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 or net present value of $0.78 per share, the then current share price closing. 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, we might not receive the 2020 installment or the full 2021 installment. Based on management’s collection estimates, we recorded an investment loss of ($139,148) on the investment in account receivable at December 31, 2020. In 2021, the Company re-evaluated estimated collections and recorded an investment gain of $22,718. Subsequently, on February 15, 2022, the terms of the investment were modified, resulting in an additional loss of ($41,930). The loss of ($41,930) and gain of $22,718 were reflected in Other Income on the consolidated income statement for the years ended December 31, 2022 and 2021, respectively.

On January 10, 2023, the Company received the 2023 annual installment payment of $117,000. Three additional $117,000 annual installment payments were due in early 2024, 2025, and 2026. The 2024 and 2025 annual installment payments have not been received. At June 11, 2024, the receivable was fully impaired by $250,208 due to a history of uncertain payments. The $250,208 impairment consisted of the Company’s estimate of the reduction of $287,200 purchased receivable offset by a ($36,992) purchased receivable discount. The Company’s recognition of an impairment loss due to the uncertainty of collection does not diminish its contractual rights to collect the full amounts due pursuant to the contract.

In or about December 2025, the Company was advised that the paying entity was going to place $180,000 in the care of the Superior Court, County of Fresno with the Court to determine distribution of the funds between the Company and the original payee from whom the Company purchased its interest. On September 1, 2026, the Company was awarded by order of the Court $175,361 of the $180,000 held by the Court plus $3,664 in accrued interest. As a result, the Company reduced the face value and impairment amount by $175,361 at September 30, 2026.

The investment in account receivable consists of the following at September 30, 2026 and December 31, 2025:

  Schedule of receivables with imputed interest

For the three and nine months ended September 30, 2026 and 2025, $175,361 and $0 of accrued legal recovery of our previously impaired investment and $3,664 and $0 of court-accrued interest income are included in recovery of previously impaired investment and interest income, respectively.

Subsequent to quarter end, the Company received a total of $179,025 from the Superior Court of California, County of Fresno, Unlimited Civil Division. See Note 18.