722)   (7,605)
Employee advances   (1,161)   520 
Increase (decrease) in operating liabilities          
Accounts payable   (11,546)   5,979 
Accrued expenses   628,177    66,631 
Deferred revenue   (16,308)   (4,886)
Accrued salary, retirement, and benefits - related party   19,586    (9,935)
           
Net cash provided by (used by) operating activities   1,160,594    (343,710)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of investment securities   -    4,442 
Purchases of property and equipment   (24,733)   (108,554)
Proceeds from sale of property and equipment   -    91,381 
Down payments on right of use assets   (42,675)   (46,737)
Proceeds from investment in receivable   700    - 
           
Net cash (used by) investing activities   (66,708)   (59,468)

 

See accompanying Notes to Financial Statements

 

-9-
 

 

Mentor Capital, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited, Continued)

 

   For the Nine Months Ended 
   Ended September 30, 
   2022   2021 
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from related party loan  $50,000   $204,006 
Proceeds from Paycheck Protection Program loan   -    76,593 
Refund of Paycheck Protection Program payments   -    551 
Proceeds from warrants converted to common stock   14,346      
Payments on related party payable   (21,950)   - 
Payments on long-term debt   (21,085)   (15,996)
Payments on finance lease liability   (131,818)   (90,082)
           
Net cash provided by (used by) financing activities   (110,507)   175,072 
           
Net change in cash   983,379    (228,106)
           
Beginning cash   453,939    506,174 
           
Ending cash  $1,437,318   $278,068 
           
SUPPLEMENTARY INFORMATION:          
Cash paid for interest  $8,736   $43,899 
           
Cash paid for income taxes  $6,526   $8,565 
           
NON-CASH INVESTING AND FINANCING TRANSACTIONS:          
Right of use assets acquired through operating lease liability  $-   $55,624 
           
Right of use assets acquired through finance lease liability  $251,896   $340,999 
           
Property and equipment acquired through long-term debt   22,480    - 

 

See accompanying Notes to Financial Statements

 

-10-
 

 

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.

 

-11-
 

 

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.

 

-12-
 

 

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.

 

-13-
 

 

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.

 

-14-
 

 

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.

 

-15-
 

 

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.

 

-16-
 

 

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.

 

-17-
 

 

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.

 

-18-
 

 

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.

 

-19-
 

 

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:

 

   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.