UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For
the quarterly period ended
OR
For the transition period from _______________ to __________________
Commission
file number
| (Exact name of registrant as specified in its charter) |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) (Zip Code) |
Registrant’s
telephone number, including area code
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.
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).
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 | ☐ |
| ☒ | 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 ☐
At November 10, 2022, there were 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
| -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 | $ | $ | ||||||
| Investment in securities at fair value | ||||||||
| Accounts receivable, net | ||||||||
| Other receivable | ||||||||
| Net finance leases receivable, current portion | ||||||||
| Investment in installment receivable, current portion | ||||||||
| Convertible notes receivable, current portion | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Employee advances | ||||||||
| Total current assets | ||||||||
| Property and equipment | ||||||||
| Property and equipment | ||||||||
| Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Property and equipment, net | ||||||||
| Other assets | ||||||||
| Operating lease right-of-use assets | ||||||||
| Finance lease right-of-use assets | ||||||||
| Investment in account receivable, net of discount and current portion | ||||||||
| Net finance leases receivable, net of current portion | ||||||||
| Convertible notes receivable, net of current portion | ||||||||
| Contractual interest in legal recovery | ||||||||
| Deposits | ||||||||
| Long term investments | ||||||||
| Goodwill | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
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 | $ | $ | ||||||
| Accrued expenses | ||||||||
| Related party payable | ||||||||
| Deferred revenue | ||||||||
| Economic injury disaster loan, current portion | ||||||||
| Finance lease liability, current portion | ||||||||
| Operating lease liability, current portion | ||||||||
| Current portion of long-term debt | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Accrued salary, retirement, and incentive fee - related party | ||||||||
| Economic injury disaster loan | ||||||||
| Finance lease liability, net of current portion | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Long term debt, net of current portion | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Shareholders’ equity | ||||||||
| Preferred stock, $ par value, shares authorized; and shares issued and outstanding at September 30, 2022 and December 31, 2021 * | ||||||||
| Common stock, $ par value, shares authorized; and shares issued and outstanding at September 30, 2022 and December 31, 2021 | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Non-controlling interest | ( | ) | ||||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
| * |
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 | $ | $ | $ | $ | ||||||||||||
| Finance lease revenue | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Other income and (expense) | ||||||||||||||||
| Employee retention credits | ||||||||||||||||
| Gain (loss) on investments | ( | ) | ( | ) | ( | ) | ||||||||||
| Paycheck Protection Program Loan Forgiven | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on asset disposal | ( | ) | ||||||||||||||
| Other income (expense) | ||||||||||||||||
| Total other income and (expense) | ||||||||||||||||
| Income (loss) before provision for income taxes | ( | ) | ( | ) | ||||||||||||
| Provision for income taxes | ||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||||||
| Gain (loss) attributable to non-controlling interest | ( | ) | ( | ) | ||||||||||||
| Net income (loss) attributable to Mentor | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted net income (loss) per Mentor common share: | ||||||||||||||||
| Basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of shares of Mentor common stock outstanding: | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
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 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Net income (loss) | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Balances at June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Net income (loss) | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| * | 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 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Conversion of warrants to common stock | - | |||||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Balances at December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Net income (loss) | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| * |
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) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net (loss) to net cash provided by (used by) operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of right of use asset | ||||||||
| PPP loan forgiven | ( | ) | ||||||
| (Gain) loss on asset disposal | ( | ) | ||||||
| (Gain) loss on property and equipment disposal | ( | ) | ||||||
| Bad debt expense | ||||||||
| Amortization of discount on investment in account receivable | ( | ) | ( | ) | ||||
| Decrease (increase) in accrued investment interest income | ( | ) | ||||||
| (Gain) loss on investment in securities at fair value | ||||||||
| (Gain) loss on long-term investments | ( | ) | ||||||
| Increase in deposits | ( | ) | ||||||
| Decrease (increase) in operating assets | ||||||||
| Finance leases receivable | ||||||||
| Accounts receivable - trade | ( | ) | ||||||
| Other receivables | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Employee advances | ( | ) | ||||||
| Increase (decrease) in operating liabilities | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ||||||||
| Deferred revenue | ( | ) | ( | ) | ||||
| Accrued salary, retirement, and benefits - related party | ( | ) | ||||||
| Net cash provided by (used by) operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of investment securities | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of property and equipment | ||||||||
| Down payments on right of use assets | ( | ) | ( | ) | ||||
| Proceeds from investment in receivable | ||||||||
| Net cash (used by) investing activities | ( | ) | ( | ) | ||||
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 | $ | $ | ||||||
| Proceeds from Paycheck Protection Program loan | ||||||||
| Refund of Paycheck Protection Program payments | ||||||||
| Proceeds from warrants converted to common stock | ||||||||
| Payments on related party payable | ( | ) | ||||||
| Payments on long-term debt | ( | ) | ( | ) | ||||
| Payments on finance lease liability | ( | ) | ( | ) | ||||
| Net cash provided by (used by) financing activities | ( | ) | ||||||
| Net change in cash | ( | ) | ||||||
| Beginning cash | ||||||||
| Ending cash | $ | $ | ||||||
| SUPPLEMENTARY INFORMATION: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING TRANSACTIONS: | ||||||||
| Right of use assets acquired through operating lease liability | $ | $ | ||||||
| Right of use assets acquired through finance lease liability | $ | $ | ||||||
| Property and equipment acquired through long-term debt | ||||||||
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
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
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
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 —
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 $
| -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 $
The
Company has a membership equity interest in Electrum Partners, LLC (“Electrum”) which is carried at a cost of $
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 $
On
October 31, 2018, Mentor entered into a secured Capital Agreement with Electrum and invested an additional $
On
January 28, 2019, the Company entered into a second secured Capital Agreement with Electrum and invested an additional $
On
or about September 14, 2022, Electrum and Aurora Cannabis, Inc. settled the Litigation claims and Electrum received CAD $
Subsequent to quarter end,
On
December 21, 2018, Mentor paid $
| -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 $
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
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 $
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
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 $
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 $
On
July 15, 2022, the Company and NeuCourt, Inc. entered into an Exchange Agreement by which the $
The
valuation cap of the SAFE is $
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 $
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 $
On
July 22, 2022, the Company sold $
| -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 $
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,
to
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 $
| -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.
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 and as of September 30, 2022 and December 31, 2021, respectively. There were and 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 $
The
Company valued the transaction based on the market value of Company common shares exchanged in the transaction, resulting in a
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 $
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 | $ | $ | ||||||
| Impairment | ( | ) | ||||||
| Total | ||||||||
| Unamortized discount | ( | ) | ( | ) | ||||
| Net balance | ||||||||
| Current portion | ( | ) | ||||||
| Long term portion | $ | $ | ||||||
For
the three months ended September 30, 2022 and 2021, $