_______________________________________________________________________________________________________
Notes to Condensed Consolidated Financial Statements
March 31, 2016 and 2015
_______________________________________________________________________________________________________
Note 1 - Nature of operations
Corporate Structure Overview Since 1985
Mentor Capital, Inc. (Mentor or the Company), which reincorporated under the laws of the State of Delaware in late 2015, was founded as an investment partnership in Silicon Valley, California by the current CEO in 1985 and was originally incorporated under the laws of the State of California on July 29, 1994.On September 12, 1996, the Companys offering statement was qualified pursuant to Regulation A of the Securities Act, and the Company began to trade its shares publicly. On August 21, 1998, the Company filed for voluntary reorganization and, on January 11, 2000, the Company emerged from Chapter 11. The Company relocated to San Diego, California and contracted to provide financial assistance and investment into small businesses. On May 22, 2015, a corporation, named Mentor Capital, Inc. (Mentor Delaware) was incorporated under the laws of the State of Delaware. On June 30, 2015, a vote of the holders of a majority of outstanding shares entitled to vote approved an Agreement and Plan of Merger providing for the merger of Mentor with Mentor Delaware and in which Mentor Delaware was the surviving entity. The merger was approved by the California and Delaware Secretaries of State, and became effective September 24, 2015, thereby establishing Mentor as a Delaware corporation.
Current Business (2008 - 2015)
Since the August 2008, name change back to Mentor Capital, Inc., the Companys common stock has traded publicly under the trading symbol OTCQB: MNTR.
In 2009, the Company began focusing its investing activities in leading edge cancer companies. In 2012, in response to government limitations on reimbursement for highly technical and expensive cancer treatments and a resulting business decline in the cancer development sector, the Company decided to exit that space. In the summer of 2013 the Company was asked to consider investing in a cancer related project with a medical marijuana focus. On August 29, 2013, the Company made a decision to divest of its cancer assets and focus future investments in the cannabis and medical marijuana sector.
Effective January 1, 2014, Mentor purchased an additional 1% interest in Waste Consolidators, Inc. (WCI) for $25,000 which resulted in a 51% ownership in WCI. WCI was incorporated in Colorado in 1999 and operates in Arizona and Texas. It is a legacy investment which was acquired prior to the Companys current focus on the cannabis sector and is included in the condensed consolidated financial statements presented.
On February 18, 2014, the Company signed an agreement to purchase a 51% interest in MicroCannaBiz, LLC (MCB), for $200,000.MCB is a Limited Liability Company organized in Florida in January 2014 which began operations in June 2014.MCB provides cannabis and marijuana related private companies, investors and microcap issuers with information resources including client company specific publications, directories, and continuing education courses. On April 27, 2015, Mentor converted its equity contribution of $74,000 to a ten year note receivable from MCB and MCBs remaining member as provided in the funding agreement. The Company was not successful in collecting on the note receivable and after consultation with collection attorneys, the note was impaired in its entirety in November 2015.
On February 28, 2014, the Company entered into an agreement to purchase 60% of the outstanding shares of Bhang Chocolate Company, Inc. (Bhang), which was ultimately rescinded by Mentor on August 11, 2014, see Note 4 regarding the purchase and subsequent Mentor lawsuit seeking rescission of the agreement. Amounts paid to Bhang and its owners are reported as Receivable from Bhang Chocolate Company and its shareholders in the consolidated balance sheet at March 31, 2016 and December 31, 2015.
10
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2016 and 2015
_______________________________________________________________________________________________________
Note 1 - Nature of operations (continued)
On April 20, 2015, the Company acquired 100% of a Georgia sole proprietorship, dba Investor Webcast (CAST) valued at $469,611 in exchange for 4,696 to-be-created Series B convertible preferred shares of Mentor. On May 7, 2015, Investor Webcast, LLC, was formed as a Delaware limited liability company subsidiary to hold the assets of CAST. CAST works to provide cannabis related public and private companies, investors and microcap issuers with the best possible investor information through webcasts, conferences, email and an evolving mix of media products, investment publications, industry financial research, and by other means. After one year, the to-be-created Series B convertible preferred shares could be converted, in steps or in whole, into Mentor common shares, See Note 17.At the time CAST was acquired Mentor was awaiting approval to reincorporate in Delaware and the Series B convertible preferred shares had not yet been created. Therefore, a convertible security was issued to the prior owner of CAST which could be converted to Mentor Series B convertible preferred shares once the preferred shares were created under the laws of the State of Delaware. At the acquisition date the Company estimated a convertible security liability of $469,611 however, based on the operating results of CAST from the acquisition date, April 20, 2015, through December 31, 2015, in conjunction with revised projected revenue over the next five years, we valued the convertible security liability at $0 as of December 31, 2015.On March 1, 2016, the Company entered into a Mutual Termination Agreement and General Release in which the certain Investor Webcast Mentor Capital Cannabis Owners Public Liquidity Agreement effective April 20, 2015 (the Purchase Agreement) and the Convertible Security Agreement with the prior owner of CAST were cancelled and terminated, resulting in a spinoff of CAST assets and liabilities to the prior CAST owner.
On June 25, 2015, the Company formed Canyon Crest Holdings, LLC (CCH), a Delaware limited liability company and wholly owned subsidiary of Mentor. CCH was formed to provide management services to the rapidly evolving cannabis sector. Services to be provided will include but are not limited to: 1) Branding, marketing, administrative and consulting services; 2) Compliance and legal services; and 3) accounting and financial services. Operations of CCH are included in the condensed consolidated from the date of inception (June 25, 2015) through December 31, 2015.CCH has had no operating activity during the three months ended March 31, 2016.
In association with the financing of CCH, on August 21, 2015, Mentor entered into an agreement in which an individual with a long relationship with CCH operating management purchased to-be-created Mentor Series C convertible preferred shares for $120,000.After one year, the to-be-created Series C convertible preferred shares could have been converted, in steps or in whole, into Mentor common shares, See Note 18.At the time of the agreement, Mentor was awaiting state approval of its reincorporation under the laws of the State of Delaware and the Series C convertible preferred shares had not yet been created. Therefore, upon Mentors receipt of the invested amount, a convertible security was issued to the purchaser which could be converted to Mentor Series C convertible preferred shares once the preferred shares were created under the laws of the State of Delaware. Mentor loaned the invested funds to CCH who advanced the $120,000 to fund costs of the startup entity, however, due to internal disagreement between the startup entitys managers, one of whom was personally known for many years by the investing individual, the planned startup operation has been disbanded and the intended funding agreement between Mentor and CCH management was never fully consummated. Due to the fact that the planned operation has been discontinued, the fair value of the convertible security is $0 at both March 31, 2016 and December 31, 2015.In March 2016 the Company designated the individual investor as holder of 120,000 of Mentors unexercised Series D warrants, exercisable at $1.60 plus the $0.10 warrant fee so that she will have the opportunity to receive recovery for a portion or all of the amount invested by her in CCH.
Note 2 - Summary of significant accounting policies
Condensed consolidated financial statements
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The results of operations for the periods ended March 31, 2016 and 2015 are not necessarily indicative of the operating results for the full years.
11
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2016 and 2015
_______________________________________________________________________________________________________
Note 2 - Summary of significant accounting policies (continued)
Basis of presentation
The Companys consolidated financial statements include majority owned subsidiaries of 51% or more. The consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. All material intercompany balances and transactions have been eliminated in consolidation.
As shown in the accompanying financial statements, the Company has a significant accumulated deficit of $4,654,278 as of March 31, 2016. The Company also continues to experience negative cash flows from operations. 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 12.3 million warrants outstanding, any fraction of which the Company can reset the exercise price substantially below the current market price, see Note 9.
The Company raised approximately $43,450 from partial warrant redemptions from January 1, 2016 through March 31, 2016, see Note 9. The Company estimates it has adequate cash reserves to support three to six months of operation. Management's plans include increasing revenues through acquisition, investment, and organic growth. This is to be funded by raising additional capital through the sale of equity securities and debt.
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 March 31, 2016 and December 31, 2015.
Accounts receivable
Customer accounts receivable are classified as current assets and are carried at original invoice amounts less an estimate for doubtful receivables based on a review of all outstanding amounts on a monthly basis. The estimate of allowance for doubtful accounts is based on the Company's bad debt experience, market conditions, collateral available, 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 March 31, 2016 and December 31, 2015, the Company has recorded an allowance in the amount of $15,310 and $15,310, respectively.
Other current receivables
CCH advanced funds to Market Trend Analytics, LLC (MTA), in anticipation of investing in a cannabis related operation that was never consummated, see Note 18.CCH has recorded receivables for amounts advanced to two managing members of MTA which are due in the next 12 months and do not bear interest. The total other current receivable was $19,459 at both March 31, 2016 and December 31, 2015.
12
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2016 and 2015
_______________________________________________________________________________________________________
Note 2 - Summary of significant accounting policies (continued)
Convertible note receivable
The convertible note receivable from Electrum Capital Partners, LLC is recorded at the loan amount of $100,000 plus accrued interest of $7,772 and $7,772 at March 31, 2016 and December 31, 2015, respectively. The loan matures March 12, 2022 and bore interest at 5% per annum from March 12, 2014 to September 12, 2015, at which time the interest increased to 10% annual interest.
Long term investments
The Companys 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 Companys share of the earnings or losses of such investee company is not included in the Companys financial statements. The Company reviews the carrying value of its long term investments for impairment each reporting period.
Investment in account receivable, net of discount
The Company invested $90,000 for an account receivable and promissory note in the amount of $117,000 on July 8, 2014 which was due on or before January 15, 2015.The note was paid and extinguished in March 2015.On April 10, 2015, the Company entered into an exchange agreement whereby the Company received an investment in account receivable with installment payments of $117,000 per year for 11 years totaling $1,287,000 in exchange for 757,059 shares of Mentor common stock obtained through exercise of Series D warrants at $1.60 per share.
The investments were recorded at face value with an offsetting discount at the time of purchase or exchange. The discount is amortized to interest income over the term of the notes.
Note receivable MicroCannaBiz and member
Mentor converted all amounts previously invested in MCB to a note receivable on April 27, 2015, as provided in the funding agreement with MCB. As of March 31, 2014 and December 31, 2015, the note has been entirely impaired.
Property, equipment and machinery
Property, equipment and machinery are recorded at cost. Depreciation is computed on the straight-line and declining balance methods over the estimated useful lives of various classes of property ranging from 3 to 7 years.
Database and website development costs relate to development of CASTs website and webcast subscriber base. Database and website development costs are amortized over 2 years upon launch of the website.
Expenditures for renewals and betterments are capitalized and maintenance and repairs are charged to expense. Upon retirement or sale, the cost of assets disposed and the accumulated depreciation is removed from the accounts. The resulting gain or loss is credited or charged to income.
13
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2016 and 2015
_______________________________________________________________________________________________________
Note 2 - Summary of significant accounting policies (continued)
Goodwill
Goodwill of $1,324,142 was derived from consolidating WCI effective January 1, 2014, see Note 18, and $102,040 of goodwill related to the 1999 acquisition of a 50% interest in WCI. In addition, Goodwill of $466,765 was recorded on the April 20, 2015 acquisition of CAST, see Note 17.The Company accounts for its Goodwill in accordance with FASB Accounting Standards Codification 350, Intangibles Goodwill and Other, which requires the Company to test goodwill for impairment annually or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, rather than amortize. Goodwill impairment tests consist of a comparison of each reporting units fair value with its carrying value. Impairment exists when the carrying amount of goodwill exceeds the implied fair value for each reporting unit. To estimate the fair value, management used 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. Due to the fact that CAST operating results were less than anticipated from the acquisition date, April 20, 2015, through December 31, 2015, we evaluated the CAST goodwill for impairment. Based on current results and our revised projection of discounted cash flow we impaired the CAST goodwill in its entirety at December 31, 2015, see Note 17.There have been no changes in circumstances for the quarter ended March 31, 2016.
Revenue recognition
The Company recognizes revenue in accordance with ASC 605
Revenue Recognition
. The Company records revenue under each contract once persuasive evidence of an agreement exists, delivery has occurred or services have been rendered, the fee is fixed or determinable and collectability is reasonably assured.
Basic and diluted income (loss) per common share
Basic net income (loss) per common share (EPS) is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS adjusts basic net income (loss) per common share, computed using the treasury stock method, for the effects of potentially dilutive common shares, if the effect is not antidilutive. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock warrants. Diluted EPS excludes all dilutive potential shares if their effect is antidilutive. Outstanding warrants that had no effect on the computation of dilutive weighted average number of shares outstanding as their effect would be antidilutive were approximately 13,008,395 and 14,971,685 as of March 31, 2016 and 2015, respectively. There were 4,500 and 4,500 potentially dilutive shares outstanding at March 31, 2016 and 2015, respectively.
Income taxes
We utilize the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax basis of assets and liabilities using enacted tax rates in effect for years in which the temporary differences are expected to reverse. A valuation is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.
Generally accepted accounting principles provide accounting and disclosure guidance about positions taken by an organization in its tax returns that might be uncertain. Management considers the likelihood of changes by taxing authorities in its filed income tax returns and recognizes a liability for or discloses potential changes that management believes are more likely than not to occur upon examination by tax authorities.
Management has not identified any uncertain tax positions in filed income tax returns that require recognition or disclosure in the accompanying financial statements. The Companys income tax returns for the past three years are subject to examination by tax authorities, and may change upon examination. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in interest expense.
14
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2016 and 2015
_______________________________________________________________________________________________________
Note 2 - Summary of significant accounting policies (continued)
Advertising and promotion
The Company expenses advertising and promotion costs as incurred. Advertising and promotion costs were $2,541 and $27,145 for the three months ended March 31, 2016 and 2015, respectively.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Although these estimates are based on managements best knowledge of current events and actions the Company may undertake in the future, actual results ultimately may differ from these estimates.
Fair value measurements
The Fair Value Measurements and Disclosure Topic defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal, or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs.
Fair value measurements (continued)
The Fair Value Measurements and Disclosure Topic establish a fair value hierarchy, which prioritizes the valuation inputs into three broad levels. These three general valuation techniques that may be used to measure fair value are as follows: Market approach (Level 1) which uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. Prices may be indicated by pricing guides, sale transactions, market trades, or other sources. Cost approach (Level 2) which is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost); and the Income approach (Level 3) which uses valuation techniques to convert future amounts to a single present amount based on current market expectations about the future amounts (including present value techniques, and option-pricing models).Net present value is an income approach where a stream of expected cash flows is discounted at an appropriate market interest rate.
The carrying amounts of cash, accounts receivable, prepaid expenses and other current assets, accounts payable, customer deposits and other accrued liabilities approximate their fair value due to the short-term nature of these instruments.
The fair value of the investment in account receivable is based on the net present value of calculated interest and principle payments. The carrying value approximates fair value as interest rates charged are comparable to market rates for similar investments.
The fair value of notes receivable are based on the net present value of calculated interest and principle payments. The carrying value approximates fair value as interest rates charged are comparable to market rates for similar notes.
The fair value of long-term notes payable is based on the net present value of calculated interest and principle payments. The carrying value of long-term debt approximates fair value due to the fact that the interest rate on the debt is based on market rates.
Recent Accounting Standards
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
15
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2016 and 2015
_______________________________________________________________________________________________________
Note 3 Prepaid expenses and other assets
Prepaid expenses and other assets consist of the following:
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
Prepaid health insurance
|
$
|
3,009
|
|
$
|
3,555
|
Other prepaid costs
|
|
11,898
|
|
|
17,565
|
|
$
|
14,907
|
|
$
|
21,120
|
Note 4 - Acquisition of interest in Bhang Chocolate Company, Inc. and suit seeking rescission
On January 17, 2014, the Company transitioned out of its cancer related trading dormancy by announcing its first cannabis sector letter of intent amidst significantly increased share volume and price. The Company entered into a co-operative funding agreement with Bhang Chocolate Company, Inc., effective February 28, 2014, that provided for the purchase from owners of a 60% ownership in Bhang. Mentor anticipated funding the co-operative funding agreement through unrelated debt funding. Bhang owners were to receive $9,000,000 in consideration in the first 90 days. During the first 90 days, $1,500,000 was provided to Bhang owners in cash from proceeds of warrant exercises. The lending equity group was unable to fund the loan they had announced and from which Mentor intended to primarily fund the remaining amounts due under the co-operative funding agreement. Mentor tendered the remaining $7,500,000 to the Bhang owners in freely trading shares of Mentor Common Stock per the terms of the co-operative agreement and also triggered the contracts contingent payoff provision. The Bhang owners refused Mentors tender of stock and ignored the provision for long-term contingent payoff that could include normally issued common stock.
On June 24, 2014, Bhang owners unilaterally announced that Bhang was no longer doing any business with Mentor. Bhang failed to provide Mentor with Bhang share certificates evidencing the Bhang shares purchased by Mentor or provide other promised consideration to Mentor, effectively repudiating the co-operative agreement by their actions. In addition, Bhang owners have declined to return any of the $1,500,000 paid by Mentor. On August 11, 2014, Mentor filed suit against Bhang and its owners, in the United States District Court for the Northern District of California for rescission seeking return of the $1,500,000 paid by the Company to Bhang and its owners. The parties have been ordered to undergo arbitration, which was initiated in January 2015. Arbitration is scheduled to occur in May 2016. The suit in the District Court has been stayed pending the outcome of arbitration, see Note 19.
Note 5 Investment in account receivable
On July 8, 2014, the Company invested $90,000 in an account receivable with a face value of $117,000 which was supported by a promissory note maturing January 15, 2015.The note was paid and extinguished in March 2015.For the three months ended March 31, 2016 and 2015, $0 and $2,250 of discount amortization is included in interest income.
On April 10, 2015, the Company entered into an exchange agreement whereby the Company received an investment in an account receivable with installment payments of $117,000 per year for 11 years totaling $1,287,000 in exchange for 757,059 shares of Mentor stock obtained through exercise of series D warrants at $1.60 per share. The Counterparty to the exchange agreement may elect to partially rescind the exchange at any time after June 1, 2017 and ending on the earlier of (i) December 1, 2017, and (ii) two weeks following the date on which the Counterparty receives notice from Mentor that Mentors warrant holders have been notified that they have approximately 30 days left to exercise Mentor warrants. The partial rescission election may be exercised for all or part of 313,820 of the Mentor shares exchanged for all or part of the installment payments due in or around January of each of 2018, 2019, 2020 and 2021.At this time management cannot determine the likelihood of a partial rescission. No adjustment has been made to the estimated present value or shares for this contingency.
16
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2016 and 2015
_______________________________________________________________________________________________________
Note 5 Investment in account receivable (continued)
The Company valued the transaction based on the market value of Company common shares exchanged in the transaction, resulting in a 17.87% discount from the face value of the account receivable. The discount is being amortized monthly to interest over the 11 year term of the agreement. The April 10, 2015 investment in account receivable is supported by an exchange agreement and consisted of the following:
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
Face value
|
$
|
1,170,000
|
|
$
|
1,287,000
|
Unamortized discount
|
|
(649,969)
|
|
|
(674,427)
|
Net balance
|
|
520,031
|
|
|
612,573
|
Current portion
|
|
(46,197)
|
|
|
(92,542)
|
Long term portion
|
$
|
473,834
|
|
$
|
520,031
|
In January 2016 the first installment payment of $117,000 on the investment in account receivable was due. Mentor received a cash payment of $26,000 and entered into an agreement to loan $91,000 back to the counterparty of the installment agreement. The loan bears interest at the minimum federal rate of 0.75% per annum, simple interest, with principal and interest due and payable in full 180 days following the demand thereof.
For the three months ended March 31, 2016 and 2015, $24,458 and $0 of discount amortization is included in interest income, respectively.
Note 6 - Property and equipment
Property and equipment is comprised of the following at March 31, 2016 and December 31, 2015:
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
Computers
|
$
|
22,251
|
|
$
|
21,813
|
Furniture and fixtures
|
|
20,712
|
|
|
21,139
|
Machinery and vehicles
|
|
194,604
|
|
|
189,335
|
Capitalized website costs
|
|
-
|
|
|
1,166
|
Capitalized database costs
|
|
-
|
|
|
3,000
|
|
|
237.567
|
|
|
236,453
|
Accumulated depreciation and amortization
|
|
(193,789)
|
|
|
(189,713)
|
|
|
|
|
|
|
Net Property and equipment
|
$
|
43,778
|
|
$
|
46,740
|
Depreciation and amortization expense was $5,938 and $7,493 for the three months ended March 31, 2016 and 2015, respectively.
Note 7 Convertible note receivable
The Company advanced $100,000 to Electrum Partners, LLC (Electrum) as a convertible note receivable on March 12, 2014.Accrued interest of $7,772 and $7,772 is included in the convertible note receivable balance at March 31, 2016 and December 31, 2015, respectively. The note bore interest at 5% per annum, compounded monthly for the period from March 12, 2014 to September 12, 2015, at which point the interest increased to 10% annual interest, compounded monthly until maturity or until it is converted to shares of equity in Electrum. There were no payments required under the note for the period from March 12, 2014 to October 12, 2015; from October 12, 2015 to March 12, 2017 interest only payments are required; and from March 12, 2017 through March 12, 2022 payments of principal and interest in the amount of $2,290 are required. Mentor has the option to convert the note plus any accrued interest or fees into shares of equity in Electrum at any time prior to its maturity.
17
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2016 and 2015
_______________________________________________________________________________________________________
Note 8 Investments and fair value
We account for our financial assets in accordance with ASC 820,
Fair Value Measurement
. This standard defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The fair value measurement disclosures are grouped into three levels based on valuation factors: Level 1 represents assets valued at quoted prices in active markets using identical assets; Level 2 represents assets valued using significant other observable inputs, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other observable inputs; and, Level 3 represents assets valued using significant unobservable inputs.
The hierarchy of Level 1, Level 2 and Level 3 Assets are listed as following:
|
|
|
|
|
|
|
|
|
|
|
Fair Value
Measurements
Using
Unadjusted
Quoted Market
Prices
|
|
Fair Value
Measurements
Using
Quoted Prices for
Identical or
Similar Assets in
Active Markets
|
|
Fair Value
Measurements
Using
Significant
Unobservable
Inputs
|
|
Fair Value
Measurements
Using
Significant
Unobservable
Inputs
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
(Level 3)
|
|
|
Equity
Securities
|
|
Other
investment
|
|
Equity
Options
|
|
Equity Funding
Agreements
|
Balance at December 31, 2014
|
$
|
5,832
|
$
|
10,260
|
$
|
-
|
$
|
55,943
|
Total gains or losses
|
|
|
|
|
|
|
|
|
Included in earnings (or changes in net assets)
|
|
(11,442)
|
|
(10,260)
|
|
(49,834)
|
|
-
|
Purchases, issuances, sales, and settlements
|
|
|
|
|
|
|
|
|
Purchases
|
|
1,061
|
|
-
|
|
-
|
|
-
|
Issuances
|
|
50,063
|
|
-
|
|
49,834
|
|
-
|
Sales
|
|
(8,013)
|
|
-
|
|
-
|
|
-
|
Settlements
|
|
-
|
|
-
|
|
-
|
|
-
|
Balance at December 31, 2015
|
|
37,500
|
|
-
|
|
-
|
|
55,943
|
Total gains or losses
|
|
|
|
|
|
|
|
|
Included in earnings (or changes in net assets)
|
|
(8,831)
|
|
-
|
|
-
|
|
-
|
Purchases, issuances, sales, and settlements
|
|
|
|
|
|
|
|
|
Purchases
|
|
-
|
|
-
|
|
-
|
|
-
|
Issuances
|
|
-
|
|
-
|
|
-
|
|
-
|
Sales
|
|
(28,669)
|
|
-
|
|
-
|
|
-
|
Settlements
|
|
-
|
|
-
|
|
-
|
|
-
|
Balance at March 31, 2016
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
55,943
|
Note 9 - Common stock warrants
The Company's Plan of Reorganization, which was approved by the United States Bankruptcy Court for the Northern District of California on January 11, 2000, provided for the creditors and claimants to receive new warrants in settlement of their claims. The warrants expire May 11, 2038.
18
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2016 and 2015
_______________________________________________________________________________________________________
Note 9 - Common stock warrants (continued)
Each warrant is callable by the Company if the share price exceeds the exercise price by the lesser of $1 or 100%. The warrant holders have a minimum of 30 calendar days during which to exercise their warrants once they are called. The Company may lower the exercise price of all or part of a warrant series at any time. Similarly, the Company could, but does not anticipate, reverse splitting the stock to raise the stock price above the warrant exercise price. The warrants are specifically not affected and do not split with the shares in the event of a reverse split. If the called warrants are not exercised, the Company has the right to designate the warrants to a new holder in return for a $0.10 per share redemption fee payable to the original warrant holders as discussed further in Note 10.All such changes in the exercise price of Series A, B, C and D warrants were provided for by the court in the Plan of Reorganization in order 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 has not recorded 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 and through March 31, 2016 for Series B and Series D warrants are as follow:
|
|
|
|
|
|
|
Series B
|
|
Series D
|
January 1, 2015
|
|
$ 0.11
|
|
$ 1.60
|
At November 8, 2009, the Company entered into an Investment Banking agreement with Network One Securities, LLC and a related Strategic Advisory Agreement with Lenox Hill Partners, LP with regard to a potential merger with a cancer development company. In conjunction with those related agreements, the Company issued 81,699 Series E ($1) Warrants, 369,037 Series F ($3) Warrants, 85,579 Series G ($0.65) Warrants and 689,159 Series H ($7) Warrants, all with a 30 year life. The warrants are subject to cashless exercise based upon the ten day trailing closing bid price preceding the exercise as interpreted by the Company. The fair value of the warrants issued under the agreements was estimated on the date of the issuance using the Black-Scholes option pricing model. The use of a valuation model requires the Company to make certain assumptions with respect to selected model inputs. Expected volatility was calculated based on the historical volatility of the Companys stock price. The average expected life is based on the contractual term of the warrant and expected exercise behavior. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. The Series E, Series F and Series G warrants were exercised during 2014.
The following table provides the assumptions used to value the options granted and warrants issued using the Black-Scholes option pricing model:
|
|
|
|
|
Series E
|
|
Series F
|
|
and G
|
|
and H
|
Stock price volatility
|
111.60%
|
|
111.60%
|
Risk-free rate of return
|
4.26%
|
|
4.26%
|
Annual dividend yield
|
0.00%
|
|
0.00%
|
Expected life (in years)
|
0.5
|
|
3.0
|
As of March 31, 2016 and December 31, 2015 the weighted average contractual life for all Mentor warrants was 22.2 years and 22.4 years, respectively, and the weighted average outstanding warrant exercise price was $1.89 and $1.88 per share, respectively.
During the three months ended March 31, 2016 and 2015, a total of 395,000 and 1,187,847 warrants were exercised, respectively. There were no warrants issued during the periods ended March 31, 2016 and 2015.The intrinsic value of outstanding warrants at March 331, 2016 and 2015 was $1,710 and $2,835, respectively.
19
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2016 and 2015
_______________________________________________________________________________________________________
Note 9 - Common stock warrants (continued)
The following table summarizes Series B and Series D common stock warrants as of each period:
|
|
|
|
|
|
|
|
|
Series B
|
|
Series D
|
|
B, D
Total
Warrants
|
Outstanding at December 31, 2014
|
|
4,500
|
|
14,504,766
|
|
14,509,266
|
Issued
|
|
-
|
|
-
|
|
-
|
Exercised
|
|
-
|
|
(1,795,030)
|
|
(1,795,030)
|
Outstanding at December 31, 2015
|
|
4,500
|
|
12,709,736
|
|
12,714,236
|
Issued
|
|
-
|
|
-
|
|
-
|
Exercised
|
|
-
|
|
(395,000)
|
|
(395,000)
|
Outstanding at March 31, 2016
|
|
4,500
|
|
12,314,736
|
|
12,319,236
|
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 H warrants as of each period:
|
|
|
|
|
Series H
$7.00
exercise price
|
Outstanding at December 31, 2014
|
|
689,159
|
Issued
|
|
-
|
Exercised
|
|
-
|
Outstanding at December 31, 2015
|
|
689,159
|
Issued
|
|
-
|
Exercised
|
|
-
|
Outstanding at March 31, 2016
|
|
689,159
|
On February 9, 2015, in accordance with the authorizing section 1145 reorganization court order, the Company announced a minimum 30 day partial redemption of up to 1% (approximately 140,000) 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 apply during the 30 days must pay 10 cents to redeem the warrant and then exercise the series D warrant to purchase a share at the court specified formula of one-half of the closing bid price on the day preceding the 30 day exercise period, plus the 10 cent fee. In successive months, the 1% partial redemption authorization has been recalculated and repeated according to the court formula at an average exercise price of $0.262 thru March 31, 2016.The partial redemptions will continue to be recalculated and repeated until such unexercised warrants are exhausted or the partial redemption is otherwise truncated by the Company.
Note 10 - Warrant redemption liability
The Plan of Reorganization provides the right for the Company to call, and the Company or its designee to redeem warrants that are not exercised timely, as specified in the Plan, by transferring a $0.10 redemption fee to the former holders. Certain individuals desiring to become a Company designee to redeem warrants have deposited redemption fees with the Company that, when warrants are redeemed, will be forwarded to the former warrant holders at their last known address 30 days after the last warrant of a class is exercised, or earlier at the discretion of the Company. The Company has arranged for a service to process the redemption fees in offset to an equal amount of liability. In prior years the Series A and Series C redemption fees have been distributed through DTCC into holders brokerage accounts or directly to the holders and are no longer outstanding. Once the Series B and D warrants have been fully redeemed the fees will be likewise be distributed. The President and CEO, Chet Billingsley has agreed to assume liability for paying the 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 liability to former holders from amounts due him which are sufficient to cover the redemption fee at March 31, 2016 and December 31, 2015.
20
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2016 and 2015
_______________________________________________________________________________________________________
Note 11 - Stockholders equity
Common Stock
The Company was incorporated in California in 1994 and had a total of 400,000,000 shares of Common Stock, no par value, authorized at December 31, 2014.Effective September 24, 2015, Mentor was redomiciled as a Delaware corporation. Prior to the effective date of the merger between Mentor and Mentor Delaware, Mentor Delaware reduced the number of its authorized shares of Common Stock from 400,000,000 to 75,000,000, $0.0001 par value. There has been no change to the number of outstanding shares or warrants. The holders of Common Stock are entitled to one vote per share on all matters submitted to a vote of the stockholders. During 2007, the Company effected a 1,000 to 1 reverse stock split on its outstanding common stock, under the authority of the Plan of Reorganization, and subsequent to receiving 84% shareholder approval and Board of Directors approval. During September 2008, the Company announced a stock repurchase plan which allowed for a total of 12.5% of the Companys common shares outstanding at that time to be repurchased during future periods. All shares under the 2008 repurchase plan were repurchased as of January 2014.
At the time Mentor was redomiciled as a Delaware corporation, the common stock was adjusted to $0.0001 per share par value and $7,769,655 of the common stock previously reported at no par value was reclassified to additional paid in capital. Additional paid in capital is referred to as surplus under the Delaware General Corporation Law.
On August 8, 2014, the Company announced that it was initiating the repurchase of approximately 2% of the Companys common shares outstanding at that time. As of March 31, 2016 and December 31, 2015, 44,748 and 44,748 shares have been repurchased and retired, respectively.
Preferred Stock
The Company had 100,000,000, no par, preferred shares authorized at December 31, 2014.Following redomicile of Mentor as a corporation under the laws of the State of Delaware, Mentor has 5,000,000, $0.0001 par, preferred shares authorized effective September 24, 2015.No preferred shared are issued or outstanding.
Note 12 - Lease commitments
Operating Leases
Mentor currently rents approximately 2,000 square feet of office space on a month-to-month basis in Ramona, California in San Diego County. Rent expense for the three months ended March 31, 2016 and 2015 were $6,750 and $4,100, respectively.
WCI rents approximately 3,000 of office and warehouse space in Tempe, Arizona under an operating lease expiring in January 2017.Rent expense for the three months ended March 31, 2016 and 2015 was $6,633 and $6,540, respectively.
WCI leases vehicles under a master fleet management agreement with initial terms of 4 years expiring through September 2018.Vehicle lease expense is included in cost of sales in the condensed consolidated income statement. Vehicle lease expense for the three months ended March 31, 2016 and 2015 was $37,485 and $21,400, respectively.
WCI entered into two operating leases for office equipment in 2015 which expire in February and April 2020.Equipment lease expense was $639 and $0 for the three months ended March 31, 2016 and 2015, respectively.
21
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2016 and 2015
_______________________________________________________________________________________________________
Note 12 - Lease commitments (continued)
The approximate remaining annual minimum lease payments under the non-cancelable operating leases existing as of December 31, 2015 with original or remaining terms over one year were as follows:
|
|
|
Years ending
|
|
Rental
|
December 31,
|
|
expense
|
2016
|
$
|
141,617
|
2017
|
|
74,380
|
2018
|
|
36,717
|
2019
|
|
14,065
|
2020
|
|
836
|
|
|
|
|
$
|
267,615
|
Note 13 - Deferred revenue
Deferred revenue represents revenue for which the Company has not yet performed services for which it has received payment. At March 31, 2016 and December 31, 2015, the Company had deferred revenue of $0 and $866, respectively.
Note 14 - Long term debt and revolving line of credit
Long term debt
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
Two auto loans through Compass bank, interest at 7.99% per annum, monthly principle and interest payments of $538, maturing February 2016
|
$
|
-
|
$
|
1,069
|
|
|
|
|
|
Auto loan through Hyundai Motor Finance, interest at 2.99% per annum, monthly principle and interest payments of $878, maturing December 2018.
|
|
26,961
|
|
29,3845
|
|
|
|
|
|
Loan through LoanMe, Inc., interest at 94% per annum, monthly principle and interest payments of $2,233, maturing March 1, 2026. **
|
|
28,500
|
|
-
|
Total long term debt
|
|
55,461
|
|
30,453
|
|
|
|
|
|
Less: Current maturities
|
|
(9,015)
|
|
(10,841)
|
|
|
|
|
|
|
$
|
46,446
|
$
|
19,612
|
** Although the loan does not mature until 2026, the Company intends to pay the loan to LoanMe, Inc. off in 2016.
Revolving line of credit
The Company has a $75,000 unsecured revolving line of credit with Bank of America, with interest at the banks prime rate plus 3% due monthly. The line of credit matures on September 4, 2016. At March 31, 2016 and December 31, 2015, the Company had $60,000 outstanding on the line of credit. The line is secured by a personal guarantee of WCIs president. Interest on the line of credit for the three months ended March 31, 2016 and, 2015 was $2,946 and $1,678, respectively.
22
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2016 and 2015
_______________________________________________________________________________________________________
Note 15 - Accrued salary, accrued retirement and incentive fee - related party
As of March 31, 2016 and December 31, 2015, the Company had an outstanding liability to its Chief Executive Officer ("CEO") as follows:
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
|
|
|
Accrued salaries and benefits
|
$
|
743,809
|
$
|
737,878
|
Accrued incentive fee and bonus
|
|
190,581
|
|
190,581
|
Accrued retirement and other benefits
|
|
450,581
|
|
448,415
|
Offset by shareholder advance
|
|
(787,102)
|
|
(892,502)
|
|
$
|
597,869
|
$
|
484,372
|
The Company agreed to advance the CEO $944,000 against the accrued liabilities due him, in January 2014, to exercise additional warrants into shares to be used as collateral for a potential loan to the Company. The warrant exercise was a cashless transaction made solely for the benefit of the Company in its efforts to obtain financing.
After the warrants were exercised, the CEO put 100% of his shares owned, 5,000,486 shares, in an escrow which was to guarantee the potential loan. The loan was mutually rescinded on June 12, 2014, and the shares remain in escrow. In an OTC Markets news service announcement, the CEO stated that his shares will be moved from a purely voluntary escrow to a 10b5-1 Plan under third party control to more formally preclude any directed share sales by him when non-public information is known.
As provided by Board of Director resolution in 1998, the CEO will be paid an incentive fee and a bonus which are payable in cash upon merger, resignation or termination or in installments at the CEOs option. The incentive fee is 1% of the increase in market capitalization based on the bid price of the Companys stock beyond the book value at confirmation of the bankruptcy, which was approximately $260,000.The bonus is 0.5% of the increase in market capitalization for each $1.00 increase in stock price up to a maximum of $8 per share (4%) based on the bid price of the stock beyond the book value at confirmation of the bankruptcy. The Company recorded $0 of accrued incentive fee and bonus for each of the three months ended March 31, 2016 and 2015.
Note 16 Related Party Loans
The Company borrowed $15,000 from an employee in January of 2016 at 10% interest for three months. Accrued interest of $1,500 is included in accrued liabilities in the condensed consolidated balance sheets at March 31, 2016.The loan balance and accrued interest was repaid subsequent to March 31, 2016, in April 2016.In addition, the Companys CEO, Chet Billingsley loaned the Company $10,000 for three months with no interest. The loan from the Companys CEO was also repaid subsequent to March 31, 2016, in April 2016.
Note 17 Liquidity Agreement for Purchase of Investor Webcast, LLC and Subsequent Termination
On April 20, 2015, the Company entered into a liquidity agreement to acquire 100% of CAST valued at $469,611 in exchange for 4,696 to-be-created Series B convertible preferred shares of Mentor. The purchase price is based on projected future earnings of CAST and discounted at 17.87% (the discount rate used for the 2015 investment in installment receivable described in Note 5).
After one year, the to-be-created Series B convertible preferred shares could be converted, in steps or in whole, into Mentor common shares. The to-be-created Series B convertible preferred shares would have converted to common shares based on the following conversion formula:((3.3 times CAST recurring revenue) + (20 times CAST after tax profit) divided by 2) plus cash minus liabilities, for the preceding four calendar quarters, as defined in the agreement. Due to Mentors recent reincorporation in Delaware, the series B convertible preferred shares had not yet been created and therefore, a convertible security was been issued to the prior owner of CAST which could be converted to Mentor Series B convertible preferred shares once they were created.
23
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2016 and 2015
_______________________________________________________________________________________________________
Note 17 Liquidity Agreement for Purchase of Investor Webcast and Subsequent Termination (continued)
Purchase price allocation of CAST assets and liabilities:
|
|
|
CAST assets and liabilities:
|
|
|
Current assets
|
$
|
106,305
|
Property and equipment
|
|
4,378
|
Current liabilities
|
|
(107,837)
|
Net equity
|
|
2,846
|
Goodwill
|
|
466,765
|
Purchase valuation based on projected future earnings using 17.87% discount rate
|
$
|
469,611
|
Actual operating results of CAST in future periods and the share price of Mentor common shares at the date of conversion would determine the number of common shares issued upon conversion of the Series B convertible preferred shares, in whole or in part. The conversion formula was to be evaluated in subsequent periods to determine if actual CAST operations result in a contingent asset or liability relating to the Series B convertible preferred shares. The Company evaluated CAST revenue and income for the period from the purchase date, April 20, 2015, to December 31, 2015 along with revised projections. The revenue and net loss realized in 2015 and the lower revised projections resulted in a fair value of $0 for the convertible security at December 31, 2015.
On March 1, 2016, the Company entered into a Mutual Termination Agreement and General Release in which the certain Investor Webcast Mentor Capital Cannabis Owners Public Liquidity Agreement effective April 20, 2015 (the Purchase Agreement) and the Convertible Security Agreement with the prior owner of CAST were cancelled and terminated, resulting in a disposition of CAST assets and liabilities by the Company. Pursuant to Section 3 of the Purchase Agreement, the CAST owner was to receive Mentor shares according to Mentors conversion formula specified in the agreement. However, the CAST business has not evolved as quickly as CAST owners expected and the result of the conversion formula was a negative number less than zero at the time of the termination. Therefore, the parties by mutual consent dissolved their relationship. The CAST prior owner received assets valued at $7,408, assumed liabilities of $7,063 as follows:
|
|
|
CAST assets and liabilities disposed:
|
|
|
Liabilities:
|
|
|
Accounts payable
|
$
|
5,427
|
Accrued expenses
|
|
420
|
Deferred revenue
|
|
1,216
|
Total liabilities transferred
|
|
7,063
|
Assets:
|
|
|
Prepaid expenses
|
|
2,885
|
Accounts receivable, net of $10,000 allowance
|
|
190
|
Employee advance
|
|
1,013
|
Fixed assets, net of accumulated depreciation
|
|
3,320
|
Total assets disposed
|
|
7,408
|
Loss on disposition of assets and liabilities
|
$
|
(345)
|
Mentor forgave an intercompany note receivable from CAST of $23,225, direct intercompany charges of $10,284, and $17,043 of intercompany overhead receivable from CAST. In addition, Mentor paid $500 to the prior owner and $50 to prior employees.
24
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2016 and 2015
_______________________________________________________________________________________________________
Note 18 Purchase Agreement for Preferred Security associated with Canyon Crest Holdings, LLC
On August 21, 2015, the Company entered into an agreement where it received $120,000 in exchange for 1,200 to-be-created Series C convertible preferred shares of Mentor. The proceeds are to be used in association with CCH.
After one year, the to-be-created Series C convertible preferred shares could have been converted, in steps or in whole, into Mentor common shares. The to-be-created Series C convertible preferred shares would have converted to common shares based on a formula related to recurring revenue and after tax profits. Due to Mentors recent reincorporation in Delaware, the series C convertible preferred shares had not yet been created, therefore, a convertible security was issued to the individual which would have been converted to Mentor Series C convertible preferred shares once they were created.
Actual operating results of CCH in future periods and the share price of Mentor common shares at the date of conversion would determine the number of common shares issued upon conversion of the Series C convertible preferred shares, in whole or in part. The conversion formula was to be evaluated in subsequent periods to determine if actual CCH operations result in a contingent asset or liability relating to the Series C convertible preferred shares. Although the funding was advanced by CCH for investment in a startup entity, the planned operations were terminated and there was $0 value to the convertible security at both March 31, 2015 and December 31, 2015.The Company recorded a $120,000 gain on the decrease in the fair value of convertible securities and a loss in investment of $97,400 in the fourth quarter of 2014.
In March 2016, Mentor designated the individual investor that was to receive Mentors to-be-created Series C preferred shares to be able to redeem 120,000 already outstanding unexercised Series D warrants. Under the Plan of Reorganization referred to in Note 10, the Company or its designee may redeem warrants that are not exercised timely. These warrants may be exercised at the $1.60 per warrant exercise price plus a $0.10 warrant redemption fee. The designation of the investor to redeem warrants gives the investor the future potential to recover a portion or all of the amount invested in CCH operations.
Note 19 Commitments and contingencies
During the normal course of business, the Company may be exposed to litigation. When the Company becomes aware of potential litigation, it evaluates the merits of the case in accordance with FASB ASC 450-20-50, Contingencies. The Company evaluates its exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If the Company determines than an unfavorable outcome is probable and can be reasonably estimated, it establishes the necessary accruals. As of March 31, 2016, the Company is not aware of any contingent liabilities that should be reflected in the accompanying financial statements.
25
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2016 and 2015
_______________________________________________________________________________________________________
Note 19 Commitments and contingencies (continued)
Mentor lawsuit seeking rescission of co-operative funding agreement with Bhang
On August 11, 2014, Mentor filed suit against Bhang and its owners, in the United States District Court for the Northern District of California for rescission of the February 28, 2014 co-operative funding agreement with Bhang, seeking return of the $1,500,000 paid by the Company to Bhang and its owners. This was in response to the June 24, 2014, unilateral announcement by Bhang that they were terminating all details of their relationship with Mentor, leaving Mentor with nothing, but declining to return any of the $1,500,000 paid to Bhang and its shareholders by Mentor during the preceding, and only, four months of interaction. As directed by the court, arbitration has been initiated with the American Arbitration Association and a panel of arbitrators has been appointed. Arbitration is scheduled to occur in May 2016.The Company intends to continue to vigorously pursuing return of its $1,500,000.See Note 4.
In March 2015, Bhang and its owners filed a counterclaim against Mentor in the arbitration action. Bhang contends it has suffered losses and should be able to keep the $1,500,000 they received from Mentor. The final outcome of the arbitration is not known at this time. The Company was not a party to this transaction and intends to vigorously defend itself against all claims.
In July 2015, Mentor was served with a complaint in a Federal District Court for the District of Utah action initiated by the wife and daughter of Bhangs corporate counsel for reimbursement of the purchase price for shares of Mentors common stock purchased from the CEO of Bhang. The Company was not a party to this transaction and intends to vigorously defend itself against all claims in this case.
In March 2014, the Company paid $621,250, which represented 1.75% of a prospective loan amount, in refundable fees paid for credit default insurance to a third party as required by the lender on an international loan facility. The lender was unable to fund the loan and a cooperative exit from the loan commitment was agreed to by the parties on June 12, 2014.The lender has released the requirement for credit default insurance and the insurance company has agreed to return the fee, however the refund has not yet been received. On September 5, 2014, the Company filed suit in San Mateo County Superior Court against Wm. E. Fielding and Associates, Inc., the name of the account holder to whom the $621,250 was wired, for conversion and fraud seeking return of the $621,250 in credit insurance premiums that had been paid, had been promised to be returned, and which were not returned. The defendant defaulted and the Company intends to prove its damages, take a judgment, and pursue collecting its damages from the defendant and other involved parties. The Company plans to continue to vigorously pursue return of its $621,250.The $621,250 in fees was expensed as loan costs in June 2014, pending the outcome of the suit.
Mentor lawsuit seeking return of loan commitment fee
In March 2014, the Company paid $621,250, which represented 1.75% of a prospective loan amount, in refundable fees paid for credit default insurance to a third party as required by the lender on an international loan facility. The lender was unable to fund the loan and a cooperative exit from the loan commitment was agreed to by the parties on June 12, 2014.The lender has released the requirement for credit default insurance and the insurance company has agreed to return the fee, however the refund has not yet been received. On September 5, 2014, the Company filed suit in San Mateo County Superior Court against Wm. E. Fielding and Associates, Inc., the name of the account holder to whom the $621,250 was wired, for conversion and fraud seeking return of the $621,250 in credit insurance premiums that had been paid, had been promised to be returned, and which were not returned. The court entered a default against the defendant. On March 1, 2016, Mentor was granted a judgment in the amount of $746,500 against defendant and Mentor now intends to collect on this judgment. The $621,250 in fees was expensed as loan costs in June 2014, pending the outcome of the suit.
26
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2016 and 2015
_______________________________________________________________________________________________________
Note 20 Segment Information
The Company is operating an acquisition and investment business. Majority owned subsidiaries of 51% or more are consolidated. The Company has determined that there are two reportable segments; 1) the cannabis and medical marijuana segment which includes the receivable from Bhang of $1,500,000, the convertible note receivable and accrued interest from Electrum, and the operation of subsidiaries in the Cannabis and medical marijuana sector, and 2) the Companys legacy investment in WCI which works with business park owners, governmental centers, and apartment complexes to reduce their trash related operating costs. The Company also has certain small cancer related legacy investments and an investment in note receivable from a non-affiliated party that is included in the Corporate and Eliminations section below.
|
|
|
|
|
|
|
|
|
|
|
Cannabis and Medical Marijuana Segment
|
|
Trash Management
|
|
Corporate and Eliminations
|
|
Consolidated
|
Three months ended March 2016
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
450
|
$
|
642,844
|
$
|
-
|
$
|
643,294
|
Income before taxes
|
|
4,094
|
|
20,745
|
|
(213,983)
|
|
(189,144)
|
Interest income
|
|
2,694
|
|
-
|
|
24,553
|
|
27,247
|
Interest expense
|
|
-
|
|
4,316
|
|
7,552
|
|
11,868
|
Total assets
|
|
1,607,772
|
|
1,123,451
|
|
1,575,690
|
|
4,306,913
|
Property additions
|
|
-
|
|
5,268
|
|
1,029
|
|
6,297
|
Depreciation and amortization
|
|
1,568
|
|
30,004
|
|
(25,634)
|
|
5,938
|
|
|
|
|
|
|
|
|
|
Three months ended March 2015
|
|
|
|
|
|
|
|
|
Net sales
|
|
-
|
|
573,850
|
|
-
|
|
573,850
|
Income before taxes
|
|
174
|
|
49,225
|
|
(232,988)
|
|
(183,589)
|
Interest income
|
|
174
|
|
-
|
|
2,215
|
|
2,389
|
Interest expense
|
|
-
|
|
4,774
|
|
(774)
|
|
4,000
|
Total assets
|
|
1,626,740
|
|
1,114,834
|
|
1,140,954
|
|
3,882,528
|
Property additions
|
|
-
|
|
-
|
|
1,221
|
|
1,221
|
Depreciation and amortization
|
|
-
|
|
6,810
|
|
683
|
|
7,493
|
The following table reconciles operating segments and corporate-unallocated operating income (loss) to consolidated income before income taxes, as presented in the unaudited condensed consolidated income statements:
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2016
|
|
2015
|
Operating loss
|
$
|
(181,496)
|
$
|
(183,317)
|
Interest income
|
|
27,247
|
|
2,389
|
Interest expense
|
|
(11,868)
|
|
(4,000)
|
Gain (loss) on investments
|
|
(37,279)
|
|
1,339
|
Gain on spinoff of Investor
|
|
|
|
|
Webcast assets and liabilities
|
|
14,990
|
|
-
|
Other expense
|
|
(738)
|
|
-
|
|
|
|
|
|
Income before income taxes
|
$
|
(189,144)
|
$
|
(183,589)
|
27
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2016 and 2015
_______________________________________________________________________________________________________
Note 21 Accumulated other comprehensive income (loss)
The changes in the balances for accumulated other comprehensive income (loss) (AOCI) for the periods ended March 31, 2016 and 2015 were as follows:
|
|
|
|
|
|
Three Months Ended March 31,
|
Marketable securities
|
|
2016
|
|
2015
|
|
|
|
|
|
Beginning balance
|
$
|
(12,563)
|
$
|
-
|
|
|
|
|
|
Gains (losses) on available for sale securities
|
|
-
|
|
-
|
Less: Tax (tax benefit)
|
|
-
|
|
-
|
Net gains (losses) on available for sale securities
|
|
-
|
|
-
|
|
|
|
|
|
(Gains) Losses reclassified from AOCI to net income
|
|
12,563
|
|
-
|
Less: Tax (tax benefit)
|
|
-
|
|
-
|
Net gains (losses) reclassified from AOCI to net income
|
|
12,563
|
|
-
|
|
|
|
|
|
Other comprehensive income (loss), net of tax
|
|
12,563
|
|
-
|
|
|
|
|
|
Ending balance
|
$
|
-
|
$
|
-
|
Note 22 Subsequent events
Effective April 4, 2016 Mentor Capital, Inc. entered into a certain "Larson - Mentor Capital, Inc. Patent and License Fee Facility with Agreement Provisions for an -- 80% / 20% Domestic Economic Interest -- 50% / 50% Foreign Economic Interest" with R. L. Larson and Larson Capital, LLC (Larson), by which Mentor's to be formed subsidiary, Mentor IP, LLC, (MCIP) obtained an international patent application for foreign THC and CBD cannabis vape pens under the provisions of the Patent Cooperation Treaty of 1970, as amended. Moreover, MCIP is expected to receive exclusive licensing rights in the United States for THC and CBD cannabis vape pen licensing, contingent upon the approval of the United States patent application for the same. Mentor agreed to pay $100,000 prior to July 15, 2016, to pay $25,000 of charges advanced by Larson for early patent work and $75,000 for continuing international patent work. Mentor paid Larson $12,500 on April 4, 2016 and $12,500 on April 26, 2016.
MCIP was organized under the laws of South Dakota on April 18th 2016.
28