UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
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
| (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 July 30, 2021, 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 COVID-19 on the Company’s business and results of operations are forward-looking statements. Moreover, 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)
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Investment in securities, at fair value | ||||||||
| Accounts receivable, net | ||||||||
| 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 and other receivable | ||||||||
| 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)
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Related party payable | ||||||||
| Deferred revenue | ||||||||
| Paycheck protection program loans, 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 | ||||||||
| Related party loan | - | |||||||
| Paycheck protection program loans, net of current portion | ||||||||
| 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 June 30, 2021 and December 31, 2020 * | - | - | ||||||
| Common stock, $ par value, shares authorized; and shares issued and outstanding at June 30, 2021 and December 31, 2020 | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Non-controlling interest | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
* 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 | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| 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) | ||||||||||||||||
| Gain (loss) on investments | ( | ) | ( | ) | ( | ) | ||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Paycheck Protection Program Loan Forgiven | ||||||||||||||||
| Gain on equipment disposal | ||||||||||||||||
| Economic Injury Disaster Loan advance | ||||||||||||||||
| 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* | ||||||||||||||||
* The company recorded an operating loss; therefore the diluted EPS will not be calculated as the diluted EPS effect is anti-dilutive.
| See accompanying Notes to Financial Statements | -6- |
Mentor Capital, Inc.
Condensed Consolidated Statement of Shareholders’ Equity (Unaudited)
For the Three Months Ended June 30, 2021 and 2020
| Controlling Interest | ||||||||||||||||||||||||||||||||||||
| Preferred stock | Common stock | |||||||||||||||||||||||||||||||||||
| Shares | $0.0001 par* | Shares | $0.0001 par | Additional paid in capital | Accumulated equity (deficit) | Total | Non-controlling equity (deficit) | Totals | ||||||||||||||||||||||||||||
| Balances at March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Net income (loss) | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Balance at March 31, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Net income (loss) | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balances at June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
*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 Six Months Ended June 30, 2021 and 2020
| Controlling Interest | ||||||||||||||||||||||||||||||||||||
| Preferred stock | Common stock | |||||||||||||||||||||||||||||||||||
| Shares | $0.0001 par* | Shares | $0.0001 par | Additional paid in capital | Accumulated equity (deficit) | Total | Non-controlling equity (deficit) | Totals | ||||||||||||||||||||||||||||
| Balances at December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Net income (loss) | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Balance at December 31, 2019 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Net income (loss) | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balances at June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
*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 Six Months Ended | ||||||||
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| 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 ROU asset disposal | ||||||||
| (Gain) loss on property and equipment disposal | ( | ) | ||||||
| Bad debt expense | ||||||||
| Amortization of discount on investment in account receivable | ( | ) | ( | ) | ||||
| Increase in accrued investment interest income | ( | ) | ( | ) | ||||
| (Gain) loss on investment in securities, at fair value | ||||||||
| (Gain) loss on long-term investments | ||||||||
| Decrease (increase) in operating assets | ||||||||
| Finance leases receivable | ||||||||
| Accounts receivable - trade | ( | ) | ||||||
| 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 | ( | ) | ( | ) | ||||
| Sale of investment securities | ||||||||
| Purchase contractual interest in legal recovery | ( | ) | ||||||
| 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 Six Months Ended | ||||||||
| Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from related party loan | $ | $ | ||||||
| Proceeds from Paycheck Protection Program loan | ||||||||
| Refund of Paycheck Protection Program payments | ||||||||
| 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 | $ | $ | ||||||
| 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, mining and minerals, technology, consumer products, management services, and manufacturing sectors with the goal of ensuring increased market opportunities and investment diversification. In April 2021, the Company announced that it was adding a cryptocurrency focus for Mentor.
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 $
Mentor
Partner II, LLC (“Partner II”) was reorganized as a limited liability company under the laws of the State of Texas on February
17, 2021. The entity was initially organized as a limited liability under the laws of the State of California on February 1, 2018. Partner
II was formed as a wholly owned subsidiary of Mentor for the purpose of cannabis-focused investing and acquisition. On February 8, 2018,
Mentor contributed $
| -11- |
Note 1 - Nature of operations (continued)
The
Company has a membership equity interest in Electrum Partners, LLC (“Electrum”) which is carried at a cost of $
On
October 30, 2018, the Company entered into a Recovery Purchase Agreement with Electrum. Electrum is the plaintiff in an ongoing legal
action pending in the Supreme Court of British Columbia (“Litigation”). As described further in Note 9, Mentor provided capital
for payment of Litigation costs in the amount of $
On
December 21, 2018, Mentor paid $
Note 2 - Summary of significant accounting policies
Condensed consolidated financial statements
The unaudited condensed consolidated financial statements of the Company for the six month period ended June 30, 2021 and 2020 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-K. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2020 was derived from the audited financial statements included in the Company’s financial statements as of and for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2021. These financial statements should be read in conjunction with that report.
Basis of presentation
The accompanying consolidated financial statements and related notes include the activity of subsidiaries in which a controlling financial interest is owned. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Significant intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform with the current period presentation.
Basis of presentation (continued)
As
shown in the accompanying financial statements, the Company has a significant accumulated deficit of $
The Company management believes it is more likely than not that Electrum will prevail in the legal action described in Note 9 to the consolidated financial statements, in which the Company has an interest. However, there is no surety that Electrum will prevail in its legal action or that we will be able to recover our funds and our percentage of the Litigation Recovery if Electrum does prevail.
| -12- |
Note 2 - Summary of significant accounting policies (continued)
Going Concern Uncertainties
The
Company will be required to raise additional capital to fund its operations and will continue to attempt to raise capital resources from
both related and unrelated parties until such time as the Company is able to generate revenues sufficient to maintain itself as a viable
entity. These factors have raised substantial doubt about the Company’s ability to continue as a going concern. These financial
statements are presented on the basis that we will continue as a going concern. The going concern concept contemplates the realization
of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern. There can be no assurances that the Company will be able
to raise additional capital or achieve profitability. However, the Company has
Management’s plans include increasing revenues through acquisition, investment, and organic growth. Management anticipates funding these activities by raising additional capital through the sale of equity securities and debt.
Impact Related to COVID-19
The
effect of the novel coronavirus (“COVID-19”) has significantly impacted the United States and the global economy. COVID-19
and the measures taken by many countries in response have adversely affected and could in the future materially adversely impact the
Company’s business, results of operations, financial condition, and stock price. As of June 30, 2021, the fatality rate from COVID-19
in the United States has significantly declined from its peak, but the impact of COVID-19 continues to unfold. The ongoing worldwide
economic situation, future weakness in the credit markets, and significant liquidity problems for the financial services industry may
impact our financial condition in a number of ways. For example, our current or potential customers, or the current or potential customers
of our partners or affiliates, may delay or decrease spending with us, or may not pay us, or may delay paying us for previously purchased
products and services. Also, we, or our partners or affiliates, may have difficulties in securing additional financing. Our legal recovery
efforts have been hindered and may continue to be constrained, due to the closure of the courts in California and British Columbia, which
may cause COVID-19-related scheduling delays, hindering our legal recovery from the G Farma Entities and delaying the receipt of the
Company’s interest in the Electrum Partners, LLC legal recovery, respectively. Additionally, the collectability of our investment
in accounts receivable has been impaired by $
Public health efforts to mitigate the impact of COVID-19 have included government actions such as travel restrictions, limitations on public gatherings, shelter in place orders, and mandatory closures. These actions are being lifted to varying degrees. WCI has not experienced an overall reduced demand for services initially anticipated because WCI helps lower monthly service costs paid by its client properties. However, WCI’s clients may experience a delay in collecting rent from tenants, which may cause slower payments to WCI. WCI closely monitors customer accounts and has not experienced significant delays in the collection of accounts receivable.
According to the Critical Infrastructure Standards released by the Cybersecurity and Infrastructure Security Agency on March 18, 2020, “Financial Services Sector” businesses, like Mentor, are considered “essential businesses.” Because of the financial nature of Mentor’s operations, which consist of oversight of our portfolio companies, accounting, compliance, investor relations, and sales, Mentor’s day-to-day operations are not substantially hindered by remote office work or telework.
We anticipate that current cash and associated resources will be sufficient to execute our business plan for the next twelve months. The ultimate impact of COVID-19 on our business, results of operations, financial condition and cash flows is dependent on future developments, including the duration of COVID-19, government response 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.
| -13- |
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 six months ended June 30, 2021 that are expected to have a material impact on the Company’s condensed consolidated financial statements.
Concentrations of cash
The Company maintains its cash and cash equivalents in bank deposit accounts, which at times may exceed federally insured limits. The Company has not experienced any losses in such accounts, nor does the Company believe it is exposed to any significant credit risk on cash and cash equivalents.
Cash and cash equivalents
The Company considers all short-term debt securities purchased with a maturity of three months or less to be cash equivalents. The Company had no short-term debt securities as of June 30, 2021 and December 31, 2020.
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 June 30, 2021 and December 31, 2020, 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.
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.
| -14- |
Note 2 - Summary of significant accounting policies (continued)
Investments in debt securities
The
Company’s investment in debt securities consists of two convertible notes receivable from NeuCourt, Inc., which are recorded at
the aggregate principal face amount of $
Investment in account receivable, net of discount
The
Company’s investment in account receivable is stated at face value, net of unamortized purchase discount. The discount is amortized
to interest income over the term of the exchange agreement. In the fourth quarter of 2020, we were notified that due to the effect of
COVID-19 on the estimated receivable, we may not receive the 2020 installment payment or the full 2021 installment payment. At June 30,
2021 and December 31, 2020, the Company has an impairment of the investment in account receivable of $
Credit quality of notes receivable and finance leases receivable, and credit loss reserve
As our notes receivable and finance leases receivable are limited in number, our management is able to analyze estimated credit loss reserves based on a detailed analysis of each receivable as opposed to using portfolio-based metrics. Our management does not use a system of assigning internal risk ratings to each of our receivables. Rather, each note receivable and finance lease receivable is analyzed quarterly and categorized as either performing or non-performing based on certain factors including, but not limited to, financial results, satisfying scheduled payments, and compliance with financial covenants. A note receivable or finance lease receivable will be categorized as non-performing when a borrower experiences financial difficulty and has failed to make scheduled payments. As part of the monitoring process, we may physically inspect the collateral or a borrower’s facility and meet with a borrower’s management to better understand such borrower’s financial performance and its future plans on an as-needed basis.
Lessee Leases
We determine whether an arrangement is a lease at inception. Lessee leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria is met: (i) the lease transfers ownership of the asset by the end of the lease term, (ii) the lease contains an option to purchase the asset that is reasonably certain to be exercised, and (iii) the lease term is for a significant part of the remaining useful life of the asset or the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any one of these criteria. Our operating leases are comprised of office space leases and office equipment. Fleet vehicle leases entered into prior to January 1, 2019, are classified as operating leases based on an expected lease term of four years. Fleet vehicle leases entered into 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 a liability at the end of the lease. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments.
Costs associated with operating lease assets are recognized on a straight-line basis, over the term of the lease, within cost of goods sold for vehicles used in direct servicing of WCI customers and in operating expenses for costs associated with all other operating leases. Finance lease assets are amortized within cost of goods sold for vehicles used in direct servicing of WCI customers and within operating expenses for all other finance lease assets, on a straight-line basis over the shorter of the estimated useful lives of the assets or the lease term. The interest component of a finance lease is included in interest expense and recognized using the effective interest method over the lease term. We have agreements that contain both lease and non-lease components. For vehicle fleet operating leases, we account for lease components together with non-lease components (e.g., maintenance fees).
| -15- |
Note 2 - Summary of significant accounting policies (continued)
Property, and equipment
Property and equipment is recorded at cost less accumulated depreciation. Depreciation is computed on the declining balance method over the estimated useful lives of various classes of property. The estimated lives of the property and equipment are generally as follows: computer equipment, three to five years; furniture and equipment, seven years; and vehicles and trailers, four to five years. Depreciation on vehicles used by WCI to service its customers is included in cost of goods sold in the consolidated income statements. All other depreciation is included in selling, general and administrative costs in the consolidated income statements.
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 $
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 June 30, 2021 and December 31, 2020.
| -16- |
Note 2 - Summary of significant accounting policies (continued)
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.
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 June 30, 2021 and December 31, 2020, respectively. There were and potentially dilutive shares outstanding at June 30, 2021 and December 31, 2020, respectively.
Conversion of Series Q Preferred Stock into Common Stock would be anti-dilutive for the three and six months ended June 30, 2021 and 2020 and is not included in calculating the diluted weighted average number of shares outstanding.
Note 3 – Prepaid expenses and other assets
Prepaid expenses and other assets consist of the following:
| June 30, 2021 | December 31, 2020 | |||||||
| Prepaid insurance | - | |||||||
| Other prepaid costs | ||||||||
| $ | $ | |||||||
| -17- |
Note 4 – Investment in account receivable
On
April 10, 2015, the Company entered into an exchange agreement whereby the Company received an investment in an account receivable with
annual installment payments of $
The
Company valued the transaction based on the market value of Company common shares exchanged in the transaction, resulting in a
The investment in account receivable consists of the following at June 30, 2021 and December 31, 2020:
| June 30, 2021 | December 31, 2020 | |||||||
| Face value | $ | $ | ||||||
| Impairment | ( | ) | ( | ) | ||||
| Unamortized discount | ( | ) | ( | ) | ||||
| Net balance | ||||||||
| Current portion | ( | ) | ( | ) | ||||
| Long term portion | $ | $ | ||||||
For
the three months ended June 30, 2021 and 2020, $
Note 5 - Property and equipment
Property and equipment are comprised of the following:
| June 30, 2021 | December 31, 2020 | |||||||
| Computers | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Machinery and vehicles | ||||||||
| Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Net Property and equipment | $ | $ | ||||||
Depreciation
and amortization expense was $
| -18- |
Note 6 – Lessee Leases
Operating leases are comprised of office space and office equipment leases. Fleet leases entered into prior to January 1, 2019, are classified as operating leases. Fleet leases entered into on or after January 1, 2019, under ASC 842 guidelines, are classified as finance leases.
Gross
right of use assets recorded under finance leases related to WCI vehicle fleet leases were $
Lease costs recognized in our consolidated statements of operations is summarized as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Operating lease cost included in cost of goods | $ | $ | $ | $ | ||||||||||||
| Operating lease cost included in operating costs | ||||||||||||||||
| Total operating lease cost (1) | ||||||||||||||||
| Finance lease cost, included in cost of goods: | ||||||||||||||||
| Amortization of lease assets | ||||||||||||||||
| Interest on lease liabilities | ||||||||||||||||
| Total finance lease cost | ||||||||||||||||
| Short-term lease cost | ||||||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
| (1) |
Other information about lease amounts recognized in our condensed consolidated financial statements is summarized as follows:
| June 30, 2021 | December 31, 2020 | |||||||
| Weighted-average remaining lease term – operating leases | ||||||||
| Weighted-average remaining lease term – finance leases | ||||||||
| Weighted-average discount rate – operating leases | % | % | ||||||
| Weighted-average discount rate – finance leases | % | % | ||||||
Finance lease liabilities were as follows:
| June 30, 2021 | December 31, 2020 | |||||||
| Gross finance lease liabilities | $ | $ | ||||||
| Less: imputed interest | ( | ) | ( | ) | ||||
| Present value of finance lease liabilities | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Long-term finance lease liabilities | $ | $ | ||||||
Operating lease liabilities were as follows:
| June 30, 2021 | December 31, 2020 | |||||||
| Gross operating lease liabilities | $ | $ | ||||||
| Less: imputed interest | ( | ) | ( | ) | ||||
| Present value of operating lease liabilities | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Long-term operating lease liabilities | $ | $ | ||||||
| -19- |
Note 6 – Lessee Leases (continued)
Lease maturities were as follows:
| Maturity of lease liabilities | ||||||||
| 12 months ending June 30, | Finance leases | Operating leases | ||||||
| 2022 | $ | $ | ||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| Total | ||||||||
| Less: Current maturities | ||||||||
| Long-term liability | $ | $ | ||||||
Note 7 – Convertible notes receivable
Convertible notes receivable consists of the following:
| June 30, 2021 | December 31, 2020 | |||||||
| November 22, 2017, NeuCourt, Inc. convertible note receivable including accrued interest of $ | $ | $ | ||||||
| October 31, 2018, NeuCourt, Inc. convertible note receivable including accrued interest of $ | ||||||||
| Total convertible notes receivable | ||||||||
| Less current portion | ( | ) | ( | ) | ||||
| Long term portion | $ | $ | ||||||
| * |
| -20- |
Note 8 – Finance leases receivable
Partner II entered into a Master Equipment Lease Agreement with Pueblo West, dated February 11, 2018, amended November 28, 2018 and March 12, 2019. Partner II acquired and delivered manufacturing equipment as selected by Pueblo West under sales-type finance leases. Partner II did not record any sales revenue for the six months ended June 30, 2021 and 2020. At June 30, 2021, all Partner II leased equipment under finance leases receivable is located in Colorado.
Performing net finance leases receivable consisted of the following:
| June 30, 2021 | December 31, 2020 | |||||||
| Gross minimum lease payments receivable | $ | $ | ||||||
| Accrued interest | ||||||||
| Less: unearned interest | ( | ) | ( | ) | ||||
| Finance leases receivable | ||||||||
| Less current portion | ( | ) | ( | ) | ||||
| Long term portion | $ | $ | ||||||
Interest
income recognized on Partner II finance leases for the three months ended June 30, 2021 and 2020 was $
At June 30, 2021, minimum future payments receivable for performing finance leases receivable were as follows:
| 12 months ending June 30, | Lease Receivable | Lease Interest | ||||||
| 2022 | $ | $ | ||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| Thereafter | ||||||||
| $ | $ | |||||||
Note 9 - Contractual interests in legal recoveries
Interest in Electrum Partners, LLC legal recovery
Electrum is the plaintiff in that certain legal action captioned Electrum Partners, LLC, Plaintiff, and Aurora Cannabis Inc., Defendant, pending in the Supreme Court of British Columbia (“Litigation”). On October 23, 2018, Mentor entered into a Joint Prosecution Agreement among Mentor, Mentor’s corporate legal counsel, Electrum, and Electrum’s legal counsel.
On
October 30, 2018, Mentor entered into a Recovery Purchase Agreement (“Recovery Agreement”) with Electrum under which Mentor
purchased a portion of Electrum’s potential recovery in the Litigation. Mentor agreed to pay $
| -21- |
Note 9 - Contractual interests in legal recoveries (continued)
On
October 31, 2018, Mentor also entered into a secured Capital Agreement with Electrum under which Mentor invested an additional $
On
January 28, 2019, Mentor entered into a second secured Capital Agreement with Electrum. Under the second Capital Agreement, Mentor invested
an additional $
Recovery on this claim has been delayed due to COVID-19. The Company’s interest in the Electrum Partners, LLC legal recovery, carried at cost, at June 30, 2021 and December 31, 2020 is summarized as follows:
| June 30, 2021 | December 31, 2020 | |||||||
| October 30, 2018 Recovery Purchase Agreement | $ | $ | ||||||
| October 31, 2018 secured Capital Agreement | ||||||||
| January 28, 2019 secured Capital Agreement | ||||||||
| Total Invested | $ | $ | ||||||
| -22- |
Note 10 – Investments and fair value
The hierarchy of Level 1, Level 2 and Level 3 Assets are listed as following:
| Fair Value Measurement Using | ||||||||||||||||||||
| Unadjusted Quoted Market Prices | Quoted Prices for Identical or Similar Assets in Active Markets | Significant Unobservable Inputs | Significant Unobservable Inputs | Significant Unobservable Inputs | ||||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | (Level 3) | (Level 3) | ||||||||||||||||
| Investment in Securities | Contractual interest Legal Recovery | Investment in Common Stock Warrants | Other Equity Investments | |||||||||||||||||
| Balance at December 31, 2019 | $ | $ | $ | $ | $ | |||||||||||||||
| Total gains or losses | ||||||||||||||||||||
| Included in earnings (or changes in net assets) | ( | ) | - | - | ( | ) | - | |||||||||||||
| Purchases, issuances, sales, and settlements | ||||||||||||||||||||
| Purchases | - | - | - | |||||||||||||||||
| Issuances | - | - | - | - | - | |||||||||||||||
| Sales | ( | ) | - | - | - | - | ||||||||||||||
| Settlements | - | - | ( | ) | - | - | ||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | $ | |||||||||||||||
| Total gains or losses | ||||||||||||||||||||
| Included in earnings (or changes in net assets) | ( | ) | - | - | - | - | ||||||||||||||
| Purchases, issuances, sales, and settlements | ||||||||||||||||||||
| Purchases | - | - | - | - | ||||||||||||||||
| Issuances | - | - | - | - | - | |||||||||||||||
| Sales | ( | ) | - | - | - | - | ||||||||||||||
| Settlements | - | - | - | - | - | |||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | $ | |||||||||||||||
| -23- |
Note 10 – Investments and fair value (continued)
The amortized costs, gross unrealized holding gains and losses, and fair values of the Company’s investment securities classified as equity securities, at fair value, at June 30, 2021 consists of the following:
| Type | Amortized Costs | Gross Unrealized Gains | Gross Unrealized Losses | Fair Values | ||||||||||||
| NASDAQ listed company stock | $ | $ | ( | ) | $ | $ | ||||||||||
| $ | $ | ( | ) | $ | $ | |||||||||||
The portion of unrealized gains and losses for the period related to equity securities still held at the reporting date is calculated as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net gains and losses recognized during the period on equity securities | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Less: Net gains (losses) recognized during the period on equity securities sold during the period | - | - | - | - | ||||||||||||
| Unrealized gains and losses recognized during the reporting period on equity securities still held at the reporting date | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
Note 11 - Common stock warrants
On
August 21, 1998, the Company filed for voluntary reorganization with the United States Bankruptcy Court for the Northern District of
California, and on January 11, 2000, the Company’s Plan of Reorganization was approved. Among other things, the Company’s
Plan of Reorganization allowed creditors and claimants to receive new Series A, B, C, and D warrants in settlement of their prior claims.
The warrants expire on
All Series A, B, C, and D warrants have been called, and all Series A and C warrants have been exercised. The Company intends to allow warrant holders or Company designees, in place of original holders, additional time as needed to exercise the remaining series B and D warrants. The Company may lower the exercise price of all or part of a warrant series at any time. Similarly, the Company could reverse split the stock to raise the stock price above the warrant exercise price. The warrants are specifically not affected and do not split with the shares in the event of a reverse split. If the called warrants are not exercised, the Company has the right to designate the warrants to a new holder in return for a $ per share redemption fee payable to the original warrant holders. All such changes in the exercise price of warrants were provided for by the court in the Plan of Reorganization to provide a mechanism for all debtors to receive value even if they could not or did not exercise their warrant. Therefore, Management believes that the act of lowering the exercise price is not a change from the original warrant grants and the Company did not record an accounting impact as the result of such change in exercise prices.
All
Series A and Series C warrants were exercised by December 31, 2014. Exercise prices in effect at January 1, 2015 through June 30, 2021
for Series B warrants were $
| -24- |
Note 11 - Common stock warrants (continued)
In
2009, the Company entered into an Investment Banking agreement with Network 1 Financial Securities, Inc. and a related Strategic Advisory
Agreement with Lenox Hill Partners, LLC with regard to a potential merger with a cancer development company. In conjunction with those
related agreements, the Company issued
As
of June 30, 2021 and December 31, 2020, the weighted average contractual life for all Mentor warrants was
During
the six months ended June 30, 2021 and 2020, there were
The following table summarizes Series B and Series D common stock warrants as of each period:
| Series B | Series D | B and D Total | ||||||||||
| Outstanding at December 31, 2019 | ||||||||||||
| Issued | - | - | - | |||||||||
| Exercised | - | - | - | |||||||||
| Outstanding at December 31, 2020 | ||||||||||||
| Issued | - | - | - | |||||||||
| Exercised | - | - | - | |||||||||
| Outstanding at June 30, 2021 | ||||||||||||
Series
E, F, G, and H warrants were issued for investment banking and advisory services during 2009. Series E, F, and G warrants were exercised
in 2014. The following table summarizes Series H ($
Series H $7.00 exercise price | ||||
| Outstanding at December 31, 2019 | ||||
| Issued | - | |||
| Exercised | - | |||
| Outstanding at December 31, 2020 | ||||
| Issued | - | |||
| Exercised | - | |||
| Outstanding at June 30, 2021 | ||||
On February 9, 2015, in accordance with Section 1145 of the United States Bankruptcy Code and the Company’s Plan of Reorganization, the Company announced a minimum 30-day partial redemption of up to 1% (approximately 90,000) of the already outstanding Series D warrants to provide for the court specified redemption mechanism for warrants not exercised timely by the original holder or their estates. Company designees that applied during the 30 days paid 10 cents per warrant to redeem the warrant and then exercised the Series D warrant to purchase a share at the court specified formula of not more than one-half of the closing bid price on the day preceding the 30-day exercise period. In the Company’s October 7, 2016 press release, Mentor stated that the 1% redemptions which were formerly priced on a calendar month schedule would subsequently be initiated and be priced on a random date to be scheduled after the prior 1% redemption is completed to prevent potential third-party manipulation of share prices at month-end. The periodic partial redemptions will continue to be periodically recalculated and repeated until such unexercised warrants are exhausted, or the partial redemption is otherwise paused, suspended or truncated by the Company. For the six months ended June 30, 2021 and 2020, no warrants were redeemed.
| -25- |
Note 12 - Warrant redemption liability
The
Plan of Reorganization provides the right for the Company to call, and the Company or its designee to redeem warrants that are not exercised
timely, as specified in the Plan, by transferring a $
In
prior years the Series A, Series B, and Series C redemption fees have been distributed through DTCC into holder’s brokerage accounts
or directly to the holders. All Series A and Series C warrants have been exercised and are no longer outstanding. There are
Once the Series D warrants have been fully redeemed and exercised, the fees for the Series D warrant series will likewise be distributed. Mr. Billingsley has agreed to assume liability for paying these redemption fees and therefore warrant redemption fees received are retained by the Company for operating costs. Should Mr. Billingsley be incapacitated or otherwise become unable to pay the warrant redemption fees, the Company will remit the warrant redemption fees to former holders from amounts due to Mr. Billingsley from the Company, which are sufficient to cover the redemption fees at June 30, 2021 and December 31, 2020.
Note 13 - Stockholders’ equity
Common Stock
The Company was incorporated in California in 1994 and was redomiciled as a Delaware corporation, effective September 24, 2015. There are authorized shares of Common Stock at $ par value. The holders of Common Stock are entitled to one vote per share on all matters submitted to a vote of the stockholders.
On
August 8, 2014, the Company announced that it was initiating the repurchase of
Preferred Stock
Mentor has , $ par value, preferred shares authorized.
On July 13, 2017, the Company filed a Certificate of Designation of Rights, Preferences, Privileges and Restrictions of Series Q Preferred Stock (“Certificate of Designation”) with the Delaware Secretary of State to designate preferred shares as Series Q Preferred Stock, such series having a par value of $ per share. Series Q Preferred Stock is convertible into Common Stock, at the option of the holder, at any time after the date of issuance of such share and prior to notice of redemption of such share of Series Q Preferred Stock by the Company, into such number of fully paid and nonassessable shares of Common Stock as determined by dividing the Series Q Conversion Value by the Conversion Price at the time in effect for such share.
The per share “Series Q Conversion Value,” as defined in the Certificate of Designation, shall be calculated by the Company at least once each calendar quarter as follows: The per share Series Q Conversion Value shall be equal to the quotient of the “Core Q Holdings Asset Value” divided by the number of issued and outstanding shares of Series Q Preferred Stock. The “Core Q Holdings Asset Value” shall equal the value, as calculated and published by the Company, of all assets that constitute Core Q Holdings which shall include such considerations as the Company designates and need not accord with any established or commonly employed valuation method or considerations. “Core Q Holdings” consists of all proceeds received by the Company on the sale of shares of Series Q Preferred Stock and all securities, acquisitions, and business acquired from such proceeds by the Company. The Company shall periodically, but at least once each calendar quarter, identify, update, account for and value, the assets that comprise the Core Q Holdings.
| -26- |
Note 13 - Stockholders’ equity (continued)
Preferred Stock (continued)
The
“Conversion Price” of the Series Q Preferred Stock shall be at the product of
The
Company sold and issued shares of Series Q Preferred Stock on May 30, 2018, at a price of $ per share, for an aggregate purchase
price of $
Note 14 - Term Loan
Term debt as of June 30, 2021 and December 31, 2020 consists of the following:
| June 30, 2021 | December 31, 2020 | |||||||
| Bank of America auto loan, interest at | $ | $ | ||||||
| Less: Current maturities | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Note 15 – Paycheck Protection Program Loans and Economic Injury Disaster Loans
Paycheck Protection Program loans
In
2020, the Company and WCI each received loans in the amount of $
On
February 17, 2021, Mentor received a second PPP Loan in the amount of $
The Second PPP Loan is forgivable so long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent, utilities, and other covered operations expenditures, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the forgiveness period.
| -27- |
Note 15 – Paycheck Protection Program loans and Economic injury disaster loan (continued)
The Company records PPP Loans as a liability in accordance with FASB ASC 470, “Debt” and records accrued interest through the effective date of forgiveness on the PPP Loans. Total gain on extinguishment of the PPP Loans and accrued interest is reported in other income and expense in the consolidated income statement.
PPP loan balances consist of the following:
| June 30, 2021 | December 31, 2020 | |||||||
| May 5, 2020, PPP loan from Republic Bank of Arizona to Waste Consolidators, Inc., revised December 1, 2020. The note bears interest at 1% per annum, with a revised maturation date of | $ | $ | ||||||
| February 17, 2021, Second PPP loan from the Bank of Southern California, with accrued interest of $ | - | |||||||
| Total | ||||||||
| Less: Current maturities | - | ( | ) | |||||
| Long-term portion of paycheck protection plan loans | $ | | $ | |||||
Interest
expense on PPP Loans for the three months ended June 30, 2021 and 2020 was $
Economic injury disaster loan
On July 9, 2020, WCI received an additional Economic Injury Disaster Loan in the amount of $150,000 through the SBA. The loan is secured by all tangible and intangible personal property of WCI, bears interest at 3.75% per annum, requires monthly installment payments of $731 beginning July 2020, and matures July 2050. The loan is collateralized by all tangible and intangible assets of WCI.
EIDL loan balances at June 30, 2021 consist of the following:
| June 30, 2021 | December 31, 2020 | |||||||
| July 9, 2020, WCI received an additional Economic Injury Disaster Loan, including accrued interest of $ | $ | $ | ||||||
| Less: Current maturities* | ||||||||
| Long-term portion of economic injury disaster loan | $ | $ | ||||||
| * |
Interest
expense on the EIDL Loan for the three months ended June 30, 2021 and 2020 was $
Interest
expense on the EIDL Loan for the six months ended June 30, 2021 and 2020 was $
| -28- |
Note 16 - Accrued salary, accrued retirement, and incentive fee - related party
The Company had an outstanding liability to its CEO as follows:
| June 30, 2021 | December 31, 2020 | |||||||
| Accrued salaries and benefits | $ | $ | ||||||
| Accrued retirement and other benefits | ||||||||
| Offset by shareholder advance | ( | ) | ( | ) | ||||
| $ | | $ | ||||||
As
approved by resolution of the Board of Directors in 1998, the CEO will be paid an incentive fee and a bonus which are payable in installments
at the CEO’s option. The incentive fee is
Note 17 – Related party transactions
On
December 15, 2020, WCI received a $
On
March 12, 2021, Mentor received a $
Note 18 – Commitments and contingencies
G FarmaLabs Limited, a Nevada corporation (“G Farma”) has not made scheduled payments on the finance lease receivable or the notes receivable summarized below since February 19, 2019. All amounts due from G Farma are fully impaired at June 30, 2021 and December 31, 2020. A complete description of the agreements can be found in the Company’s Annual Report for the period ended December 31, 2020 on Form 10-K as filed with the SEC on April 15, 2021.
On
March 17, 2017, the Company entered into a Notes Purchase Agreement with G Farma, with operations in Washington that had planned operations
in California under two temporary licenses pending completion of its Desert Hot Springs, California, location. Under the Agreement, the
Company purchased two secured promissory notes from G Farma in an aggregate principal face amount of $
On
September 6, 2018, the Company entered into an Equity Purchase and Issuance Agreement with G FarmaLabs Limited, G FarmaLabs DHS, LLC,
GFBrands, Inc., Finka Distribution, Inc., and G FarmaLabs, WA, LLC under which Mentor was supposed to receive equity interests in the
G Farma Equity Entities and their affiliates (together, the “G Farma Equity Entities”) equal to
Partner I acquired and delivered manufacturing equipment as selected by the G Farma Entities under sales-type finance leases. The finance leases resulting from this investment have been fully impaired at June 30, 2021 and December 31, 2020.
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Note 18 – Commitments and contingencies (continued)
On
The Company also plans to vigorously pursue its remaining claims against the G Farma Entities; however, collection is uncertain at this time. Due to uncertainty of collection, the Company has fully reserved against the finance leases receivable (more fully described in the Company’s Annual Report for the period ended December 31, 2020 on Form 10-K, Footnote 8, as filed with the SEC April 15, 2021) and has fully impaired all other notes receivables and investments in G Farma (described in the Company’s Annual Report for the period ended December 31, 2020 on Form 10-K, Footnotes 7, 9 and 10.
On
January 31, 2020, as authorized by court order, all remaining equipment leased to G Farma by Mentor Partner I was repossessed by the
Company and moved to storage under the Company’s control. In the quarter ended June 30, 2020, the Company sold a portion of the
recovered equipment, with an original cost of $
The
Company will continue to legally pursue award and collection of damages in the amount of $
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Note 19 – Segment Information
The Company is an operating, acquisition, and investment business. Subsidiaries in which the Company has a controlling financial interest are consolidated. The Company generally has two reportable segments; 1) the cannabis and medical marijuana segment, which includes the cost basis of membership interests of Electrum, the contractual interest in the Electrum legal recovery, and the operation of subsidiaries in the cannabis and medical marijuana sector; and 2) the Company’s long standing investment in WCI which works with business park owners, governmental centers, and apartment complexes to reduce their facility-related operating costs. The Company also had small investments in securities listed on the NYSE and NASDAQ, an investment in note receivable from a non-affiliated party, the fair value of convertible notes receivable and accrued interest from NeuCourt, and the investment in NeuCourt that is included in the Corporate, Other, and Eliminations section below. The NeuCourt investments were previously reported as an investment that would be useful in the cannabis space; however, NeuCourt has determined that its legal services would likely be more useful to users outside of the cannabis space. Prior period segment information presented below contains reclassification of NeuCourt investments from the cannabis and medical marijuana segment to the Corporate, other, and eliminations segment.
| Cannabis and Medical Marijuana Segment | Facility Operations Related | Corporate and Eliminations | Consolidated | |||||||||||||
| Three months ended June 30, 2021 | ||||||||||||||||
| Net revenue | $ | $ | $ | $ | ||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Property additions | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Three months ended June 30, 2020 | ||||||||||||||||
| Net revenue | $ | $ | $ | $ | ||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Property additions | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Six months ended June 30, 2021 | ||||||||||||||||
| Net revenue | $ | $ | $ | $ | ||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ||||||||||||||||