Notes to Condensed Consolidated Financial Statements
September 30, 2018 and 2017
Note 1 - Nature of operations
Mentor Capital, Inc. (“Mentor” or “the Company”), reincorporated under the laws of the State of Delaware in September 2015.
The entity was originally founded as an investment partnership in Silicon Valley, California by the current CEO in 1985 and subsequently incorporated under the laws of the State of California on July 29, 1994. On September 12, 1996, the Company’s offering statement was qualified pursuant to Regulation A of the Securities Act, and the Company began to trade its shares publicly. On August 21, 1998, the Company filed for voluntary reorganization and, on January 11, 2000, the Company emerged from Chapter 11. 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. A shareholder approved merger between Mentor and Mentor Delaware was approved by the California and Delaware Secretaries of State, and became effective September 24, 2015, thereby establishing Mentor as a Delaware corporation.
Beginning September 2008, after the name change back to Mentor Capital, Inc., the Company’s common stock traded publicly under the trading symbol OTC Markets: MNTR and after February 2015, as OTCQB: MNTR and after August 6, 2018, under the trading symbol OTCQX: 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 certain highly technical and expensive cancer treatments and a resulting business decline in the cancer immunotherapy 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 decided to divest of its cancer assets and focus future investments in the medical marijuana and cannabis sector.
Mentor has a 51% interest in Waste Consolidators, Inc. (“WCI”). WCI was incorporated in Colorado in 1999 and operates in Arizona and Texas. It is a legacy investment which was acquired prior to the Company’s current focus on the cannabis sector and is included in the condensed consolidated financial statements presented. The Company may divest of WCI in the future to concentrate solely on cannabis investments.
On February 28, 2014, the Company entered into an agreement to purchase 60% of the outstanding shares of Bhang Corporation, formerly known as Bhang Chocolate Company, Inc. (collectively referred to as “Bhang”), which was ultimately rescinded. Following arbitration, on December 29, 2016, Mentor obtained a judgment against Bhang in the United States District Court for the Northern District of California. The judgment was comprised of $1,500,000 invested by Mentor into Bhang plus pre-judgment interest in the amount of $421,535. The judgment accrued post-judgment interest at the rate of 10% from December 29, 2016 through November 20, 2017, when the parties agreed to stipulated payment terms. The receivable from Bhang at December 31, 2017 includes $1,500,000 of principal plus accrued interest of $540,521 and reimbursed costs of $5,147, less $58,569 interest due to two Bhang shareholders for shares of Mentor Common Stock which were returned to the Company in January 2018 per the stipulated agreement. The judgment was paid to Mentor in full in January 2018, see Note 5.
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 invest in intellectual property and specifically to hold the investment in patent interests obtained on April 4, 2016 when Mentor Capital, Inc. entered into an agreement with R. Larson and Larson Capital (“Larson”) to seek and secure the benefits of mutual effort directed toward the capture of license fees from domestic and foreign THC and CBD cannabis vape patents. See Note 21.
On April 13, 2017 Mentor entered into an agreement to provide $40,000 of funding to offset costs of the application of cannabis oil in a glaucoma study conducted by and otherwise paid for by Dr. Robert M. Mandelkorn, MD. Mentor, doing business as GlauCanna, will hold an 80% interest in any commercial opportunities that result from the study. Dr. Mandelkorn will hold the remaining 20%.
On June 30, 2017, the Company converted its original $100,000 convertible promissory note to Electrum Partners, LLC (“Electrum”) plus accrued and unpaid interest of $7,772 into an equity interest in Electrum, at a conversion price of $19 per interest, for 5,672 membership interest units. The investment in Electrum is reported in the consolidated balance sheets as a minority investment at cost of $107,772 at September 30, 2018 and December 31, 2017, see Note 14.
10
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2018 and 2017
Note 1 - Nature of operations (continued)
On April 28, 2017 the Company invested a second $100,000 in Electrum (Note II) as a convertible note with interest at 10% compounded monthly, with monthly payments of principal and interest of $2,290 beginning June 12, 2017. On May 31, 2018, the Company converted the outstanding Note II balance of $85,188 plus unpaid interest of $1,068 into 526 membership interest units at a conversion price of $164 per interest. The investment in Electrum is reported in the consolidated balance sheets as a minority investment at cost of $86,256 at September 30, 2018. The outstanding balance on Note II at December 31, 2017 was $94,806, see Note 8.
On September 19, 2017, the Company formed Mentor Partner I, LLC (“Partner I”), a California limited liability company as a wholly owned subsidiary of Mentor for the purpose of cannabis-focused investing. For the period of inception to December 31, 2017 there were no operations. From January through September 2018, Mentor contributed $996,000 of capital to Partner I to facilitate the purchase of manufacturing equipment to be leased from Partner I by G FarmaLabs Limited (“G Farma”) under a Master Equipment Lease Agreement dated January 16, 2018, as amended. Amendments have expanded the Lessee under the agreement to include G FarmaLabs Limited, G FarmaLabs DHS, LLC, and G FarmaBrands, Inc, (collectively referred to as “G Farma Lease Entities”).
On February 1, 2018, the Company formed Mentor Partner II, LLC (“Partner II”), a California limited liability company as a wholly owned subsidiary of Mentor for the purpose of cannabis-focused investing. On February 8, 2018, Mentor contributed $400,000 to Partner II to facilitate the purchase of manufacturing equipment to be leased from Partner II by Pueblo West Organics, LLC (“Pueblo West”) under a Master Equipment Lease Agreement dated February 11, 2018.
On September 6, 2018, the Company entered into an Equity Purchase and Issuance Agreement with G FarmaLabs Limited, G FarmaLabs DHS, LLC, G FarmaBrands, Inc., Finka Distribution, Inc., and G FarmaLabs, WA, LLC (together the “G Farma Equity Entities”) to obtain an immediate equity interest of three and three quarters percent (3.75%) in all persons, businesses, and commercial pursuits that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with any of the G Farma Equity Entities (See Note 9).
In the event that it is illegal or inadvisable for the Company to own any of the equity in one or more G Farm Equity Entities, or the Company elects not to receive any of those shares, the G Farma Equity Entities granted the Company an irrevocable, fully paid, perpetual, right and option to (i) have the G Farma Equity Entities issue the shares and (ii) receive the shares, or any part thereof, at one or more Company elections on payment of $1.
Cannabis cultivation, production and distribution
Either independently through several affiliated entities or in conjunction with third parties, G Farma seeks to operate licensed medical cannabis and adult use cannabis business segments in California, Washington and Nevada. Additionally, significant corporate effort is devoted to securing additional state and local licenses for G Farma to expand its operations organically or through contract manufacturing, licensing or similar partnering arrangements, nationally and internationally. Current expansion is focused on Arizona, Colorado, Nevada, Michigan and Canada. The G Farma model is to purchase or after securing state-by-state licenses, cultivate cannabis for wholesale in flower or in pre-roll form, or as input for G Farma branded products. Branded cannabis-extracted products include drinks, edibles, cartridges, vape pens and other concentrates. The third segment of G Farma’s business is distribution of branded and third-party cannabis products to medical and adult use licensed dispensaries. The expansion of the G Farma business is significantly paced by the state-by-state stepped legalization of medical marijuana and adult recreational use of cannabis, followed by the securing by G Farma of government issued cultivation, production and distribution licenses.
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 September 30, 2018 and 2017 are not necessarily indicative of the operating results for the full years.
11
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2018 and 2017
Note 2 - Summary of significant accounting policies
Basis of presentation
The accompanying condensed consolidated financial statements and related notes include the activity of majority owned subsidiaries of 51% or more. The condensed 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.
Recent Accounting Standards
From time to time, the FASB or other standards setting bodies issue new accounting pronouncements. Updates to the FASB ASCs are communicated through 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.
Financial Instruments
- As of January 1, 2018, we adopted ASU No. 2016-01, "Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities" (ASU 2016-01), which requires us to prospectively record changes in the fair value of our equity investments, except for those accounted for under the equity method, in net income instead of in accumulated other comprehensive income. As of January 1, 2018, we recognized a decrease of $34,822 in retained deficit for the cumulative effect of the adoption of ASU 2016-01, with an offset to accumulated other comprehensive income (AOCI).
Intangibles - Goodwill and Others
– Issued in January 2017, ASU 2017-04 simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. ASU 2017-04 is effective for annual periods beginning after December 15, 2019 including interim periods within those periods. The Company is currently evaluating the effect that ASU 2017-04 will have on our consolidated financial statements and related disclosures.
Lease Accounting
- In February 2016, the FASB issued ASU No. 2016-2, “Leases” (ASU 2016-02) which requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet for the rights and obligations created by all leases, including operating leases, with terms of more than 12 months. The new guidance also requires additional disclosures on the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative information. The new guidance will be effective for us at the beginning of fiscal year 2019. Early adoption is permitted. We are in the process of evaluating the impact the adoption of this guidance will have on our consolidated financial statements and related disclosures.
Revenue Recognition
– As of January 1, 2018, we adopted ASU No. 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09). Under the new guidance, an entity will recognize revenue to depict the transfer of promised goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. Leasing revenue recognition is specifically excluded and therefore the new standard is only applicable to service fee and consulting revenue. A five-step model has been introduced for an entity to apply when recognizing revenue. The new guidance also includes enhanced disclosure requirements. The guidance was effective January 1, 2018 and was applied on a modified retrospective basis. The adoption did not have an impact on our financial statements.
We also adopted the following standards during 2018, none of which had a material impact on our financial statements or financial statement disclosures
Standard
|
|
Effective date
|
2017-08
|
Nonrefundable Fees and Other costs – Premium Amortization on Purchased Callable Debt Securities
|
January 1, 2018
|
2016-18
|
Statement of Cash Flows – Restricted Cash
|
January 1, 2018
|
2016-16
|
Income Taxes – Intra Entity Transfers of Assets Other Than Inventory
|
January 1, 2018
|
2016-15
|
Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments
|
January 1, 2018
|
12
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2018 and 2017
Note 2 - Summary of significant accounting policies (continued)
Segment reporting
The Company has determined that there are two reportable segments: 1) the cannabis and medical marijuana segment, including leasing activities relating to manufacturing equipment, and 2) the Company’s legacy investment in WCI which works with business park owners, governmental centers, and apartment complexes to reduce their facility related operating costs.
Use of estimates
The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates, assumptions, and judgements 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.
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 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.
Concentrations of cash
The Company maintains its cash and cash equivalents in bank deposit accounts which at times may exceed federally insured limits. The Company has not experienced any losses in such accounts nor does the Company believe it is exposed to any significant credit risk on cash and cash equivalents.
Cash and cash equivalents
The Company considers all short-term debt securities purchased with a maturity of three months or less to be cash equivalents. The Company had no short-term debt securities as of September 30, 2018 and December 31, 2017.
Cash in attorney trust account
The Company had combined balances of $0 and $314,536 in two attorney trust accounts at September 30, 2018 and December 31, 2017, respectively. The balances could be withdrawn at the option of the Company and did not bear interest.
Accounts receivable
Accounts receivable consist 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 a review of outstanding balances on a monthly basis. The estimate of allowance for doubtful accounts is based on the Company's bad debt experience, market conditions, and aging of accounts receivable, among other factors. If the financial condition of the Company's customers deteriorates resulting in the customer's inability to pay the Company's receivables as they come due, additional allowances for doubtful accounts will be required. At September 30, 2018 and December 31, 2017, the Company has recorded an allowance for doubtful accounts in the amount of $31,843 and $73,105, respectively.
13
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2018 and 2017
Note 2 - Summary of significant accounting policies (continued)
Investments in securities, at fair value
Investment in securities consist of debt and equity securities reported at fair value. The Company adopted ASU 2016-1 effective January 1, 2018 which requires that any change in fair value is reported in net income. The adoption of the guidance resulted in the recognition of $34,822 of net after-tax unrealized gains on equity investments as a cumulative effect adjustment that decreased our retained deficit as of January 1, 2018 and decreased AOCI by the same amount. The Company elected to report changes in the fair value of equity investment in realized investment gains (losses), net.
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.
Convertible notes receivable
The Company had a convertible note receivable from Electrum Partners, LLC (“Electrum”) under an Addendum to Convertible Note and Purchase Option Agreement (“Addendum”) dated April 28, 2017. Under the Addendum, the Company invested $100,000 in Electrum by purchase of a second promissory note in principal face amount of $100,000 (“Note II”) from Electrum, with interest at 10% per annum compounded monthly. Note II required monthly principal and interest payments of $2,290 to the Company beginning June 12, 2017. On May 31, 2018, the Company elected to convert the residual principal and accrued but unpaid interest totaling $86,256 into an equity investment in Electrum at $164 per unit for 526 membership interest units.
The Company has two $25,000 convertible notes receivable from NeuCourt, Inc. that are recorded at the aggregate principal face amount of $50,000 plus accrued interest of $3,488 and $1,565 at September 30, 2018 and December 31, 2017, respectively. The notes bear 5% interest with one $25,000 principal face amount note maturing on November 8, 2018 and a second $25,000 principal face amount note maturing on October 25, 2019. No payments are required prior to maturity. Principal and unpaid interest may be converted into a blend of shares of a to-be-created series of Preferred Stock, and Common Stock, of NeuCourt (defined as “Conversion Shares”) (i) on closing of a future financing round of at least $750,000, (ii) on the election of NeuCourt on maturity of the Note, or (iii) an election of Mentor following NeuCourt’s election to prepay the Note. The Conversion Price for the Note is the lower of (i) 75% of the price paid in the Next Equity Financing, or the price obtained by dividing a $3,000,000 valuation cap by the fully diluted number of shares. The number of Conversion Shares issued on conversion shall be the quotient obtained by dividing the outstanding principal and unpaid accrued interest on a Note to be converted on the date of conversion by the Conversion Price (the “Total Number of Shares”), The total Number of Shares shall consist of Preferred Stock and Common Stock as follows: (i) That number of shares of Preferred Stock obtained by dividing (a) the principal amount of each Note and all accrued and unpaid interest thereunder by (b) the price per share paid by other purchasers of Preferred Stock in the Next Equity Financing (such number of shares, the "Number of Preferred Stock") and (ii) that number of shares of Common Stock equal to the Total Number of Shares minus the Number of Preferred Stock.
Using the valuation cap of $3,000,000, the Notes would convert into 259,595 and 242,666 Conversion Shares at September 30, 2018 and December 31, 2017, respectively. In the event of a Corporate Transaction prior to repayment or conversion of the Note, the Company shall receive back two times its investment, plus all accrued unpaid interest. NeuCourt is a Delaware corporation that is developing a technology that is expected to be useful in the cannabis space.
Subsequent to September 30, 2018, on October 31, 2018, the Company purchased an additional $50,000 convertible note receivable from NeuCourt, on the same terms as the prior two convertible notes, which convertible note matures October 31, 2020. Additionally, on November 8, 2018, the Company received payment of $27,561.12 from NeuCourt in satisfaction of the $25,000 principal and accrued interest on the November 8, 2016 convertible note receivable which was subsequently cancelled, see Note 26.
Investment in account receivable, net of discount
On April 10, 2015, the Company entered into an exchange agreement whereby the Company received an investment in account receivable with annual installment payments of $117,000 through 2026. The investment is stated at face value, net of unamortized purchase discount. The discount is amortized to interest income over the term of the exchange agreement.
14
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2018 and 2017
Note 2 - Summary of significant accounting policies (continued)
Finance leases receivable
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 inception of the applicable lease.
A finance receivable is considered impaired, based on current information and events, if it is probable that we will be unable to collect all amounts due according to contractual terms. Impaired finance receivables include finance receivables that have been restructured and are troubled debt restructures. There were no impaired finance receivables as of September 30, 2018. There were no finance leases receivable at December 31, 2017.
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 are 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.
Property and equipment
Property, equipment and machinery are recorded at cost. Depreciation is computed on the declining balance method over the estimated useful lives of various classes of property ranging from 3 to 7 years.
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.
Long-lived assets impairment assessment
In accordance with the FASB Accounting Standards Codification (“ASC”) 350, we regularly review the carrying value of intangible and other long-lived assets for the existence of facts or circumstances, both internally and externally, that suggest impairment. The carrying value and ultimate realization of these assets is dependent upon our estimates of future earnings and benefits that we expect to generate from their use. If our expectations of future results and cash flows are significantly diminished, intangible assets and other long-lived assets may be impaired and the resulting charge to operations may be material. When we determine that the carrying value of intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, we use the projected undiscounted cash flow method to determine whether an impairment exists, and then measure the impairment using discounted cash flows.
15
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2018 and 2017
Note 2 - Summary of significant accounting policies (continued)
Goodwill
Goodwill of $1,324,142 was derived from consolidating WCI effective January 1, 2014, and $102,040 of goodwill resulted from the 2005 acquisition of a 50% interest in WCI. 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 unit’s 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. Management determined that no impairment write-downs were required as of September 30, 2018 and December 31, 2017.
Revenue recognition
The Company recognizes revenue in accordance with ASC 606 “
Revenue Recognition
” and FASB ASC Topic 840,
Leases
. Revenue is reported net of any related sales tax.
Service fees generated by WCI are for monthly services performed to reduce customer’s operating costs. Service fees are invoiced and recognized as revenue in the month services are performed.
For each finance lease, the Company recognized as a gain or loss the amount equal to (i) the net investment in the finance lease less (ii) the net book value of the equipment at 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.
Revenue from consulting agreements is recognized at the time the related services are provided as specified in the consulting agreements.
Basic and diluted income (loss) per common share
We compute net 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 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 dilutive weighted average number of shares outstanding as their effect would be antidilutive were 6,942,113 and 7,355,166 as of September 30, 2018 and December 31, 2017, respectively. There were 87,456 and 4,500 potentially dilutive shares outstanding at September 30, 2018 and December 31, 2017, respectively.
At September 30, 2018, assumed conversion of Series Q Preferred Stock into Common Stock would be anti-dilutive and is not included in calculating diluted weighted average number of shares outstanding. There were no Series Q Preferred Stock issued at September 30, 2017.
16
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2018 and 2017
Note 2 - Summary of significant accounting policies (continued)
Income taxes
The Company accounts for income taxes in accordance with accounting guidance now codified as FASB ASC 740, "Income Taxes," which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that some or all deferred tax assets will not be realized.
The Company applies the provisions of ASC 740, "Accounting for Uncertainty in Income Taxes". The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company utilizes a two-step approach to recognizing and measuring uncertain tax positions (tax contingencies). The first step evaluates the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that we will sustain the position on audit, including resolution of related appeals or litigation processes. The second step measures the tax benefit as the largest amount more than 50% likely of being realized upon ultimate settlement. The Company did not identify any material uncertain tax positions on returns that have been filed or that will be filed. The Company did not recognize any interest or penalties for unrecognized tax benefits during the nine months ended September 30, 2018 and 2017, nor were any interest or penalties accrued as of September 30, 2018 and December 31, 2017. To the extent the Company may accrue interest and penalties, it elects to recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense.
Advertising and promotion
The Company expenses advertising and promotion costs as incurred. Advertising and promotion costs for the three months ended September 30, 2018 and 2017 were $20,780 and $1,830, respectively. Advertising and promotion costs for the nine months ended September 30, 2018 and 2017 were $46,229 and $31,471, respectively.
Fair value measurements
The Company adopted ASC 820 which defines fair value as the exchange price that would be received to sell 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.
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, cash in attorney trust account, 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 investment securities is based on quoted market prices in active markets.
The fair value of warrants in securities that are not quoted in an active market is based on estimated fair value using the Black Scholes Model.
17
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2018 and 2017
Note 2 - Summary of significant accounting policies (continued)
Fair value measurements (continued)
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 and finance leases 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 notes and leases.
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.
Note 3 - Cash in attorney trust account
At September 30, 2018 and December 31, 2017, the Company had combined balances of $0 and $314,536 held in two attorney trust accounts. The accounts did not bear interest and the Company could withdraw funds any time at its discretion.
Note 4 - Prepaid expenses and other assets
Prepaid expenses and other assets consist of the following:
|
|
September 30, 2018
|
|
December 31, 2017
|
Prepaid health insurance
|
$
|
5,519
|
$
|
5,005
|
Prepaid legal
|
|
-
|
|
12,000
|
Other prepaid costs
|
|
38,133
|
|
27,107
|
|
$
|
43,652
|
$
|
44,112
|
Note 5 - Bhang Corporation (formerly known as Bhang Chocolate Company, Inc.) and Judgment
The Company entered into an agreement with Bhang Chocolate Company, Inc., the predecessor in interest to Bhang Corporation (together “Bhang”), effective February 28, 2014. As part of that agreement, which was ultimately rescinded, Mentor delivered $1,500,000 to Bhang which Bhang refused to return following rescission of the agreement. Following arbitration of the dispute, on December 29, 2016, Mentor obtained a judgment in the amount of $1,921,534 against Bhang Corporation and its predecessor in interest, Bhang Chocolate Company, Inc., in the United States District Court for the Northern District of California. The judgment accrued interest at the rate of 10% from December 29, 2016 until November 20, 2017, when the parties stipulated to payment terms.
On January 23, 2018, the Company received a net payment of $1,758,949 in satisfaction of the judgment and 117,000 shares of Mentor common stock, originally sold to two Bhang shareholders, were returned to Mentor in exchange for a payment of $286,719 to the two Bhang shareholders, which was offset from the judgment of $2,045,668. Receipt of Common Stock returned by the Bhang shareholders was accounted for as a reduction of outstanding Common Stock and reduction to the Receivable from Bhang Chocolate Company by the original purchase price of $228,150 upon their receipt by Mentor in January 2018.
18
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2018 and 2017
Note 5 - Bhang Corporation (formerly known as Bhang Chocolate Company, Inc.) and Judgment (continued)
The receivable and accrued interest consisted of the following:
|
|
September 30, 2018
|
|
December 31, 2017
|
Receivable from Bhang Chocolate Company
|
$
|
-
|
$
|
1,500,000
|
Accrued interest
|
|
-
|
|
540,521
|
Reimbursed costs
|
|
-
|
|
5,147
|
Sub-total
|
|
-
|
|
2,045,668
|
Reserve pending collection efforts
|
|
-
|
|
-
|
Interest payable to Bhang owners
|
|
-
|
|
(58,569)
|
Receivable from Bhang Chocolate Company
|
|
-
|
|
1,987,099
|
Current portion
|
|
-
|
|
(1,987,099)
|
Long term portion
|
$
|
-
|
$
|
-
|
Note 6 – Investment in account receivable
On April 10, 2015, the Company entered into an exchange agreement whereby the Company received an investment in an account receivable with annual installment payments of $117,000 for 11 years, through 2026, totaling $1,287,000 in exchange for 757,059 shares of Mentor Common Stock obtained through exercise of Series D warrants at $1.60 per share.
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:
|
|
September 30,
2018
|
|
December 31,
2017
|
Face value
|
$
|
936,000
|
$
|
1,053,000
|
Unamortized discount
|
|
(421,883)
|
|
(479,638)
|
Net balance
|
|
514,117
|
|
573,362
|
Current portion
|
|
(95,599)
|
|
(117,000)
|
Long term portion
|
$
|
418,518
|
$
|
456,362
|
For the three months ended September 30, 2018 and 2017, $21,401 and $22,591 of discount amortization is included in interest income, respectively. For the nine months ended September 30, 2018 and 2017, $57,754 and $68,784 of discount amortization is included in interest income, respectively.
Note 7 - Property and equipment
Property and equipment is comprised of the following:
|
|
September 30,
2018
|
|
December 31,
2017
|
Computers
|
$
|
29,071
|
$
|
29,958
|
Furniture and fixtures
|
|
24,406
|
|
24,406
|
Machinery and vehicles
|
|
162,413
|
|
148,928
|
|
|
215,890
|
|
203,292
|
Accumulated depreciation and amortization
|
|
(171,704)
|
|
(162,563)
|
|
|
|
|
|
Net Property and equipment
|
$
|
44,186
|
$
|
40,729
|
19
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2018 and 2017
Note 7 - Property and equipment (continued)
Depreciation and amortization expense was $5,428 and $2,549 for the three months ended September 30, 2018 and 2017, respectively. Depreciation and amortization expense was $14,084 and $10,602 for the nine months ended September 30, 2018 and 2017, respectively.
Note 8 – Convertible notes receivable
Convertible notes receivable consists of the following:
|
|
September 30, 2018
|
|
December 31, 2017
|
April 28, 2017 Electrum convertible note receivable bearing interest at 10% and maturing May 12, 2022, with monthly principal and interest payments of $2,290 beginning June 12, 2017. On May 31, 2018, the Company elected to convert the residual principal and unpaid interest into 526 membership interest units in Electrum based upon a fixed conversion rate of $164 per membership interest unit. The note was collateralized by cannabis equity securities owned by Electrum.
|
$
|
-
|
$
|
90,731
|
|
|
|
|
|
NeuCourt, Inc. convertible note receivable including accrued interest of $2,420 and $1,430 at September 30, 2018 and December 31, 2017. The note bears interest at 5% per annum and matures November 8, 2018. Principal and accrued interest are due at maturity. Principal and unpaid interest could be converted into a blend of shares of a to-be-created series of Preferred Stock and Common Stock of NeuCourt. Subsequent to quarter end, on November 8, 2018, the note and accrued interest was repaid in full.
|
|
27,420
|
|
26,430
|
|
|
|
|
|
NeuCourt, Inc. convertible note receivable including accrued interest of $1,068 and $135 at September 30, 2018 and December 31, 2017. The note bears interest at 5% per annum and matures October 25, 2019. Principal and accrued interest are due at maturity. Principal and unpaid interest may be converted into a blend of shares of a to-be-created series of Preferred Stock and Common Stock of NeuCourt (i) on closing of a future financing round of at least $750,000, (ii) on the election of NeuCourt on maturity of the Note, or (iii) on election of Mentor following NeuCourt’s election to prepay the Note. *
|
|
26,068
|
|
25,135
|
Total convertible notes receivable
|
|
53,488
|
|
142,296
|
Less current portion
|
|
(27,420)
|
|
(43,628)
|
Long term portion
|
$
|
26,068
|
$
|
98,668
|
*
|
The Conversion Price for the Note is the lower of (i) 75% of the price paid in the Next Equity Financing, or the price obtained by dividing a $3,000,000 valuation cap by the fully diluted number of shares. The number of Conversion Shares issued on conversion shall be the quotient obtained by dividing the outstanding principal and unpaid accrued interest on a Note to be converted on the date of conversion by the Conversion Price (the “Total Number of Shares”). The Total Number of Shares shall consist of Preferred Stock and Common Stock as follows: (i) That number of shares of Preferred Stock obtained by dividing (a) the principal amount of each Note and all accrued and unpaid interest thereunder by (b) the price per share paid by other purchasers of Preferred Stock in the Next Equity Financing (such number of shares, the "Number of Preferred Stock") and (ii) that number of shares of Common Stock equal to the Total Number of Shares minus the Number of Preferred Stock. Using the valuation cap of $3,000,000, as of September 30, 2018, the Notes would convert into 259,595 Conversion Shares. In the event of a Corporate Transaction prior to repayment or conversion of the Note, the Company shall receive back two times its investment, plus all accrued unpaid interest.
|
20
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2018 and 2017
Note 9 - Note purchase agreement and consulting agreement with G FarmaLabs Limited
On March 17, 2017, the Company entered into a Notes Purchase Agreement with G FarmaLabs Limited (“G Farma”), a Nevada corporation. Under the Agreement the Company purchased two secured promissory notes from G Farma in an aggregate principal amount of $500,000, both of which bear interest at 7.42% per annum, with monthly payments beginning on April 15, 2017, and mature on April 15, 2022. The first promissory note in the amount of $120,000 is for the purchase of real estate, which is to be secured by a deed of trust on real property and requires monthly payments of $1,107 beginning April 15, 2017 with a balloon payment of approximately $94,164 at maturity. Should no property be selected to secure the real estate loan it will be converted to a working capital loan. The second promissory note in the amount of $380,000 was to be used for working capital and requires monthly payments of $3,505 with a balloon payment of approximately $298,185 at maturity. The two G Farma notes, as amended by the subsequent addenda below, are secured by all property, real and personal, tangible or intangible of G Farma and are guaranteed by two majority shareholders of G Farma. The Company and G Farma have executed six addenda subsequent to the original agreement.
Addendum II (the “Addendum II”) on April 28, 2017, in which Mentor invested an additional $100,000 in G Farma by increasing the aggregate principal face amount of the working capital note to $480,000 and increasing the monthly payments on the working capital note to $4,427 per month. The maturity date remained the same resulting in a total balloon payment of approximately $377,095 at maturity.
Addendum III (the “Addendum III”) on June 4, 2017, in which Mentor invested an additional $100,000 in G Farma by increasing the aggregate principal face amount of the working capital note to $580,000 and increasing the monthly payments on the working capital note to $5,350 per month. The maturity date remained the same resulting in a total balloon payment of approximately $456,877 at maturity.
Addendum IV (the “Addendum IV”) on September 26, 2017, in which Mentor invested an additional $100,000 in G Farma by increasing the aggregate principal face amount of the of the working capital note to $680,000, increasing the monthly payments on the working capital note to $6,272 per month beginning November 15, 2017. The maturity date remained the same resulting in a total balloon payment of approximately $538,372 at maturity.
Addendum V (the “Addendum V”) on December 6, 2017, in which Mentor invested an additional $100,000 in G Farma by increasing the aggregate principal face amount of the of the working capital note to $780,000, increasing the monthly payments on the working capital note to $7,195 per month beginning January 15, 2018. The maturity date remained the same resulting in a total balloon payment of approximately $620,708 at maturity.
Addendum VI (the “Addendum VI”) on January 17, 2018, in which Mentor invested an additional $100,000 in G Farma by increasing the aggregate principal face amount of the working capital note to $880,000, increasing the monthly payments on the working capital note to $8,117 per month beginning February 15, 2018. The maturity date remained the same resulting in a total balloon payment of approximately $703,874 at maturity.
Addendum VII (the “Addendum VII”) on September 7, 2018, in which Mentor invested an additional $79,000 in G Farma by increasing the aggregate principal face amount of the working capital note to $959,000, increasing the monthly payments on the working capital note to $8,846 per month beginning October 15, 2018. The maturity date remained the same resulting in a total balloon payment of approximately $772,612 at maturity.
Associated with the Notes Purchase Agreement, on March 17, 2017, the Company and G Farma entered into a Rights Agreement which provided that G Farma would not register its stock in a public offering unless it either (i) obtained the written consent of the Company, or (ii) without the Company’s written consent if G Farma issued to the Company shares of each class or series of G Farma stock then outstanding equal to 1.5% of each such number of shares, calculated on a full dilution full conversion basis. The stepped addition of each addendum, through Addendum VI, increased item (ii) resulting in a rate of 3.0% of outstanding shares. The Rights Agreement provided for equity rights that were contingent on G Farma registering its stock in a public offering. Mentor management estimated that registration was not likely, and the contingent rights were valued at $0.
21
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2018 and 2017
Note 9 - Note purchase agreement and consulting agreement with G FarmaLabs Limited (continued)
On September 6, 2018, Mentor obtained an immediate 3.75% interest in the G Farma Equity Entities under an Equity Purchase and Issuance Agreement in exchange for relinquishing its contingent equity rights under the Rights Agreement, increasing the working capital loan by $79,000, and leasing $171,000 of additional equipment to G Farma through Partner I. In the event that it is illegal or inadvisable for the Company to own any of the equity in one or more G Farm Equity Entities, or the Company elects not to receive any of those shares, the G Farma Equity Entities granted the Company an irrevocable, fully paid, perpetual, right and option to (i) have the G Farma Equity Entities issue the shares and (ii) receive the shares, or any part thereof, at one or more Company elections on payment of $1.0 Mentor has estimated the fair value of its 3.75% equity in the G Farma Equity Entities based on currently licensed operations of the G Farma Equity Entities at $41,600 based on 3.75% of annualized revenue from licensed Washington sales during the first eight months of 2018. Because the contingent equity position under the Rights Agreement was initially valued at $0, the increase in fair value for the 3.0% of the equity position, $33,250 is reported as a gain on investments in the condensed consolidated income statements for the three and nine months ended September 30, 2018. The additional 0.75% in the equity position is offset as a discount of $8,351 from the additional loan provided for in Addendum VII and will be amortized as additional interest over the life of the loan.
In addition, on March 17, 2017, the Company entered into a Consulting Agreement with G Farma whereby the Company receives a monthly consulting fee in arears of $1,400 per month beginning April 15, 2017 and continuing until the later of (i) 12 months, and (ii) the date on which G Farma has paid in full all obligations under the Notes Purchase Agreement. This monthly consulting fee increased proportionately with Addendum II and Addenda IV through VI resulting in a fee of $2,520 per month as of September 30, 2018. Addendum VII increased the consulting fee to $2,741 per month effective October 15, 2018. For the three months ended September 30, 2018 and 2017, $7,560 and $5,040 of consulting fees from G Farma is included in revenue, respectively. For the nine months ended September 30, 2018 and 2017, $22,120 and $9,800 of consulting fees from G Farma is included in revenue, respectively.
Notes receivable from G Farma consists of the following:
|
|
September 30,
2018
|
|
December 31,
2017
|
Real estate note
|
$
|
113,074
|
$
|
116,632
|
Working capital note
|
|
919,057
|
|
764,389
|
Note receivable discount
|
|
(8,351)
|
|
-
|
Accrued interest
|
|
3,140
|
|
-
|
|
|
1,026,920
|
|
881,021
|
Less current portion
|
|
(44,346)
|
|
(35,445)
|
Long term portion of notes receivable
|
$
|
982,574
|
$
|
845,576
|
Note 10 – Finance leases receivable
Mentor Partner I
On January 16, 2018, Partner I entered into a Master Equipment Lease Agreement with G FarmaLabs Limited and GFarma Brands, Inc. (the “GFarma Entities”) dated January 16, 2018, and amended March 7, April 4, June 20 and September 7, 2018. Partner I acquired and delivered manufacturing equipment as determined by GFarma Entities under sales-type finance leases. The Company recorded equipment sales revenue of $79,770 for the three months ended September 30, 2018 and $549,854 for the nine months ended September 30, 2018. At September 30, 2018, all leased equipment under the finance leases receivable is located in California.
The net investment included in finance leases at September 30, 2018 are as follows:
|
|
September 30,
|
|
|
2018
|
Gross minimum lease payments receivable
|
$
|
718,023
|
Less: unearned interest
|
|
(182,346)
|
Finance leases receivable
|
|
535,677
|
Less current portion
|
|
(62,966)
|
Long term portion
|
|
472,711
|
There were no finance leases receivable at December 31, 2017.
22
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2018 and 2017
Note 10 – Finance leases receivable (continued)
Mentor Partner I (continued)
At September 30, 2018, minimum future payments receivable under G Farma finance leases were as follows:
12 months ending
|
|
|
September 30,
|
|
Amount
|
2019
|
$
|
120,425
|
2020
|
|
120,425
|
2021
|
|
120,425
|
2022
|
|
120,425
|
2023
|
|
120,425
|
Thereafter
|
|
115,898
|
|
$
|
718,023
|
Mentor Partner II
On February 11, 2018, Partner II entered into a Master Equipment Lease Agreement with Pueblo West, a Colorado limited liability company (“Pueblo West”). No equipment had been delivered to Pueblo West as of September 30, 2018. Subsequent to quarter end, on October 13, 2018, equipment valued at $458,472 was delivered to Pueblo West in Colorado. See Note 23.
We review the finance leases receivables by individual account to determine expected collectability. The allowance for credit losses is an estimate of the losses inherent in our finance receivables taking into consideration past loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of underlying collateral and current economic conditions. No allowance is recorded at September 30, 2018.
The Company records prepayments on leases as a liability under deferred revenue.
Note 11 – Deposits on manufacturing equipment purchases
At September 30, 2018 and December 31, 2017, Partner I had deposits with manufacturing equipment suppliers in the amount of $457,475 and $0, respectively, for equipment that will be leased by the G Farma entities in California once the equipment is delivered.
At September 30, 2018 and December 31, 2017, Partner II has deposits for manufacturing equipment with one supplier in the amount of $340,088 and $0, respectively, for equipment that will be leased by Pueblo West in Colorado.
Note 12 - Contractual interest in legal recovery
On March 22, 2017, G Farma purchased 222,223 restricted shares of the Company’s Common Stock in a private placement at a price of $2.25 per share, for an aggregate purchase price of $500,002. Pursuant to Addendum II entered into on April 28, 2017, G Farma purchased an additional 66,667 shares of the Company’s Common Stock at $1.50 per share for a purchase price of $100,000. The combined total purchase of $600,002 is to be paid as follows: (i) Assignment to the Company of an interest, equal to the amount of the purchase price, in any and all civil forfeiture or similar recoveries received by, or due to, G Farma including a $10 million claim filed March 29, 2017 against the County of Calaveras, or (ii) at any time before payment of the full purchase price from recovery, the Company may elect to have G Farma pay all or some of the purchase price on the date of the maturity of the promissory notes, described above under the Notes Purchase Agreement, or (iii) the Company may elect to have G Farma pay all or some of the purchase price by issuance to the Company of G Farma securities in aggregate amount equal to the purchase price as are offered to any other person (other than stock options offered to employees).
23
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2018 and 2017
Note 13 - Concentration of credit risk
The Company has a significant portion of its assets invested in G Farma entities. These investments include the notes receivable described in Note 9, the finance leases receivable described in Note 10, the contractual interest in legal recovery described in Note 12, and the 3.75% equity in G Farma Equity Entities, described in Note 9. At September 30, 2018, 2018 and December 31, 2017, these assets represent 27% and 19% of the consolidated total assets of the Company, respectively.
The Company closely monitors each investment quarterly based on known and inherent risks in our investments which include financial results, satisfying scheduled payments and compliance with financial covenants, adverse situations that may affect the borrower’s ability to repay, estimated value of underlying collateral and current economic conditions. No impairments or reserves are recorded at September 30, 2018 or December 31, 2017 for these investments.
Note 14 – 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 Measurement Using
|
|
|
Unadjusted
Quoted
Market Prices
|
|
Quoted Prices
for Identical or
Similar Assets
in Active
Markets
|
|
Significant
Unobservable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
(Level 3)
|
|
|
Investment in
Securities
|
|
|
|
Investment in
Common
Stock
Warrants
|
|
Other Equity
Investments
|
Balance at December 31, 2016
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
55,943
|
Total gains or losses
|
|
|
|
|
|
|
|
|
Included in earnings
(or changes in net assets)
|
|
(128,623)
|
|
-
|
|
-
|
|
-
|
Purchases, issuances, sales, and
settlements
|
|
|
|
|
|
|
|
|
Purchases
|
|
1,071,902
|
|
-
|
|
-
|
|
107,771
|
Issuances
|
|
-
|
|
-
|
|
-
|
|
-
|
Sales
|
|
(754,644)
|
|
-
|
|
-
|
|
-
|
Settlements
|
|
-
|
|
-
|
|
-
|
|
-
|
Balance at December 31, 2017
|
|
188,635
|
|
-
|
|
-
|
|
163,714
|
|
|
|
|
|
|
|
|
|
Total gains or losses
|
|
|
|
|
|
|
|
|
Included in earnings
(or changes in net assets)
|
|
269,754
|
|
-
|
|
-
|
|
86,306
|
Purchases, issuances, sales, and
settlements
|
|
|
|
|
|
|
|
|
Purchases
|
|
236,272
|
|
-
|
|
5,669
|
|
86,256
|
Issuances
|
|
-
|
|
-
|
|
-
|
|
8,351
|
Sales
|
|
-
|
|
-
|
|
-
|
|
(108,999)
|
Settlements
|
|
-
|
|
-
|
|
-
|
|
-
|
Balance at September 30, 2018
|
$
|
694,445
|
$
|
-
|
$
|
5,669
|
$
|
235,628
|
24
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2018 and 2017
Note 14 - 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 September 30, 2018 consists of the following:
Type
|
|
Amortized Costs
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Values
|
NASDAQ listed company stock
|
$
|
130,997
|
$
|
40,730
|
$
|
-
|
$
|
172,740
|
OTCQB listed company stock
|
|
259,088
|
|
228,818
|
|
-
|
|
521,715
|
|
$
|
390,085
|
$
|
99,962
|
$
|
-
|
$
|
694,455
|
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
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net gains and losses recognized during the period
on equity securities
|
$
|
204,408
|
$
|
(163,445)
|
$
|
322,605
|
$
|
(163,445)
|
|
|
|
|
|
|
|
|
|
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
|
$
|
204,408
|
$
|
(163,445)
|
$
|
322,605
|
$
|
(163,445)
|
Note 15 - 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.
All Series A, B, C and D warrants have been called and all Series A, and C warrants have been exercised. All Series B warrants had been exercised at December 31, 2017 however, on January 23, 2018, 117,000 shares of Mentor’s Common Stock purchased in 2014 through warrant exercises by two Bhang shareholders under an agreement that was ultimately rescinded, were returned to the Company (see Note 5) and the associated exercise of warrants was reversed with 87,456 Series B warrants and 29,544 Series D warrants reinstated. As a result of the reinstatement, 6,316,115 Series D warrants remain outstanding. However, 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, 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 16. 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.
25
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2018 and 2017
Note 15 - Common stock warrants (continued)
All Series A and Series C warrants were exercised by December 31, 2014. Exercise prices in effect at January 1, 2015 through September 30, 2018 for Series B warrants were $0.11 and Series D warrants were $1.60. In March 2014, as part of a since rescinded transaction, 87,456 Series B warrants were exercised. In April 2017, the remaining 4,500 Series B warrants were exercised. On January 23, 2018, following return of the shares purchased under the rescinded transaction, 87,456 of the Series B warrants were reinstated. As of September 30, 2018, 87,456 Series B warrants remain outstanding.
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 689,159 Series H ($7) Warrants, 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.
As of September 30, 2018, and December 31, 2017 the weighted average contractual life for all Mentor warrants was 19.8 years and 20.5 years, respectively, and the weighted average outstanding warrant exercise price was $2.11 and $2.11 per share, respectively.
During the nine months ended September 30, 2018 and 2017, a total of 442,597 and 1,424,883 warrants were exercised, respectively. There were no warrants issued during the periods ended September 30, 2018 and 2017. In January 2018, the 2014 exercise of 87,456 Series B warrants and 29,544 Series D warrants by two Bhang shareholders under an agreement that was ultimately rescinded, were reversed and reinstated, see Note 5. The intrinsic value of outstanding warrants at September 30, 2018 and December 31, 2017 was $54,223 and $0, respectively.
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, 2016
|
|
4,500
|
|
8,206,390
|
|
8,210,890
|
Issued
|
|
-
|
|
-
|
|
-
|
Exercised
|
|
(4,500)
|
|
(1,540,383)
|
|
(1,544,883)
|
Outstanding at December 31, 2017
|
|
-
|
|
6,666,007
|
|
6,666,007
|
Reinstated (see Note 5)
|
|
87,456
|
|
29,544
|
|
117,000
|
Issued
|
|
-
|
|
-
|
|
-
|
Exercised
|
|
-
|
|
(442,597)
|
|
(442,597)
|
Outstanding at September 30, 2018
|
|
87,456
|
|
6,252,954
|
|
6,340,410
|
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 ($7) warrants as of each period:
|
|
Series H
$7.00
exercise
price
|
Outstanding at December 31, 2016
|
|
689,159
|
Issued
|
|
-
|
Exercised
|
|
-
|
Outstanding at December 31, 2017
|
|
689,159
|
Issued
|
|
-
|
Exercised
|
|
-
|
Outstanding at September 30, 2018
|
|
689,159
|
26
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2018 and 2017
Note 15 - Common stock warrants (continued)
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 schedule 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 suspended or truncated by the Company. The Company allowed for a partial redemption of 63,161 Series D Warrants in September 2018 at an exercise price per warrant of $0.35 plus the $0.10 warrant redemption fee. The Company had 379,436 Series D Warrant redemptions in the first eight months of 2018 at their full redemption price of $1.60. On February 10, 2017, there was one partial redemption request accepted to exercise 100,000 outstanding Series D warrants for an exercise price of $90,000 plus warrant redemption fees of $10,000. For the remainder of 2017 there were 1,540,382 Series D warrants exercised at the regular redemption price of $1.60 for Series D warrants for $2,394,611 plus warrant redemption fees of $92,054. Also, in 2017, 4,500 outstanding Series B warrants were exercised at an exercise price of $495. The regular and 1% partial redemption authorization, which was recalculated and repeated according to the court formula, resulted in a combined average exercise price of $1.42 per share for the nine months ended September 30, 2018 and $1.55 per share for the year ended December 31, 2017.
Note 16 - 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 holder’s brokerage accounts or directly to the holders and are no longer outstanding. On April 14, 2017, the remaining Series B warrants were exercised for 4,500 shares of common stock. The Company announced on April 17, 2017 that warrant holders to whom approximately 3,000,000 Series B Warrants were originally issued will receive the $0.10 per warrant redemption payment per the Plan. Payment of the Series B redemption fee was made by the Company’s redemption service and funded personally by Chet Billingsley who has assumed liability for paying the warrant redemptions. For warrant holders who had deposited their Series B warrants with a broker their redemption payments were processed electronically on April 20, 2017 through the DTCC participant system. Payment to other Series B warrant holders who had presented their Series B warrants to the Company were mailed directly to the warrant holder by April 20, 2017.
Once the Series D warrants have been fully redeemed and exercised the fees for the D warrant series will 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 redemption fees to former holders from amounts due Mr. Billingsley from the Company, which are sufficient to cover the redemption fee at September 30, 2018 and December 31, 2017.
27
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2018 and 2017
Note 17 - 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 75,000,000 authorized shares of Common Stock at $0.0001 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 approximately 2% of the Company’s common shares outstanding at that time. As of September 30, 2018, and December 31, 2017, 44,748 and 44,748 shares have been repurchased and retired, respectively.
Preferred Stock
Mentor has 5,000,000, $0.0001 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 200,000 preferred shares as Series Q Preferred Stock, such series having a par value of $0.0001 per share. Series Q Preferred Stock are 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 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” generally consists of all proceeds received by the Company on 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.
The "Conversion Price" of the Series Q Preferred Stock shall be at the product of 105% and the closing price of the Company's Common Stock on a date designated and published by the Company. The Series Q Preferred Stock is intended to allow for a pure play investment in cannabis companies that have the potential to go public. The Series Q Preferred Stock will be available only to accredited, institutional or qualified investors.
The Company sold and issued 11 shares of Series Q Preferred Stock on May 30, 2018, at a price of $10,000 per share, for an aggregate purchase price of $110,000 (“Series Q Purchase Price”). The Company invested the Series Q Purchase Price as capital in Mentor Partner II, LLC to purchase equipment to be leased to Pueblo West. Therefore, the Core Q Holdings at September 30, 2018 included this interest. The Core Q Holdings Asset Value at September 30, 2018 remained at $10,000 per share because the leased equipment purchased with such proceeds had not yet been delivered and therefore the revenue anticipated thereby has not been recognized. There is no contingent liability for the Series Q Preferred Stock conversion at September 30, 2018. At September 30, 2018, the Series Q Preferred Stock could have been converted at the Conversion Price of $0.77 into an aggregate of 142,859 shares of the Company’s Common Stock. These shares were anti-dilutive and are not included in weighted average share calculation for the three and nine months ended September 30, 2018.
28
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2018 and 2017
Note 18 - Lease commitments
Operating Leases
Mentor currently rents approximately 2,000 square feet of office space under a one-year lease in Ramona, California in San Diego County, expiring in August 2019. Rent expense for the three months ended September 30, 2018 and 2017 was $8,170 and $7,770, respectively. Rent expense for the nine months ended September 30, 2018 and 2017 was $23,710 and $22,470, respectively.
WCI manages its Arizona and Texas business from its Tempe, Arizona location where it leases approximately 3,000 square feet of office and warehouse space under an operating lease expiring in January 2020. Rent expense for the three months ended September 30, 2018 and 2017 was $6,600 and $6,545, respectively. Rent expense for the nine months ended September 30, 2018 and 2017 was $19,800 and $17,600, respectively.
WCI leases vehicles under a master fleet management agreement with initial terms of 4 years expiring through July 2022. Vehicle lease expense included in cost of sales in the condensed consolidated income statement for the three months ended September 30, 2018 and 2017 was $61,400 and $47,556, respectively. Vehicle lease expense for the nine months ended September 30, 2018 and 2017 was $174,042 and $134,715, respectively.
WCI has two small operating leases on office equipment entered into in 2015 with terms of 5 years expiring in 2020.
The approximate remaining annual minimum lease payments under the non-cancelable operating leases existing as of September 30, 2018 with original or remaining terms over one year were as follows:
12 months ending
|
|
Rental
|
September 30,
|
|
expense
|
2019
|
$
|
218,692
|
2020
|
|
176,101
|
2021
|
|
146,956
|
2022
|
|
32,733
|
|
$
|
574,482
|
Note 19 - Long term debt
Long term debt consists of the following:
|
|
September 30,
2018
|
|
December 31,
2017
|
Commercial credit agreement with Bond Street Servicing, LLC at 11.6% interest per annum, semi-monthly payments of $1,648, maturing October 16, 2019. Net of $1,392 and $2,390 unamortized loan service fee, respectively.
|
$
|
38,636
|
$
|
62,659
|
|
|
|
|
|
Total notes payable
|
|
38,636
|
|
62,659
|
|
|
|
|
|
Less: Current maturities
|
|
(36,880)
|
|
(33,854)
|
|
|
|
|
|
|
$
|
1,756
|
$
|
28,805
|
WCI’s commercial credit agreement with Bond Street Servicing, LLC required a $4,000 loan service fee. The service fee is being amortized as additional interest over the life of the loan on a straight line basis.
29
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2018 and 2017
Note 20 - Accrued salary, accrued retirement and incentive fee - related party
The Company had an outstanding liability to Mr. Billingsley, its Chief Executive Officer ("CEO"), as follows:
|
|
September 30,
2018
|
|
December 31,
2017
|
Accrued salaries and benefits
|
$
|
796,843
|
$
|
780,666
|
Accrued retirement and other benefits
|
|
483,830
|
|
465,744
|
Offset by shareholder advance
|
|
(261,653)
|
|
(276,929)
|
|
$
|
1,019,020
|
$
|
969,481
|
As provided by Board of Director resolution 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 1% of the increase in market capitalization based on the bid price of the Company’s 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 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. No incentive fee expense was recorded for the three months ended September 30, 2018 and 2017. The incentive fee expense was $0 and $175,997 for the nine months ended September 30, 2018 and 2017, respectively.
Note 21 - Patent and License Fee Facility with Larson
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" agreement with R. L. Larson and Larson Capital, LLC (“Larson”). Under this agreement, Mentor’s subsidiary Mentor Capital IP, LLC (“MCIP”) obtained rights in an international patent application for foreign THC and CBD cannabis vape pens under the provisions of the Patent Cooperation Treaty of 1970, as amended. If and upon approval of the United States patent application, Larson intends to seek exclusive licensing rights in the United States for THC and CBD cannabis vape pens for various THC and CBD percentage ranges and concentrations. Per the agreement Mentor paid $25,000 in exchange for 15.7% of the domestic licensing rights and 41.4% of international licensing rights for the vape pens.
Note 22 – Commitments and contingencies
On December 29, 2016, Mentor obtained a judgment in the amount of $1,921,535 against Bhang Corporation and its predecessor in interest, Bhang Chocolate Company, Inc., in the United States District Court for the Northern District of California related to an action filed by Mentor on August 11, 2014 seeking rescission of the February 28, 2014 co-operative funding agreement with Bhang Corporation (“Bhang Agreement”) and return of the $1,500,000 paid by the Company to Bhang. The judgment accrued interest at the rate of 10% from December 29, 2016 until November 20, 2017, when the parties agreed to stipulated payment terms.
On January 23, 2018, the Company received a net payment of $1,758,949 in satisfaction of the judgement and 117,000 shares of Mentor common stock, originally sold to two Bhang founders, were returned to Mentor in exchange for a payment of $286,719, which was offset from the accrued judgment amount of $2,045,668, see Note 5.
In July 2015, Mentor was served with a complaint in an action in the United States District Court for the District of Utah initiated by the wife and daughter of Bhang’s corporate counsel related to 75,000 shares of Mentor’s Common Stock purchased from Bhang Corporation’s CEO in a secondary sale. The 75,000 shares at issue were returned to Mentor as a part of the Bhang settlement above. On December 21, 2017, the plaintiffs filed a motion to dismiss their complaint with prejudice which was granted on January 25, 2018. Within the same order, the Court vacated an earlier order dated September 25, 2017, related to issuance of Mentor’s stock. On February 2, 2018, Mentor’s third-party claims, related to plaintiffs’ now-dismissed complaint, were dismissed with prejudice.
30
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2018 and 2017
Note 23 – 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 fair value of securities investments in GW Pharmaceuticals plc (GWPH), Kush Bottles, Inc. (KSHB), Generation Alpha, Inc. (GNAL), previously Solis Tek, Inc., and GB Sciences, Inc. (GBLX) stock, the cost basis of membership interests of Electrum, the fair value of convertible notes receivables and accrued interest from NeuCourt, the notes receivable from G Farma, the contractual interest in the G Farma legal recovery, the equity in G Farma Equity Entities, finance leases to G Farma and Pueblo West, and the operation of subsidiaries in the Cannabis and medical marijuana sector, and 2) the Company’s legacy 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 a certain small cancer related legacy investment until March 2018 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
|
|
Facility Operations Related
|
|
Corporate and Eliminations
|
|
Consolidated
|
Three months ended September 30, 2018
|
|
|
|
|
|
|
|
|
Net revenue
|
$
|
101,407
|
$
|
930,214
|
$
|
-
|
$
|
1,031,621
|
Operating income (loss)
|
|
32,257
|
|
3,173
|
|
(238,527)
|
|
(203,097)
|
Interest income
|
|
18,850
|
|
1
|
|
22,727
|
|
41,578
|
Interest expense
|
|
-
|
|
4,713
|
|
(1,125)
|
|
3,588
|
Property additions
|
|
-
|
|
13,484
|
|
1,658
|
|
15,142
|
Depreciation and amortization
|
|
-
|
|
3,369
|
|
2,059
|
|
5,428
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2017
|
|
|
|
|
|
|
|
|
Net revenue
|
$
|
5,040
|
$
|
810,062
|
$
|
-
|
$
|
815,102
|
Operating income (loss)
|
|
4,654
|
|
65,309
|
|
(256,944)
|
|
(186,981)
|
Interest income
|
|
71,219
|
|
1
|
|
22,688
|
|
93,908
|
Interest expense
|
|
-
|
|
4,567
|
|
(1,133)
|
|
3,434
|
Property additions
|
|
-
|
|
-
|
|
4,775
|
|
4,775
|
Depreciation and amortization
|
|
-
|
|
1,461
|
|
1,088
|
|
2,549
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2018
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
598,539
|
$
|
2,680,541
|
$
|
-
|
$
|
3,279,080
|
Operating income (loss)
|
|
151,566
|
|
2,382
|
|
(761,932)
|
|
(607,984)
|
Interest income
|
|
62,759
|
|
2
|
|
61,403
|
|
124,164
|
Interest expense
|
|
181
|
|
14,704
|
|
(3,298)
|
|
11,587
|
Property additions
|
|
-
|
|
13,484
|
|
4,057
|
|
17,541
|
Total assets
|
|
4,270,527
|
|
1,150,657
|
|
2,736,576
|
|
8,157,760
|
Depreciation and amortization
|
|
-
|
|
8,554
|
|
5,530
|
|
14,084
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2017
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
9,800
|
$
|
2,307,994
|
$
|
-
|
$
|
2,317,794
|
Operating income (loss)
|
|
8,729
|
|
140,257
|
|
(997,654)
|
|
(848,668)
|
Interest income
|
|
88,541
|
|
4
|
|
68,971
|
|
157,516
|
Interest expense
|
|
-
|
|
14,353
|
|
(3,402)
|
|
10,951
|
Property additions
|
|
-
|
|
-
|
|
7,909
|
|
7,909
|
Total assets
|
|
3,122,165
|
|
1,168,649
|
|
3,057,673
|
|
7,348,487
|
Depreciation and amortization
|
|
-
|
|
8,106
|
|
2,496
|
|
10,602
|
|
|
|
|
|
|
|
|
|
31
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2018 and 2017
Note 23 – Segment Information (continued)
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
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Operating loss
|
$
|
(203,097)
|
$
|
(186,981)
|
$
|
(607,984)
|
$
|
(848,668)
|
Gain (loss) on investments
|
|
237,657
|
|
(163,445)
|
|
118,197
|
|
(163,445)
|
Interest income
|
|
41,578
|
|
93,908
|
|
82,586
|
|
157,516
|
Interest expense
|
|
(3,588)
|
|
(3,434)
|
|
(7,999)
|
|
(10,951)
|
Other expense
|
|
-
|
|
-
|
|
2,380
|
|
500
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
$
|
72,550
|
$
|
(259,952)
|
$
|
(137,173)
|
$
|
(865,048)
|
Note 24 – Accumulated other comprehensive income (loss)
The changes in the balances for accumulated other comprehensive income (loss) (“AOCI”) were as follows:
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Beginning balance
|
$
|
-
|
$
|
(247,086)
|
$
|
34,822
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Gains (losses) on available for sale securities
|
|
-
|
|
58,249
|
|
-
|
|
(188,837)
|
Less: Tax (tax benefit)
|
|
-
|
|
-
|
|
-
|
|
-
|
Net gains (losses) on available for sale securities
|
|
-
|
|
28,249
|
|
-
|
|
(188,837)
|
|
|
|
|
|
|
|
|
|
Gains on investments in securities reclassified from AOCI to retained deficit
|
|
-
|
|
163,445
|
|
(34,822)
|
|
163,445
|
|
|
|
|
|
|
|
|
|
Less: Tax (tax benefit)
|
|
-
|
|
-
|
|
-
|
|
-
|
Net gains (losses) reclassified from AOCI to retained deficit
|
|
-
|
|
163,445
|
|
(34,822)
|
|
163,445
|
Other comprehensive income (loss), net of tax
|
|
-
|
|
221,694
|
|
(34,822)
|
|
(25,392)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
$
|
-
|
$
|
(25,392)
|
$
|
-
|
$
|
(25,392)
|
32
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2018 and 2017
Note 25 – Earnings Per Share
Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock; however, potential common equivalent shares are excluded if their effect is anti-dilutive.
The following table sets forth the reconciliation of basic and diluted net income per share for the three and nine months ended September 30, 2018 and 2017:
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Three Months Ended
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Three Months Ended
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September 30,
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September 30,
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2018
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2017
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2018
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2017
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Numerator
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Net income attributable to Mentor common stockholders
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$
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77,224
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$
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(285,796)
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$
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(149,087)
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$
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(922,653)
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Denominator
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Weighted-average shares used in per share computation -
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Basic
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23,092,466
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22,694,283
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23,056,753
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22,232,082
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Effect of dilutive securities:
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Series B Warrants
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74,278
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-
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-
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-
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Weighted-average shares used in per share computation - diluted
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23,166,744
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22,694,283
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23,056,753
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22,232,082
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Net income per share attributable to CAI common stockholders:
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Basic
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$
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0.003
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$
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(0.013)
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$
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(0.006)
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$
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(0.042)
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Diluted
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$
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0.003
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$
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(0.013)
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$
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(0.006)
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$
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(0.042)
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The calculation of diluted earnings per share for the three months ended September 30, 2018 and 2017, excluded from the denominator 6,942,113 and 7,475,166 of shares, respectively, of common stock warrants because their effect would have been anti-dilutive. The calculation of diluted earnings per share for the nine months ended September 30, 2018 and 2017, excluded from the denominator 7,029,569 and 7,475,166 shares, respectively, of common stock warrants because their effect would have been anti-dilutive.
The assumed conversion of Series Q Preferred Stock into Common Stock will always be anti-dilutive based on the conversion rate of 1.05% of the Mentor share price. Therefore, the calculation of diluted earnings per share for the three months ended September 30, 2018 and 2017, excluded from the denominator 142,859 and 0 shares, respectively, of Series Q Preferred Stock because the conversion value would have been anti-dilutive. The calculation of diluted earnings per share for the nine months ended September 30, 2018 and 2017, excluded from the denominator 142,859 and 0 shares, respectively, of common stock warrants because their effect would have been anti-dilutive.
Note 26 – Subsequent events
On October 13, 2018, Partner II delivered equipment to Pueblo West in Colorado at a sales price of $442,114 which is being leased to Pueblo West under a financing lease.
On October 30, 2018, the Company entered into a Recovery Purchase Agreement with Electrum. Electrum is plaintiff in an ongoing legal action pending in the Supreme Court of British Columbia (“Litigation”). The Company will pay $100,000 towards ongoing legal costs of the Litigation in exchange for 10% of anything of value received by Electrum as a result of the Litigation (the “Legal Recovery”) plus an additional 1% of the Legal Recovery for each additional $10,000 of litigation costs paid by the Company above the initial $100,000 paid by the Company.
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Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2018 and 2017
Note 26 – Subsequent events (continued)
Also, on October 31, 2018, the Company entered into a separate Capital Agreement to provide $100,000 of capital to Electrum. On the earlier to occur of (i) November 1, 2021, and (ii) the final resolution of the Litigation , the Company will receive $100,000 from Electrum and 10% of the Legal Recovery. For each full month for the period between October 31, 2018 and the final resolution of the Litigation, Electrum shall either (i) pay interest to the Company in the amount of $833.34 or (ii) increase the Legal Recovery owed to the Company by 0.083334%.
On October 30, 2018, Mentor purchased an additional $50,000 convertible promissory note from NeuCourt maturing October 31, 2020. Principal and unpaid interest on the Note may be converted into a blend of shares of a to-be-created series of Preferred Stock and Common Stock of NeuCourt (i) on closing of a future financing round of at least $750,000, (ii) on the election of NeuCourt on maturity of the Note, or (iii) on election of Mentor following NeuCourt’s election to prepay the Note.
On November 8, 2018, the Company received payment of $27,561 from NeuCourt in satisfaction of the $25,000 principal and accrued interest of $2,561 on the November 8, 2016 convertible note receivable which was subsequently cancelled.
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