UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2020

 

OR

 

[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______________ to __________________

 

Commission file number 000-55323

 

Mentor Capital, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

77-0395098

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

511 Fourteenth Street, Suite A-2, A-4, A-6, Ramona, CA 92065

(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code (760) 788-4700

 

Securities registered pursuant to Section 12(b) of the Act: N/A

 

 

 

 

 

 

Title of each class to be so registered

 

Trading Symbols (s)

 

Name of each exchange on which

each class is to be registered

 

Securities registered pursuant to section 12(g) of the Act:

 

Common Stock

(Title of class)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [   ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes [X] No [   ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

[   ]

 

Accelerated filer

[   ]

Non-accelerated filer

[   ]

 

Smaller reporting company

[X]

 

 

 

Emerging growth company

[   ]


1


 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [   ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [   ] No [X]

 

At May 4, 2020, there were 22,850,947 shares of Mentor Capital, Inc.’s common stock outstanding and 11 shares of Series Q Preferred Stock outstanding.


2


 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This report contains “forward-looking statements,” as defined in the United States Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities and Exchange Act 1934, as amended. All statements contained in this report other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “seek,” “look,” “hope,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions. For example, statements in this Form 10-Q regarding potential future impact of the COVID-19 pandemic on the Company’s business and results of operations are forword-looking statements. Moreover, if we increase our investments in the cannabis-related industry or other industries we may be subject to heightened scrutiny and our portfolio companies may be subject to additional laws, rules, regulations, and statutes. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

 

You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.

 

All references in this Form 10-Q to the “Company,” “Mentor,” “we,” “us,” or “our” are to Mentor Capital, Inc.


3


 

MENTOR CAPITAL, INC.

 

TABLE OF CONTENTS

 

 

 

Page

PART I

FINANCIAL INFORMATION

 

Item 1.

Financial Statements:

5

 

Condensed Consolidated Balance Sheets (Unaudited) – March 31, 2020 and

December 31, 2019

6

 

Condensed Consolidated Income Statements (Unaudited) - Three Months

Ended March 31, 2020 and 2019

 

 

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) –

Three Months Ended March 31, 2020 and 2019

7

 

Condensed Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended

March 31, 2020 and 2019

8

 

Notes to Condensed Financial Statements

10

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

39

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

43

Item 4.

Controls and Procedures

43

 

 

 

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

44

Item 1A.

Risk Factors

45

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

49

Item 3.

Defaults Upon Senior Securities

50

Item 4.

Mine Safety Disclosures

50

Item 5.

Other Information

50

Item 6.

Exhibits

50

 

 

 

SIGNATURES

51

 


4


 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements 

 

Mentor Capital, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

 

 

 

March 31,

 

December 31,

 

 

2020

 

2019

ASSETS

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

Cash and cash equivalents

$

707,868

$

686,611

Investment in securities, at fair value

 

33,078

 

-

Accounts receivable, net

 

444,930

 

521,605

Lease equipment held for sale

 

40,000

 

-

Net finance leases receivable, current portion

 

63,804

 

62,145

Net finance leases receivable-non-performing

 

-

 

269,000

Investment in accounts receivable, current portion, net of discount

 

117,000

 

4,000

Convertible notes receivable, current portion

 

53,578

 

52,930

Prepaid expenses and other current assets

 

45,480

 

59,065

Employee advances and other receivable

 

3,753

 

4,421

 

 

 

 

 

Total current assets

 

1,509,491

 

1,659,777

 

 

 

 

 

Property and equipment

 

 

 

 

Property and equipment

 

156,492

 

153,163

Accumulated depreciation and amortization

 

(125,384)

 

(121,542)

 

 

 

 

 

Property and equipment, net

 

31,108

 

31,621

 

 

 

 

 

Other assets

 

 

 

 

Operating lease right-of-use assets

 

269,160

 

324,408

Finance lease right-of-use assets

 

246,083

 

169,692

Investment in account receivable, net of discount and current portion

 

282,857

 

381,512

Net finance leases receivable, net of current portion

 

364,457

 

382,727

Convertible notes receivable, net of current portion

 

25,500

 

25,191

Contractual interest in legal recovery

 

396,912

 

346,195

Deposits

 

9,575

 

9,575

Long term investments

 

204,528

 

209,697

Goodwill

 

1,426,182

 

1,426,182

 

 

 

 

 

Total other assets

 

3,225,254

 

3,275,179

 

 

 

 

 

Total assets

$

4,765,853

$

4,966,577

 

See accompanying Notes to Financial Statements


5


 

 

Mentor Capital, Inc.

Condensed Consolidated Balance Sheets (Unaudited, Continued)

 

 

 

March 31,

 

December 31,

 

 

2020

 

2019

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

Accounts payable

$

36,712

$

74,120

Accrued expenses

 

299,003

 

217,764

Related party payable

 

-

 

27,472

Deferred revenue

 

21,047

 

22,653

Finance lease liability, current portion

 

57,895

 

41,675

Operating lease liability, current portion

 

171,306

 

184,436

Long term debt, current portion

 

17,656

 

24,017

 

 

 

 

 

Total current liabilities

 

603,619

 

592,137

 

 

 

 

 

Long-term liabilities

 

 

 

 

Accrued salary, retirement and incentive fee - related party

 

1,115,502

 

1,108,438

Finance lease liability, net of current portion

 

166,016

 

112,418

Operating lease liability, net of current portion

 

101,989

 

140,900

 

 

 

 

 

Total long-term liabilities

 

1,383,507

 

1,361,756

 

 

 

 

 

Total liabilities

 

1,987,126

 

1,953,893

 

 

 

 

 

Commitments and Contingencies

 

-

 

-

 

 

 

 

 

Shareholders' equity

 

 

 

 

Preferred stock, $0.0001 par value, 5,000,000 shares

 

 

 

 

authorized; 11 and 11 shares issued and outstanding

 

 

 

 

at March 31, 2020 and December 31, 2019 *

 

-

 

-

Common stock, $0.0001 par value, 75,000,000 shares

 

 

 

 

authorized; 22,850,947 and 22,850,947 shares issued

 

 

 

 

and outstanding at March 31, 2020 and December 31, 2019

 

2,285

 

2,285

Additional paid in capital

 

13,071,655

 

13,071,655

Accumulated deficit

 

(10,122,976)

 

(9,875,206)

Non-controlling interest

 

(172,237)

 

(186,050)

 

 

 

 

 

Total shareholders' equity

 

2,778,727

 

3,012,684

 

 

 

 

 

Total liabilities and shareholders' equity

$

4,765,853

$

4,966,577

 

 

 

 

 

* Par value is less than $0.01.

 

 

 

 

 

See accompanying Notes to Financial Statements


6


 

 

Mentor Capital, Inc.

Condensed Consolidated Income Statements (Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

2020

 

2019

Revenue

 

 

 

 

Service fees

$

1,136,924

$

955,906

Lease equipment sales

 

-

 

74,889

Finance lease revenue

 

12,538

 

36,890

Consulting revenue

 

-

 

8,310

 

 

 

 

 

Total revenue

 

1,149,462

 

1,075,995

 

 

 

 

 

Cost of sales

 

764,360

 

705,621

 

 

 

 

 

Gross profit

 

385,102

 

370,374

 

 

 

 

 

Selling, general and administrative expenses

 

621,825

 

1,226,618

 

 

 

 

 

Operating income (loss)

 

(236,723)

 

(856,244)

 

 

 

 

 

Other income and (expense)

 

 

 

 

Interest income

 

19,403

 

42,580

Gain (loss) on investments

 

(10,206)

 

(1,569,881)

Interest expense

 

(7,337)

 

(4,523)

Other income (expense)

 

12,084

 

-

 

 

 

 

 

Total other income and (expense)

 

13,944

 

(1,531,824)

 

 

 

 

 

Income (loss) before provision for income taxes

 

(222,779)

 

(2,388,068)

 

 

 

 

 

Provision for income taxes

 

11,178

 

16,800

 

 

 

 

 

Net income (loss)

 

(233,957)

 

(2,404,868)

 

 

 

 

 

Gain (loss) attributable to non-controlling interest

 

13,813

 

1,727

 

 

 

 

 

Net income (loss) attributable to Mentor

$

(247,770)

$

(2,406,595)

 

 

 

 

 

Basic and diluted net income (loss) per Mentor common share:

 

 

 

 

Basic and diluted

$

(0.011)

$

(0.104)

 

 

 

 

 

Weighted average number of shares of Mentor common stock

 

 

 

 

outstanding:

 

 

 

 

Basic and diluted

 

22,850,947

 

23,139,837

 

 

 

 

 

 

* The company recorded an operating loss; therefore the diluted EPS will not be calculated as the diluted EPS effect is anti-dilutive.

 

See accompanying Notes to Financial Statements


7


 

 

Mentor Capital, Inc.

Condensed Consolidated Statement of Shareholders’ Equity (Unaudited)

For the Three Months Ended March 31, 2020 and 2019

 

 

Controlling Interest

 

 

 

Preferred stock

Common stock

 

 

 

 

 

 

Shares

$0.0001

par*

Shares

$0.0001

par

Additional

paid in

capital

Accumulated

equity

(deficit)

Total

Non-

controlling

equity

(deficit)

Totals

 

 

 

 

 

 

 

 

 

 

Balances at

 

 

 

 

 

 

 

 

 

December 31, 2019

11

$       -

22,850,947

$ 2,285

$ 13,071,655

$ (9,875,206)

$3,198,734

$(186,050)

$ 3,012,684

 

 

 

 

 

 

 

 

 

 

Net income (loss)

-

-

-

-

-

(247,770)

(247,770)

13,813

(233,957)

 

 

 

 

 

 

 

 

 

 

Balance at

 

 

 

 

 

 

 

 

 

March 31, 2020

11

$       -

22,850,947

$ 2,285

$ 13,071,655

$ (10,122,976)

$2,950,964

$(172,237)

$ 2,778,727

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at

 

 

 

 

 

 

 

 

 

December 31, 2018

11

$       -

23,139,837

$ 2,314

$ 13,071,626

$ (6,438,316)

$6,635,624

$(201,784)

$ 6,433,840

 

 

 

 

 

 

 

 

 

 

Non-controlling

 

 

 

 

 

 

 

 

 

Distribution

-

-

-

-

-

-

-

(2,524)

(2,524)

 

 

 

 

 

 

 

 

 

 

Net income (loss)

-

-

-

-

-

(2,406,595)

(2,406,595)

1,727

(2,404,868)

 

 

 

 

 

 

 

 

 

 

Balances at

 

 

 

 

 

 

 

 

 

March 31, 2019

11

$       -

23,139,837

$ 2,314

$ 13,071,626

$ (8,844,911)

$4,229,029

$(202,581)

$ 4,026,448

 

 

 

 

 

 

 

 

 

 

 

*Par value of series Q preferred shares is less than $1.

 

See accompanying Notes to Financial Statements


8


 

 

Mentor Capital, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

 

 

For the Three Months Ended

 

 

Ended March 31,

 

 

2020

 

2019

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

Net income (loss)

$

(233,957)

$

(2,404,868)

Adjustments to reconcile net income (loss) to net

 

 

 

 

cash provided by (used by) operating activities:

 

 

 

 

Depreciation and amortization

 

3,842

 

10,952

Non-cash amortization of right of use asset

 

17,199

 

2,241

Bad debt expense

 

22,069

 

668,958

Amortization of discount on investment in account receivable

 

(18,345)

 

(19,998)

Increase in accrued investment interest income

 

(957)

 

(7,630)

(Gain) loss on investment in securities, at fair value

 

5,037

 

(71,930)

(Gain) loss on long-term investments

 

5,169

 

-

Impairment on G Farma notes receivable and investments

 

-

 

1,639,558

Decrease (increase) in operating assets

 

 

 

 

Accounts receivable - trade

 

61,575

 

(25,751)

Prepaid expenses and other current assets

 

13,585

 

32,048

Employee advances

 

668

 

(1,545)

Increase (decrease) in operating liabilities

 

 

 

 

Accounts payable

 

(37,408)

 

(191)

Accrued expenses

 

81,239

 

(96,389)

Deferred revenue

 

(1,606)

 

(10,693)

Accrued salary, retirement and benefits - related party

 

7,064

 

7,697

 

 

 

 

 

Net cash provided by (used by) operating activities

 

(74,826)

 

(277,541)

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

Purchase of investment securities

 

(38,115)

 

-

Proceeds from investment securities sold

 

-

 

249,222

Proceeds from convertible notes receivable

 

-

 

-

Cash advanced on notes receivable

 

-

 

(31,000)

Proceeds from notes receivable

 

-

 

7,298

Deposits on equipment to be leased

 

-

 

(18,153)

Investment in direct financing leases

 

-

 

(78,650)

Proceeds from finance lease receivable

 

238,642

 

62,864

Purchase contractual interest in legal recovery

 

(50,717)

 

(100,000)

Purchases of property and equipment

 

(3,329)

 

(8,159)

Down payments on right of use assets

 

(9,604)

 

-

Proceeds from investment in receivable

 

4,000

 

117,000

 

 

 

 

 

Net cash provided by (used by) investing activities

 

140,877

 

200,422

 

See accompanying Notes to Financial Statements


9


 

 

Mentor Capital, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited, Continued)

 

 

 

For the Three Months Ended

 

 

Ended March 31,

 

 

2020

 

2019

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

Payments on related party payable

 

(27,472)

 

(5,440)

Payments on long-term debt

 

(6,361)

 

(14,586)

Payments on finance lease liability

 

(10,961)

 

(17,843)

Non-controlling interest distribution

 

-

 

(2,524)

 

 

 

 

 

Net cash provided by (used by) financing activities

 

(44,794)

 

(40,393)

 

 

 

 

 

Net change in cash

 

21,257

 

(117,512)

 

 

 

 

 

Beginning cash

 

686,611

 

1,470,574

 

 

 

 

 

Ending cash

$

707,868

$

1,353,062

 

 

 

 

 

SUPPLEMENTARY INFORMATION:

 

 

 

 

Cash paid for interest

$

7,337

$

4,516

 

 

 

 

 

Cash paid for income taxes

$

4,800

$

8,620

 

 

 

 

 

NON-CASH INVESTING AND FINANCING TRANSACTIONS:

 

 

 

 

Right of use assets acquired through operating lease liability

$

-

$

483,937

 

 

 

 

 

Right of use assets acquired through finance lease liability

$

80,779

$

148,732

 

See accompanying Notes to Financial Statements


10


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

Note 1 - Nature of operations

 

Corporate Structure Overview

 

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 reorganization. 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 9, 2015, as OTCQB: MNTR and after August 6, 2018, under the trading symbol OTCQX: MNTR and after May 1, 2020 under the trading symbol OTCQB: MNTR. Due to market fluctuations, the Company’s market capitalization has been below $5 million for more than 30 consecutive calendar days and subsequent to quarter-end, on May 1, 2020, we began trading as OTCQB: MNTR.

 

In 2009, the Company began focusing its investing activities in leading-edge cancer companies. In 2012, in response to government limitations on reimbursement for 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 its next round of investments in the medical marijuana and cannabis sector. In March 2018, the Company sold its equity interest in its final remaining cancer investment. In late 2019, the Company expanded its target industry focus to potentially include energy, mining and minerals, technology, consumer products, management services, and manufacturing sectors with the goal of ensuring investment diversification.

 

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 that was first invested into in 2003.

 

On April 18, 2016, the Company formed Mentor IP, LLC (“MCIP”), a South Dakota limited liability company and wholly owned subsidiary of Mentor. MCIP was formed to hold interests related to patent rights obtained on April 4, 2016, when Mentor Capital, Inc. entered into that certain "Larson - Mentor Capital, Inc. Patent and License Fee Facility with Agreement Provisions for an -- 80% / 20% Domestic Economic Interest -- 50% / 50% Foreign Economic Interest" with R. L. Larson and Larson Capital, LLC (“MCIP Agreement”). Pursuant to the MCIP Agreement, MCIP obtained rights to an international patent application for foreign THC and CBD cannabis vape pens under the provisions of the Patent Cooperation Treaty of 1970, as amended. R. L. Larson continues its efforts to obtain exclusive licensing rights in the United States for THC and CBD cannabis vape pens for various THC and CBD percentage ranges and concentrations. Patent application national phase maintenance fees were expensed when paid and there were no assets related to MCIP on the consolidated financial statements at March 31, 2020 and December 31, 2019. On January 21, 2020, the United States Patent and Trademark Office granted a Notice of Allowance for the United States patent application and subsequent to quarter-end, on May 5, 2020, the United States patent was issued, see Note 22. On March 23, 2020 MCIP applied for expedited prosecution with the Canadian Intellectual Property Office under the Patent Cooperation Treaty Patent Prosecution Highway Program based on the claims allowed in the corresponding United States patent application.

 

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%.


11


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

Note 1 - Nature of operations (continued)

 

The Company has a membership equity interest in Electrum Partners, LLC (“Electrum”) which is carried at cost of $194,028 and $194,028 at March 31, 2020 and December 31, 2019. On January 28, 2019, as part of a Second Capital Agreement between Mentor and Electrum (described in Note 10), Mentor was granted an option to convert its 6,198 membership interests in Electrum into a cash payment of $194,028 plus an additional 19.4% of anything of value received by Electrum as a result of the pending litigation in British Columbia (see below).

 

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. In 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 expanded the Lessee under the agreement to include G FarmaLabs Limited, and G FarmaLabs DHS, LLC, (collectively referred to as “G Farma Lease Entities”). The finance leases resulting from this investment have been impaired by $771,970 and $765,001 at March 31, 2020 and December 31, 2019, respectively, due to circumstances further described in Note 9.

 

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. 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, a Colorado limited liability company (“Pueblo West”) under a Master Equipment Lease Agreement dated February 11, 2018. On March 12, 2019, Mentor agreed to use Partner II earnings of $61,368 to facilitate the purchase of additional manufacturing equipment to Pueblo West under a Second Amendment to the lease, see Note 9.

 

On February 20, 2018, the Company formed Mentor Partner III, LLC (“Partner III”), a California limited liability company, as a wholly owned subsidiary of Mentor for the purpose of acquisition and investing. Partner III has had no activity since its inception.

 

On February 28, 2018, the Company formed Mentor Partner IV, LLC (“Partner IV”), a California limited liability company, as a wholly owned subsidiary of Mentor for the purpose of acquisition and investing. Partner IV has had no activity since its inception.

 

On September 6, 2018, the Company entered into an Equity Purchase and Issuance Agreement with G FarmaLabs Limited, G FarmaLabs DHS, LLC, GFBrands, Inc., Finka Distribution, Inc., and G FarmaLabs, WA, LLC under which Mentor was supposed to receive equity interests in the G Farma Equity Entities and their affiliates (together the “G Farma Equity Entities”) equal to 3.75% of the G Farma Equity Entities interests (See Note 8). On March 4, 2019, Addendum VIII increased the G Farma Equity Entities’ equity interest to which Mentor is immediately entitled to 3.843%, and added Goya Ventures, LLC as a G Farma Equity Entity. We are now in litigation with these entities. See Note 20.

 

On October 30, 2018, the Company entered into a Recovery Purchase Agreement with Electrum. Electrum is the plaintiff in an ongoing legal action pending in the Supreme Court of British Columbia (“Litigation”). As described further in Note 10, Mentor provided capital for payment of Litigation costs in the amount of $196,912 and $146,195 as of March 31, 2020 and December 31, 2019, respectively. Subsequent to quarter-end, on April 30, 2020, $15,383 of Mentor’s funds were returned to Mentor from the attorney representing Electrum. After repayment to Mentor of all funds invested for payment of Litigation costs, Mentor will receive 18% of anything of value received by Electrum as a result of the Litigation (“Recovery”), after first receiving reimbursement of the Litigation costs. On October 31, 2018, Mentor entered into a secured Capital Agreement with Electrum and invested an additional $100,000 of capital in Electrum. Under the Capital Agreement, on the payment date, Electrum will pay to Mentor the sum of (i) $100,000, (ii) ten percent (10%) of the Recovery, and (iii) 0.083334% of the Recovery for each full month from October 31, 2018 to the payment date for each full month that $833 is not paid to Mentor. The payment date is the earlier of November 1, 2021, or the final resolution of the Litigation. On January 28, 2019, the Company entered into a second secured Capital Agreement with Electrum and invested an additional $100,000 of capital in Electrum with payment terms similar to the October 31, 2018 Capital Agreement. As part of the January 28, 2019 Capital Agreement Mentor was granted an option to convert its 6,198 membership interests in Electrum into a cash payment of $194,027 plus an additional 19.4% of the Recovery.

 

On December 21, 2018, Mentor paid $10,000 to purchase 500,000 shares of NeuCourt, Inc. common stock, representing approximately 6.2% of NeuCourt’s issued and outstanding common stock.


12


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

Note 1 - Nature of operations (continued)

 

On March 14, 2019, the Company was notified by G Farma that, on February 22, 2019, the City of Corona Building Department closed access to G Farma’s corporate location and posted a notice preventing entry to the facility. The notice cited unpermitted modifications to electrical, mechanical and plumbing, including all undetermined building modifications, as the reason for closure.

 

On April 24, 2019, the Company was informed that certain G Farma assets at G Farma’s corporate location, including equipment leased to G Farma by Mentor Partner I valued at approximately $427,804, were impounded by the City of Corona on or around February 22, 2019. This event significantly impacted G Farma’s financial position and its ability to make payments under the finance leases receivable and notes receivable due the Company. See Notes 8, 9, and 10. In March 2020, we discovered that an additional component valued at $36,594 was missing from the equipment we recovered but we are uncertain whether this was taken by the Corona Police.

 

G Farma has not made scheduled payments on the finance lease receivable or the notes receivable since February 19, 2019 and Company management feels it is unlikely we will fully recover amounts due us. Based on our analysis of current conditions, we recorded a bad debt allowance of $765,001 on the finance lease receivable, as of December 31, 2019, and increased the allowance by $6,969 in the quarter ended March 31, 2020, see Note 9. In January 2020, the Company repossessed leased equipment under G Farma’s control and in March 2020, the Company sold equipment with a cost of $495,967 to the highest offeror for $240,000, however, because a component of the equipment was reported missing, the Company refunded $17,969 to the purchasing party. At March 31, 2020, remaining repossessed equipment is reported as equipment held for sale in the condensed consolidated balance at an estimated net realizable value of $40,000.

 

At December 31, 2019 we fully impaired G Farma notes receivable, and the contractual interest in G Farma’s legal recovery, see Note 8. At December 31, 2019, we fully impaired G Farma notes receivable of $1,045,051, accrued interest of $28,680, and our investment in the G Farma contractual interest in legal recovery of $600,002. The Company’s equity investment in G Farma Entities, previously valued at $41,600, has also been impaired and reduced to $0, at December 31, 2019, see Notes 8 and 10.

 

The Company’s sale of 288,890 shares of its Common Stock to G Farma in exchange for investment in the G Farma contractual interest in legal recovery was rescinded on October 3, 2019 due to a complete failure of consideration and the Company recorded this as cancellation of equity at December 31, 2019, returning the Company to its original position, as if the shares had not been issued. On March 6, 2020, the shares were cancelled and returned to unissued shares by the Company’s stock transfer agent.

 

On May 28, 2019, Mentor Capital, Inc. and Mentor Partner I, LLC filed a complaint against the G Farma Entities and three guarantors to the G Farma agreements, described herein and in Notes 8, 9, and 10, in the Superior Court of California in the County of Marin. The Company is primarily seeking monetary damages for breach of the G Farma agreements including promissory notes, leases, and other agreements, as well as actions for an injunction to recover leased property, to recover collateral under a security agreement, and to collect from guarantors on the agreements, among other things. Mentor intends to vigorously pursue this matter; however, collection is uncertain at this time. On January 22, 2020, the Court granted the Company’s motion for writ of possession and preliminary injunction prohibiting defendants from retaining control of or selling leased property. On January 31, 2020, all remaining equipment leased to G Farma by Mentor Partner I which was not impounded by the Corona Police was repossessed by the Company and moved to storage under the Company’s control and on March 5, 2020, the Company sold a portion of the recovered equipment, see Note 9. Sale of remaining equipment is planned for second quarter of 2020 and will be auctioned or sold to the highest bidder or offeror. The Company will try to recover as much of its cost in the equipment as possible given that it has never been used.


13


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

Note 2 - Summary of significant accounting policies

 

Condensed consolidated financial statements

 

The unaudited condensed consolidated financial statements of the Company for the three month period ended March 31, 2020 and 2019 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-K. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2019 was derived from the audited financial statements included in the Company's financial statements as of and for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 25, 2020. These financial statements should be read in conjunction with that report.

 

Basis of presentation

 

The accompanying consolidated financial statements and related notes include the activity of subsidiaries in which a controlling financial interest is owned. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Significant intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform with current period presentation.

 

Impact Related to COVID-19 Pandemic

 

The effect of the novel coronavirus pandemic (“COVID-19”) has significantly impacted the United States and the global economy. The COVID-19 pandemic and the measures taken by many countries in response have adversely affected and could in the future materially adversely impact the Company’s business, results of operations, financial condition, and stock price. The ongoing worldwide economic situation, future weakness in the credit markets and significant liquidity problems for the financial services industry may impact our financial condition in a number of ways. For example, our current or potential customers, or the current or potential customers of our partners or affiliates, may delay or decrease spending with us, or may not pay us, or may delay paying us for previously purchased products and services. Also, we, or our partners or affiliates, may have difficulties in securing additional financing. Additionally, our legal recovery efforts may be hindered due to the closure of the courts in California and British Columbia, which may cause COVID-19-related scheduling delays, hindering our legal recovery from the G Farma entities and delaying the receipt of the Company’s interest in the Electrum Partners, LLC legal recovery, respectively.

 

Public health efforts to mitigate the impact of the pandemic include government actions such as travel restrictions, limitations on public gatherings, shelter in place orders and mandatory closures. These actions could impact WCI’s client businesses’ ability and speed of collecting their tenant rent payments. We do not expect this to significantly reduce demand for WCI services because WCI helps lower monthly service costs paid by its client properties. However, WCI’s clients will likely experience a delay in collecting rent from tenants, which in turn is expected to cause slower payments to WCI and possible discontinued service and uncollectible accounts receivable. WCI revenue in the first quarter of 2020 increased by 18.9%, as compared to the same period in 2019 and any impact of COVID-19 for the first quarter of 2020 is estimated to be immaterial. We will closely monitor our customer accounts and continue to assess the impact on collection of accounts receivable as we collect more information.

 

In compliance with California Governor Gavin Newsom’s Executive, Order N-33-20 dated March 19, 2020, Mentor required its employees to work remotely effective March 20, 2020. According to the Critical Infrastructure Standards released by the Cybersecurity and Infrastructure Security Agency on March 18, 2020, “Financial Services Sector” businesses, like Mentor, are considered “essential businesses.” The financial nature of Mentor’s operations, which consist of oversight of our portfolio companies, accounting, compliance, investor relations, and sales, Mentor’s day to day operations are not substantially hindered by telework. We anticipate that current cash resources will be sufficient for us to execute our business plan for the next 13 months. The ultimate impact of COVID-19 on our business, results of operations, financial condition and cash flows is dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time.


14


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

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, 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. We also have a small investment in an aerospace and defense corporation that is included in our corporate operations.

 

Use of estimates

 

The preparation of our condensed 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 investments, goodwill, amortization periods, accrued expenses, and recoverability of the Company’s net deferred tax assets and any related valuation allowance.

 

Although the Company regularly assesses these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results may differ from management’s estimates if past experience or other assumptions do not turn out to be substantially accurate.

 

Recent Accounting Standards

 

From time to time, the FASB or other standards setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standard Codifications (“ASCs”) are communicated through 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.

 

Intangibles-Goodwill and Other – As of January 1, 2020, we adopted ASU No. 2017-04, Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment (ASU 2017-04), which simplifies how an entity is required to test goodwill for impairment. ASU 2017-04 requires that a goodwill impairment be measured by the amount by which a reporting unit’s carrying value exceeds its fair value, with the amount of impairment not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for goodwill impairment tests in fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, and must be adopted on a prospective basis. We adopted the new standard on January 1, 2020. The adoption of this ASU did not have an impact on our financial statements.

 

Fair Value Measurement – As of January 1, 2020, we adopted ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13), which eliminates, adds, and modifies certain disclosure requirements for fair value measurements. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019. We adopted the new standard on January 1, 2020. The adoption of this ASU did not have an impact on our financial statements.


15


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

Note 2 - Summary of significant accounting policies (continued)

 

Recent Accounting Standards (continued)

 

Newly Issued Not Yet Effective Accounting Standards

 

Credit Losses - Measurement of Credit Losses on Financial Instruments – Issued in June 2016, ASU 2016-13, “Financial Instruments - Credit Losses Measurement of Credit Losses on Financial Instruments,” replaces the current incurred loss impairment method with a method that reflects expected credit losses. We plan to adopt the new standard on its revised effective date for of our fiscal year beginning after December 15, 2022, by recognizing the cumulative effect of initially applying the new standard as an adjustment to the opening balance of Retained earnings. The Company is currently evaluating the effect this ASU will have on its consolidated financial statements and related disclosures.

 

Simplifying the Accounting for Income Taxes – Issued in December 2019, ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which is designed to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. ASU No. 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years; this ASU allows for early adoption in any interim period after issuance of the update. The company is currently assessing the impact this ASU will have on its consolidated financial statements.

 

Concentrations of cash

 

The Company maintains its cash and cash equivalents in bank deposit accounts which at times may exceed federally insured limits. The Company has not experienced any losses in such accounts nor does the Company believe it is exposed to any significant credit risk on cash and cash equivalents.

 

Cash and cash equivalents

 

The Company considers all short-term debt securities purchased with a maturity of three months or less to be cash equivalents. The Company had no short-term debt securities as of March 31, 2020 and December 31, 2019.

 

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 quarterly 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 March 31, 2020 and December 31, 2019, the Company has recorded an allowance in the amount of $50,353 and $38,984, respectively.

 

Investments in securities, at fair value

 

Investment in securities consists of debt and equity securities reported at fair value with any change in fair value reported in net income.

 

Long term investments

 

The Company’s investments in entities where it is a minority owner and does not have the ability to exercise significant influence are recorded at fair value if readily determinable. If the fair market value is not readily determinable, the investment is recorded under the cost method. Under this method, the Company’s share of the earnings or losses of such investee company is not included in the Company’s financial statements. The Company reviews the carrying value of its long-term investments for impairment each reporting period.


16


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

Note 2 - Summary of significant accounting policies (continued)

 

The Company has two convertible notes receivable from NeuCourt, Inc. which are recorded at the aggregate principal face amount of $75,000 plus accrued interest of $4,078 and $3,121 at March 31, 2020 and December 31, 2019, as presented in Note 7. The notes bear 5% interest. One $25,000 principal face amount note, which matured November 22, 2019, was extended to November 22, 2021. A second $50,000 principal face amount note matures on October 31, 2020. No payments are required prior to maturity, however, at the time the $25,000 note was extended, accrued interest through November 4, 2019 was paid to Mentor. 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 an aggregate of 292,746 and 289,207 Conversion Shares at March 31, 2020 and December 31, 2019, respectively. In the event of a Corporate Transaction prior to repayment or conversion of the Note, the Company shall receive back two times the outstanding principal of each note, plus all accrued unpaid interest. NeuCourt is a Delaware corporation that is developing a technology that is expected to be useful in the dispute resolution industry.

 

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.

 

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 the 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. As discussed in Note 9, impairment of the finance lease receivable from G Farma was $793,649 and $786,680 at March 31, 2020 and December 31, 2019, respectively, based on Management’s estimate of amounts we expect to recover.


17


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

Note 2 - Summary of significant accounting policies (continued)

 

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 analyzes 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.

 

As described in Note 1, on March 14, 2019, the Company was notified by G Farma that the City of Corona Building Department closed access to G Farma’s corporate location and posted a notice preventing entry to the facility. The Building Department notice stated that G Farma had modified electric and gas lines. On April 24, 2019, the Company learned that certain G Farma assets at their corporate location, including equipment leased to G Farma by Mentor Partner I valued at approximately $427,804, had been impounded by the City of Corona. In March 2020, we discovered that an additional component valued at $36,594 was missing from the equipment we recovered. This event significantly impacted G Farma’s financial position and its ability to make payments under the finance lease receivable. G Farma has not made a lease payment since February 19, 2019.

 

On May 28, 2019, the Company and Mentor Partner I, LLC filed a complaint against the G Farma Entities and three guarantors to the G Farma agreements, described in Notes 1, 8, 9, and 10, in the California Superior Court in and for the County of Marin. The Company is primarily seeking monetary damages for breach of the G Farma agreements including promissory notes, leases, and other agreements, as well as actions for an injunction to recover leased property, to recover collateral under a security agreement, and to collect from guarantors on the agreements. Mentor intends to vigorously pursue this matter; however, collection is uncertain at this time, see Note 20. On January 22, 2020, the Court granted the Company’s motion for a writ of possession and preliminary injunction prohibiting defendants from retaining control of or selling leased equipment. On January 31, 2020, all remaining equipment leased by Mentor Partner I to G Farma, which was not impounded by the Corona Police, was repossessed by the Company and moved to storage under the Company’s control and, on March 5, 2020, a portion of the recovered equipment was sold, See Note 9.

 

Property and equipment

 

Property and equipment is recorded at cost less accumulated depreciation. Depreciation is computed on the declining balance method over the estimated useful lives of various classes of property. The estimated lives of the property and equipment are generally as follows: computer equipment, three to five years; furniture and equipment, seven years; and vehicles and trailers, four to five years. Depreciation on vehicles used by WCI to service its customers is included in cost of goods sold in the condensed consolidated income statements. All other depreciation is included in selling, general and administrative costs in the condensed consolidated income statements.

 

Expenditures for renewals and betterments are capitalized, and maintenance and repairs are charged to expense. Gains and losses from the retirement or disposition of property and equipment are included in operations in the period incurred.


18


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

Note 2 - Summary of significant accounting policies (continued)

 

Lessee Leases

 

We determine whether an arrangement is a lease at inception. Lessee leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: the lease transfers ownership of the asset by the end of the lease term, the lease contains an option to purchase the asset that is reasonably certain to be exercised, the lease term is for a major part of the remaining useful life of the asset or the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any one of these criteria. Our operating leases are comprised of office space leases and office equipment. Fleet vehicle leases entered into prior to January 1, 2019, under ASC 840 guidelines, are classified as operating leases. Fleet vehicle leases entered into beginning January 1, 2019, under ASC 842 guidelines, are classified as finance leases. Finance leases may be extended on a month to month basis depending on vehicle mileage and condition of the vehicle. Estimates of extension periods are included in our analysis of lease terms at inception of the lease. Our leases have remaining lease terms, including estimated extensions, of 1 month to 58 months. Our fleet finance leases contain a residual value guarantee which, based on past lease experience, is unlikely to result in a liability at the end of the lease. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

 

Costs associated with operating lease assets are recognized on a straight-line basis, over the term of the lease, within cost of goods sold for vehicles used in direct servicing of WCI customers and in operating expenses for costs associated with all other operating leases. Finance lease assets are amortized within cost of goods sold for vehicles used in direct servicing of WCI customers and within operating expenses for all other finance lease assets, on a straight-line basis over the shorter of the estimated useful lives of the assets or the lease term, including estimated term extensions. The interest component of a finance lease is included in interest expense and recognized using the effective interest method over the lease term. We have agreements that contain both lease and non-lease components. For vehicle fleet operating leases, we account for lease components together with non-lease components (e.g., maintenance fees).

 

Long-lived assets impairment assessment

 

In accordance with the FASB Accounting Standards Codification (“ASC”) 350, “Intangibles - Goodwill and Other,” 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.

 

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 March 31, 2020 and December 31, 2019.


19


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

Note 2 - Summary of significant accounting policies (continued)

 

Revenue recognition

 

The Company recognizes revenue in accordance with ASC 606, “Revenue from Contracts with Customers,” and FASB ASC Topic 842, “Leases.” Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to government authorities.

 

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 receivable, 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 the inception of the applicable lease. At lease inception we capitalize the total minimum finance lease payments receivable from the lessee, the estimated unguaranteed residual value of the equipment at lease termination, if any, and the initial direct costs related to the lease, less unearned income. Unearned income is recognized as finance income over the term of the lease using the effective interest rate method.

 

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 income (loss) per share in accordance with ASC 260, “Earnings Per Share”. Under the provisions of ASC 260, basic net loss per share includes no dilution and is computed by dividing the net loss available to common stockholders for the period by the weighted average number of shares of Common Stock outstanding during the period. Diluted net income (loss) per share takes into consideration shares of Common Stock outstanding (computed under basic net loss per share) and potentially dilutive securities that are not anti-dilutive.

 

Outstanding warrants that had no effect on the computation of dilutive weighted average number of shares outstanding as their effect would be anti-dilutive were approximately 7,000,000 and 7,000,000 as of March 31, 2020 and December 31, 2019, respectively. There were 87,456 and 87,456 potentially dilutive shares outstanding at March 31, 2020 and December 31, 2019, respectively.

 

Conversion of Series Q Preferred Stock into Common Stock would be anti-dilutive for the three months ended March 31, 2020 and 2019 and is not included in calculating the diluted weighted average number of shares outstanding.

 

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 of 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.


20


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

Note 2 - Summary of significant accounting policies (continued)

 

Income taxes (continued)

 

The Company did not recognize any interest or penalties for unrecognized tax provisions during the three months ended March 31, 2020 and 2019, nor were any interest or penalties accrued as of March 31, 2020 and December 31, 2019. To the extent the Company may accrue interest and penalties, it elects to recognize accrued interest and penalties related to unrecognized tax provisions 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 March 31, 2020 and 2019 were $1,673 and $3,035, respectively.

 

Fair value measurements

 

The Company applies ASC 820, “Fair Value Measurement,” 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 available-for-sale investment securities is based on quoted market prices in active markets.

 

The fair value of the investment in account receivable is based on the net present value of calculated interest and principal 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 is based on the net present value of calculated interest and principal payments less impairment, if any. The carrying value approximates fair value as interest rates charged are comparable to market rates for similar notes.

 

The fair value of long-term notes payable is based on the net present value of calculated interest and principal 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.


21


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

Note 3 - Prepaid expenses and other assets

 

Prepaid expenses and other assets consist of the following:

 

 

 

March 31,

2020

 

December 31,

2019

Prepaid health and vehicle insurance

$

17,089

$

5,867

Other prepaid costs

 

28,391

 

53,198

 

$

45,480

$

59,065

 

Note 4 – Investment in account receivable

 

On April 10, 2015, the Company entered into an exchange agreement whereby the Company received an investment in an account receivable with annual installment payments of $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 757,059 Series D warrants at $1.60 per share plus a $0.10 per warrant redemption price.

 

The Company valued the transaction based on the market value of Company common shares exchanged in the transaction, resulting in a 17.87% discount from the face value of the account receivable. The discount is being amortized monthly to interest over the 11-year term of the agreement. The investment in account receivable is supported by an exchange agreement and consisted of the following:

 

 

 

March 31,

2020

 

December 31,

2019

Face value

$

702,000

$

706,000

Unamortized discount

 

(302,143)

 

(320,488)

Net balance

 

399,857

 

385,512

Current portion

 

(117,000)

 

(4,000)

Long term portion

$

282,857

$

381,512

 

For the three months ended March 31, 2020 and 2019, $18,345 and $19,999 of discount amortization is included in interest income, respectively.

 

Note 5 - Property and equipment

 

Property and equipment is comprised of the following:

 

 

 

March 31,

2020

 

December 31,

2019

Computers

$

37,271

$

37,271

Furniture and fixtures

 

22,075

 

22,075

Machinery and vehicles

 

97,146

 

93,817

 

 

156,492

 

153,163

Accumulated depreciation and amortization

 

(125,384)

 

(121,542)

 

 

 

 

 

Net Property and equipment

$

31,108

$

31,621

 

Depreciation and amortization expense was $3,842 and $5,428 for the three months ended March 31, 2020 and 2019, respectively. Depreciation on WCI vehicles used to service customer accounts is included in cost of goods sold and all other depreciation is included in selling, general and administrative expenses in the condensed consolidated income statements.


22


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

Note 6 – Lessee Leases

 

Our operating leases are comprised of office space and office equipment leases. Fleet leases entered into prior to January 1, 2019, under ASC 840 guidelines, are classified as operating leases. Fleet leases entered into beginning January 1, 2019, under ASC 842 guidelines, are classified as finance leases.

 

Gross right of use assets recorded under finance leases related to WCI vehicle fleet leases were $296,716 and $206,332 as of March 31, 2020 and December 31, 2019, respectively. Accumulated amortization associated with finance leases was $50,633 and $36,640 as of March 31, 2020 and December 31, 2019, respectively.

 

Lease costs recognized in our consolidated statements of operations is summarized as follows:

 

 

 

Three Months Ended

 

 

March 31,

2020

 

March 31,

2019

Operating lease cost included in cost of goods

$

45,956

$

50,924

Operating lease cost included in operating costs

 

14,274

 

19,629

Total operating lease cost (1)

 

60,230

 

70,553

Finance lease cost, included in cost of goods:

 

 

 

 

Amortization of lease assets

 

13,993

 

5,367

Interest on lease liabilities

 

3,494

 

260

Total finance lease cost

 

17,487

 

5,627

Short-term lease cost

 

8,970

 

8,370

Total lease cost

$

86,687

$

84,550

 

(1)Right of use asset amortization under operating agreements was $45,896 and $42,216 for the three months ended March 31, 2020 and 2019, respectively.  

 

Other information about lease amounts recognized in our condensed consolidated financial statements is summarized as follows:

 

 

March 31,

2020

 

December 31,

2019

Weighted-average remaining lease term – operating leases

1.34 years

 

1.73 years

Weighted-average remaining lease term – finance leases

3.61 years

 

3.25 years

Weighted-average discount rate – operating leases

10.3%

 

10.2%

Weighted-average discount rate – finance leases

8.6%

 

9.0%

 

Finance lease liabilities were as follows:

 

 

 

March 31,

2020

 

December 31,

2019

Gross finance lease liabilities

$

267,203

$

208,641

Less: imputed interest

 

(43,292)

 

(54,548)

Present value of finance lease liabilities

 

223,911

 

154,093

Less: current portion

 

(57,895)

 

(41,675)

Long-term finance lease liabilities

$

166,016

$

112,418


23


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

Note 6 – Lessee Leases (continued)

 

Operating lease liabilities were as follows:

 

 

 

March 31,

2020

 

December 31,

2019

Gross operating lease liabilities

$

297,102

$

356,958

Less: imputed interest

 

(23,807)

 

(31,622)

Present value of operating lease liabilities

 

273,295

 

325,336

Less: current portion

 

(171,306)

 

(184,436)

Long-term operating lease liabilities

$

101,989

$

140,900

 

Note 7 – Convertible notes receivable

 

Convertible notes receivable consists of the following:

 

 

 

March 31,

2020

 

December

31, 2019

November 22, 2017, NeuCourt, Inc. convertible note receivable including accrued interest of $500 and $191 at March 31, 2020 and December 31, 2019, respectively. The note bears interest at 5% per annum, originally matured November 22, 2019, and was extended to mature November 22, 2021. Principal and accrued interest are due at maturity. At the time of extension, NeuCourt paid the Company $2,496 of interest accrued through November 4, 2019. 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. *

$

25,500

$

25,191

 

 

 

 

 

October 31, 2018, NeuCourt, Inc. convertible note receivable including accrued interest of $3,578 and $2,930 at March 31, 2020 and December 31, 2019, respectively. The note bears interest at 5% per annum and matures October 31, 2020. 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. *

 

53,578

 

52,930

 

 

 

 

 

Total convertible notes receivable

 

79,078

 

78,121

 

 

 

 

 

Less current portion

 

(53,578)

 

(52,930)

 

 

 

 

 

Long term portion

$

25,500

$

25,191

 

* The Conversion Price for each 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 November 22, 2017 Note would convert into 94,400 Conversion Shares and the October 31, 2018 Note would convert into 198,346 Conversion Shares at March 31, 2020. In the event of a Corporate Transaction prior to repayment or conversion of the Note, the Company shall receive back two times the outstanding principal on the Note, plus all accrued unpaid interest.


24


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

Note 8 - 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 bore interest at 7.42% per annum, with monthly payments beginning on April 15, 2017, and maturity on April 15, 2022. The two G Farma notes, as amended by subsequent addenda, are secured by all property, real and personal, tangible or intangible of G Farma and are guaranteed by GF Brands, Inc. and two majority shareholders of G Farma. Effective as of March 4, 2019, the Company and G Farma had executed eight addenda subsequent to the original agreement.

 

The latest addendum, Addendum VIII, was effective as of March 4, 2019. Addendum II through Addendum VIII increased the aggregate principal face amount of the working capital note to $990,000 and increased the monthly payments on the working capital note to $10,239 per month beginning March 15, 2019. G Farma has not made scheduled payments on the notes receivable since February 19, 2019.

 

On September 6, 2018, as a result of an Equity Purchase and Issuance Agreement, certain entities were obligated to deliver to Mentor equity interests equal to 3.75% of G Farma and its affiliates’ (“G Farma Equity Entities”) in exchange for Mentor 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. At December 31, 2018, Mentor had estimated the fair value of the 3.75% equity interest in the G Farma Equity Entities Mentor was supposed to receive, based on then licensed operations of the G Farma Equity Entities, at $41,600. On March 4, 2019, Addendum VIII increased the working capital note by $31,000 and the Company obtained from G Farma an obligation to issue an additional 0.093% interest in the G Farma Equity Entities, resulting in a total 3.843% equity interest in the G Farma Equity Entities and included the addition of Goya Ventures, LLC as a party to the Equity Purchase and Issuance Agreement. However, due to the uncertain financial position of the G Farma Entities, following the closure of its Corporate office and impoundment of certain Mentor assets leased to G Farma, described in Notes 1 and 10, the Company fully impaired its equity interests in G Farma Equity Entities and recorded a loss on investments of $41,600 in the quarter ended March 31, 2019.

 

In addition, on March 17, 2017, the Company entered into a Consulting Agreement with G Farma whereby the Company was to receive a monthly consulting fee in arrears of $1,400 per month. This monthly consulting fee was increased proportionately with Addendum II and Addenda IV through VII resulting in a required fee of $2,741 per month as of December 31, 2018. Addendum VIII increased the required consulting fee to $2,828, effective March 15, 2019; however consulting fees have not been remitted by G Farma since February 19, 2019 and recognition of consulting fee revenue was suspended, effective April 1, 2019. Consulting fee revenue was $0 and $8,310 for the three months ended March 31, 2020 and 2019, respectively.

 

As described in Note 1, on February 22, 2019, the City of Corona Building Department closed access to G Farma’s corporate location and posted a notice preventing entry to the facility; the Company was not informed by G Farma of this incident until March 14, 2019. The notice cited unpermitted modifications to electrical, mechanical and plumbing, including all undetermined building modifications, as the reason for closure. On April 24, 2019, the Company was notified that certain G Farma assets at the corporate location, including equipment leased to G Farma by Mentor Partner I valued at approximately $427,804, were impounded by the Corona Police. This event significantly impacted G Farma’s financial position and its ability to make future payments under the notes purchase agreements and the finance leases receivable, described in Note 9, due the Company. In March 2020, we discovered that an additional component valued at $36,594 was missing from the equipment we recovered but we are uncertain whether this was taken by the Corona Police.

 

G Farma has not made scheduled payments on the notes receivable or the G Farma finance lease receivable, described in Note 9, since February 19, 2019. All arrangements with G Farma, were placed on non-accrual basis effective April 1, 2019. Accrual of interest on notes receivable and finance leases, as well as consulting revenue, was suspended April 1, 2019.


25


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

Note 8 - Note purchase agreement and consulting agreement with G FarmaLabs Limited (continued)

 

Our investments in G Farma notes receivable were fully impaired in the first quarter of 2019. The Company recorded an impairment loss on notes receivable of $1,045,051, in the three months ended March 31, 2019, which is included in loss on investments in the condensed consolidated statement of income. On May 28, 2019, Mentor Capital, Inc. filed a complaint in the Superior Court of California in the County of Marin for, among other things, breach of contract against G Farma, its affiliates, and the guarantors of the various G Farma agreements, see Note 20.

 

Notes receivable from G Farma consists of the following:

 

 

 

March 31,

2020

 

December 31,

2019

Real estate note

$

111,009

$

111,009

Working capital note

 

934,042

 

934,042

Impairment recorded

 

(1,045,051)

 

(1,045,051)

Accrued interest

 

-

 

-

 

$

-

$

-

 

 

 

 

 

Note 9 – Finance leases receivable

 

Mentor Partner I

 

Partner I entered into a Master Equipment Lease Agreement with G FarmaLabs Limited and G FarmaLabs DHS, LLC (the “G Farma Lease Entities”) with guarantees by GFBrands, Inc., formerly known as G FarmaBrands, Inc, Ata Gonzalez and Nicole Gonzalez (collectively, the “G Farma Lease Guarantors”) dated January 16, 2018, and amended March 7, April 4, June 20, and September 7, 2018, and March 4, 2019. Partner I acquired and delivered manufacturing equipment as selected by G Farma Lease Entities under sales-type finance leases. Partner I did not report equipment sales revenue for either of the three months ended March 31, 2020 and 2019.

 

As discussed in Notes 1 and 8, on February 22, 2019, the City of Corona Building Department closed access to G Farma’s corporate location; the Company was not informed by G Farma of this incident until March 14, 2019. On April 24, 2019, the Company was informed that certain G Farma assets at its corporate location, including equipment leased to G Farma by Mentor Partner I under the Master Equipment Lease Agreement valued at approximately $427,804, was impounded by the Corona Police. This event severely impacted G Farma’s ability to pay amounts due the Company in the future and the G Farma lease receivable was put on non-accrual status effective April 1, 2019 and is classified as non-performing on the consolidated balance sheets at March 31, 2020 and December 31, 2019. In March 2020, we discovered that an additional component valued at $36,594 was missing from the equipment recovered by Mentor. Bad debt expense of $6,969 and $668,958 for the three months ended March 31, 2020 and 2019, respectively, is included in selling, general and administrative expenses in the consolidated income statement.

 

On May 28, 2019, Partner I and Mentor Capital, Inc. filed a complaint in the Superior Court of California in the County of Marin for, among other things, breach of contract against the G Farma Lease Entities and the G Farma Lease Guarantors. As of December 31, 2019, the G Farma Lease Entities had unauthorized possession of Mentor Partner I, LLC’s equipment valued at approximate $792,425 which was not seized by the Corona Police Department and are in default of their obligations under the Master Equipment Lease.

 

On January 22, 2020, the Court granted the Company’s motion for writ of possession and preliminary injunction prohibiting defendants from retaining control of or selling leased property and, on January 31, 2020, all remaining equipment leased to G Farma by Mentor Partner I which was not impounded by the Corona Police was repossessed by the Company and moved to storage under the Company’s control. On March 5, 2020, the Company sold a portion of the recovered equipment, with an original cost of $495,967, for $240,000, however, because a component of the equipment was reported missing, the Company refunded $17,969 to the purchasing party. The net sale proceeds of $222,031 was credited against the gross lease receivable at March 31, 2020. The remainder of repossessed equipment is classified as held for sale equipment in the condensed consolidated balance sheet at March 31, 2020 at an estimated net realizable value of $40,000. Remaining net lease payments receivable of $793,649 are fully reserved for at March 31, 2020 and we will continue to pursue collection from the G Farma Lease Entities and G Farma Lease Guarantors for collection on all amounts due that have not been recovered through the sale of assets.


26


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

Note 9 – Finance leases receivable (continued)

 

Net finance leases receivable, non-performing, consists of the following:

 

 

 

March 31,

2020

 

December 31,

2019

Gross minimum lease payments receivable

$

1,233,654

$

1,455,685

Less: unearned interest

 

(400,005)

 

(400,005)

Less: reserve for bad debt

 

(793,649)

 

(786,680)

Less: transfer to assets held for sale

 

(40,000)

 

-

Finance leases receivable

 

-

 

269,000

Less current portion

 

-

 

(269,000)

Long term portion

$

-

$

-

 

Mentor Partner II

 

Partner II entered into a Master Equipment Lease Agreement with Pueblo West, dated February 11, 2018 and amended November 28, 2018 and March 12, 2019. Partner II acquired and delivered manufacturing equipment as selected by Pueblo West under sales-type finance leases. Partner II recorded equipment sales revenue of $0 and $74,889 for the three months ended March 31, 2020 and 2019, respectively. At March 31, 2020, all Partner II leased equipment under finance leases receivable is located in Colorado.

 

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.

 

The Company issues a payment schedule upon inception of the lease. Revenue is recognized at the time equipment is delivered. Principal on lease payments received prior to delivery of equipment is recorded as a decrease in the finance lease receivable and interest received in advance is recorded as a liability under deferred revenue.

 

Performing net finance leases receivable consists of the following:

 

 

 

March 31,

2020

 

December 31,

2019

Gross minimum lease payments receivable

$

560,311

$

587,854

Accrued interest

 

2,385

 

2,463

Less: unearned interest

 

(134,435)

 

(145,445)

Finance leases receivable

 

428,261

 

444,872

Less current portion

 

(63,804)

 

(62,145)

Long term portion

$

364,457

$

382,727

 

Interest income recognized from Partner I finance leases for the three months ended March 31, 2020 and 2019, was $0 and $23,811, respectively.

 

Interest income recognized from Partner II finance leases for the three months ended March 31, 2020 and 2019, was $12,539 and $13,079, respectively.


27


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

Note 9 – Finance leases receivable (continued)

 

At March 31, 2020, minimum future payments receivable for performing finance leases receivable were as follows:

 

12 months ending March 31,

 

Total

2021

$

63,804

2022

 

70,896

2023

 

78,776

2024

 

87,532

2025

 

97,161

Thereafter

 

30,092

 

$

428,261

 

Note 10 - Contractual interests in legal recoveries

 

Interest in G FarmaLabs Limited 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 an aggregate purchase price of $100,000. The combined total purchase of $600,002 was 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).

 

G Farma’s civil forfeiture case in the Federal District Court for the Eastern District of California, a portion of which was one of the three ways in which the purchase price could be paid for the purchase of shares of Mentor Common Stock, was dismissed on April 12, 2018 and has no value. In the quarter ended March 31, 2019, the $600,002 contractual interest in G Farma’s legal recovery intended as consideration for payment of the shares of Company’s Common Stock was fully impaired due to the events discussed in Notes 1, 8, and 9, where the City of Corona Building Department closed access to G Farma’s corporate location and the Corona Police impounded certain G Farma assets. These events significantly impacted G Farma’s financial position and its ability to make payments under the notes receivable which negatively impacts option (ii) for the payment of the purchase price for the shares of Company’s Common Stock. Currently G Farma does not have an agreement to offer G Farma securities to other persons under purchase price payment option (iii), and any such securities would, at this point, likely have no value. G Farma defaulted on payment of the promissory notes leaving the Company with no means of collecting on the final alternative source of payment for the shares of common stock. On October 3, 2019, the Company rescinded the sale of an aggregate of 288,890 shares of its Common Stock to G Farma, issued at an aggregate purchase price of $600,002, due to a complete failure of consideration. The Company recognized the rescission of the Common Stock at par value on December 31, 2019. On March 6, 2020, the 288,890 shares of Common Stock were cancelled and returned to unissued shares by the Company’s stock transfer agent.

 

 


28


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

Note 10 - Contractual interests in legal recoveries (continued)

 

Interest in Electrum Partners, LLC legal recovery

 

Electrum is the plaintiff in that certain legal action captioned Electrum Partners, LLC, Plaintiff, and Aurora Cannabis Inc., Defendant, pending in the Supreme Court of British Columbia (“Litigation”). On October 23, 2018, Mentor entered into a Joint Prosecution Agreement among Mentor, Mentor’s corporate legal counsel, Electrum, and Electrum’s legal counsel.

 

On October 30, 2018, Mentor entered into a Recovery Purchase Agreement (“Recovery Agreement”) with Electrum under which Mentor purchased a portion of Electrum’s potential recovery in the Litigation. Mentor agreed to pay $100,000 of costs incurred in the Litigation, in consideration for ten percent (10%) of anything of value received by Electrum as a result of the Litigation (“Recovery”) in addition to repayment of its initial investment. As of March 31, 2020 and December 31, 2019, Mentor invested an additional $96,716 and $46,195, respectively, of capital in Electrum for payment of legal retainers and fees in consideration for an additional nine percent (9%) and four percent (4%), respectively, of the Recovery. At March 31, 2020 and December 31, 2019, the Recovery Agreement investment is reported in the condensed consolidated balance sheets at our cost of $196,912 and $146,195, respectively. This investment is subject to loss should Electrum not prevail in the Litigation. However Company management estimates that recovery is more likely than not, and no impairment has been recorded at March 31, 2020 and December 31, 2019. Subsequent to quarter-end, on April 30, 2020, $15,383 of Mentor’s funds were returned to the Company which decreased the additional consideration to $81,547 and decreased the amount of the Recovery to which Mentor is entitled to eighteen percent (18%), see Note 22.

 

On October 31, 2018, Mentor also entered into a secured Capital Agreement with Electrum under which Mentor invested an additional $100,000 of capital in Electrum. In consideration for Mentor’s investment, Electrum shall pay to Mentor, on the payment date, the sum of (i) $100,000, (ii) ten percent of the Recovery, and (iii) 0.083334% of the Recovery for each full month from October 31, 2018 to the payment date for each full month that $833 is not paid to Mentor. The payment date under the October 31, 2018 Capital Agreement is the earlier of November 1, 2021, or the final resolution of the Litigation. Payment is secured by all assets of Electrum. This investment is included at cost of $100,000 in Contractual interests in legal recoveries on the condensed consolidated balance sheets at March 31, 2020 and December 31, 2019.

 

On January 28, 2019, Mentor entered into a second secured Capital Agreement with Electrum. Under the second Capital Agreement, Mentor invested an additional $100,000 of capital in Electrum. In consideration for Mentor’s investment, Electrum shall pay to Mentor on the payment date the sum of (i) $100,000, (ii) ten percent (10%) of the Recovery, and (iii) the greater of (A) 0.083334% of the Recovery for each full month from the date hereof until the payment date if the Recovery occurs prior to the payment date, and (B) $833.34 for each full month from the date hereof until the payment date. The payment date is the earlier of November 1, 2021, and the final resolution of the Litigation. This investment is included at its $100,000 cost as part of the Contractual interests in legal recoveries on the condensed consolidated balance sheets at March 31, 2020 and December 31, 2019. In addition, the second Capital Agreement provides that Mentor may, at any time up to and including 90 days following the payment date, elect to convert its 6,198 membership interests in Electrum into a cash payment of $194,028 plus an additional 19.4% of the Recovery.

 

 


29


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

Note 11 - Concentration of credit risk

 

The Company had a significant portion of its assets invested in G Farma entities, which assets have now been impaired. These investments included the notes receivable and the intended 3.843% equity in G Farma Equity Entities described in Note 8, and the finance leases receivable described in Note 9. After the bad debt reserve described in Note 9 and the asset impairments described in Notes 8, 9, and 10, these assets represent 0% and 5% of the consolidated total assets of the Company at March 31, 2020 and December 31, 2019, respectively.

 

The Company closely monitors each investment 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.

 

The events described in Notes 1, 8, 9, and 10, led the Company to record a bad debt reserve against finance leases receivable of $793,649 and $786,680 at March 31, 2020 and December 31, 2019, respectively. Bad debt expense related to the finance leases receivable of $6,969 and $668,958, respectively, is included in selling, general and administrative expenses in the condensed consolidated income statements for the three months ended March 31, 2020 and 2019, respectively.

 

These same events, led the Company to fully impair G Farma notes receivable of $1,045,051, fully impair the $600,002 contractual interest in G Farma’s legal recovery, and fully impair the Company’s 3.843% equity interest in G Farma Equity Entities, formerly valued at $41,600 as of March 31, 2020 and December 31, 2019. On October 3, 2019, the Company rescinded the sale of an aggregate of 288,890 shares of its Common Stock to G Farma, due to complete failure of consideration, see Note 10. Impairments related to the G Farma investments of $0 and $1,639,558 are included in Gain (loss) in investments in the condensed consolidated income statements for the three month periods ended March 31, 2020 and 2019, respectively.

 

For G Farma notes receivable, we will continue to pursue collection from G Farma, its affiliates, and the guarantors of the various G Farma note purchase agreements, see Note 8. We will continue to pursue collection for lease payments remaining, after applying proceeds from the sale of recovered assets, from the G Farma Lease Entities and G Farma Lease Guarantors, see Note 9.

 

Note 12 – 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.


30


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

Note 12 – Investments and fair value (continued)

 

The hierarchy of Level 1, Level 2 and Level 3 Assets are listed as following:

 

 

 

 

 

 

 

 

 

Fair Value Measurement Using

 

 

Unadjusted

Quoted

Market Prices

 

Quoted Prices

for

Identical or

Similar

Assets in

Active Markets

 

Significant

Unobservable

Inputs

 

Significant

Unobservable

Inputs

 

Significant

Unobservable

Inputs

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

(Level 3)

 

(Level 3)

 

 

Investment in

Securities

 

 

 

Contractual interest

Legal Recovery

 

Investment in

Common Stock

Warrants

 

Other Equity

Investments

Total gains or losses

 

 

 

 

 

 

 

 

 

 

Included in earnings (or changes in net assets)

 

(76,395)

 

-

 

(600,002)

 

-

 

(41,600)

 

 

 

 

 

 

 

 

 

 

 

Purchases, issuances, sales, and settlements

 

 

 

 

 

 

 

 

 

 

Purchases

 

-

 

-

 

146,195

 

-

 

-

Issuances

 

-

 

-

 

-

 

-

 

-

Sales

 

(286,190)

 

-

 

-

 

-

 

-

Settlements

 

-

 

-

 

-

 

-

 

-

Balance at December 31, 2019

 

-

 

-

 

346,195

 

5,669

 

204,028

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total gains or losses

 

 

 

 

 

 

 

 

 

 

Included in earnings (or changes in net assets)

 

(5,037)

 

-

 

-

 

(5,169)

 

-

 

 

 

 

 

 

 

 

 

 

 

Purchases, issuances, sales, and settlements

 

 

 

 

 

 

 

 

 

 

Purchases

 

38,115

 

-

 

50,717

 

-

 

-

Issuances

 

-

 

-

 

-

 

-

 

-

Sales

 

-

 

-

 

-

 

-

 

-

Settlements

 

-

 

-

 

-

 

-

 

-

Balance at March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

$

33,078

$

-

$

396,912

$

500

$

204,028

 

 

 

 

 

 

 

 

 

 

 

 

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 March 31, 2020 consists of the following:

 

Type

 

Amortized

Costs

 

Gross

Unrealized

Gains

 

Gross

Unrealized

Losses

 

Fair Values

NYSE listed company stock

$

38,115

$

-

$

(5,037)

$

33,078


31


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

Note 12 – Investments and fair value (continued)

 

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

March 31,

 

 

2020

 

2019

Net gains and losses recognized during the period on equity securities

$

(5,037)

$

71,930

 

 

 

 

 

Less: Net gains (losses) recognized during the period on equity securities sold during the period

 

-

 

69,403

 

 

 

 

 

Unrealized gains and losses recognized during the reporting period on equity securities still held at the reporting date

$

(5,037)

$

2,527

 

Note 13 - 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 and the associated exercise of warrants was reversed with 87,456 Series B warrants and 29,544 Series D warrants reinstated. The Company intends to allow warrant holders or Company designees, in place of original holders, additional time as needed to exercise the remaining series B and D warrants. The Company may lower the exercise price of all or part of a warrant series at any time. Similarly, the Company could reverse split the stock to raise the stock price above the warrant exercise price. The warrants are specifically not affected and do not split with the shares in the event of a reverse split. If the called warrants are not exercised, the Company has the right to designate the warrants to a new holder in return for a $0.10 per share redemption fee payable to the original warrant holders as discussed further in Note 15. All such changes in the exercise price of warrants were provided for by the court in the Plan of Reorganization to provide a mechanism for all debtors to receive value even if they could not or did not exercise their warrant. Therefore, Management believes that the act of lowering the exercise price is not a change from the original warrant grants and the Company did not record an accounting impact as the result of such change in exercise prices.

 

All Series A and Series C warrants were exercised by December 31, 2014. Exercise prices in effect at January 1, 2015 through March 31, 2020 for Series B warrants were $0.11 and Series D warrants were $1.60.

 

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 March 31, 2020 and December 31, 2019, the weighted average contractual life for all Mentor warrants was 18.3 years and 18.5 years, respectively, and the weighted average outstanding warrant exercise price was $2.11 and $2.11 per share, respectively.


32


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

Note 13 - Common stock warrants (continued)

 

During the three months ended March 31, 2020 and 2019, there were no warrants exercised and there were no warrants issued. The intrinsic value of outstanding warrants at March 31, 2020 and December 31, 2019 was $0 and $875, 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, 2018

 

87,456

 

6,252,954

 

6,340,410

Issued

 

-

 

-

 

-

Exercised

 

-

 

-

 

-

Outstanding at December 31, 2019

 

87,456

 

6,252,954

 

6,340,410

Issued

 

-

 

-

 

-

Exercised

 

-

 

-

 

-

Outstanding at March 31, 2020

 

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, 2018

 

689,159

Issued

 

-

Exercised

 

-

Outstanding at December 31, 2019

 

689,159

Issued

 

-

Exercised

 

-

Outstanding at March 31, 2020

 

689,159

 

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 paused, suspended or truncated by the Company. For the three months ended March 31, 2020 and 2019, no warrants were redeemed.


33


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

Note 14 - 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 through DTCC or 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, Series B and Series C redemption fees have been distributed through DTCC into holder’s brokerage accounts or directly to the holders. All Series A and Series C warrants have been exercised and are no longer outstanding. There are 87,456 Series B warrants outstanding which are held by Chet Billingsley, the Company’s Chief Executive Officer (“CEO”).

 

Once the Series D warrants have been fully redeemed and exercised the fees for the Series D warrant series will likewise be distributed. Mr. Billingsley has agreed to assume liability for paying these redemption fees and therefore warrant redemption fees received are retained by the Company for operating costs. Should Mr. Billingsley be incapacitated or otherwise become unable to pay the warrant redemption fees, the Company will remit the warrant redemption fees to former holders from amounts due to Mr. Billingsley from the Company, which are sufficient to cover the redemption fees at March 31, 2020 and December 31, 2019.

 

Note 15 - 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 300,000 shares of its Common Stock (approximately 2% of the Company’s common shares outstanding at that time). As of March 31, 2020 and December 31, 2019, 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 is convertible into Common Stock, at the option of the holder, at any time after the date of issuance of such share and prior to notice of redemption of such share of Series Q Preferred Stock by the Company, into such number of fully paid and nonassessable shares of Common Stock as determined by dividing the Series Q Conversion Value by the Conversion Price at the time in effect for such share.

 

The per share “Series Q Conversion Value”, as defined in the Certificate of Designation, shall be calculated by the Company at least once each calendar quarter as follows: The per share Series Q Conversion Value shall be equal the quotient of the “Core Q Holdings Asset Value” divided by the number of issued and outstanding shares of Series Q Preferred Stock. The “Core Q Holdings Asset Value” shall equal the value, as calculated and published by the Company, of all assets that constitute Core Q Holdings which shall include such considerations as the Company designates and need not accord with any established or commonly employed valuation method or considerations. “Core Q Holdings” consists of all proceeds received by the Company on the sale of shares of Series Q Preferred Stock and all securities, acquisitions, and business acquired from such proceeds by the Company. The Company shall periodically, but at least once each calendar quarter, identify, update, account for and value, the assets that comprise the Core Q Holdings.


34


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

Note 15 - Stockholders’ equity (continued)

 

Preferred Stock (continued)

 

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 Partner II to purchase equipment to be leased to Pueblo West. Therefore, the Core Q Holdings at March 31, 2020 and December 31, 2019 include this interest. The Core Q Holdings Asset Value at March 31, 2020 and December 31, 2019 was $14,977 and $14,621 per share, respectively. There is no contingent liability for the Series Q Preferred Stock conversion at March 31, 2020 and December 31, 2019. At March 31, 2020 and December 31, 2019, the Series Q Preferred Stock could have been converted at the Conversion Price of $0.095 and $0.13, respectively, into an aggregate of 1,734,247 and 1,237,166 shares of the Company’s Common Stock, respectively. Because there were net losses for the three month periods ended March 31, 2020 and 2019, these shares were anti-dilutive and therefore are not included in the weighted average share calculation for these periods.

 

Note 16 – Lease commitments

 

We have entered into non-cancellable operating and finance leases for office and warehouse space, computers, furniture, fixtures, machinery and vehicles, see Note 6. The following summarizes our lease liability maturities for operating and finance leases:

 

Maturity of lease liabilities

 

 

 

 

12 months ending March 31,

 

Finance leases

 

Operating leases

2021

$

57,895

$

171,306

2022

 

62,893

 

96,028

2023

 

66,125

 

5,961

2024

 

25,030

 

-

2025

 

11,968

 

-

Total

 

223,911

 

273,295

Less: Current maturities

 

57,895

 

171,306

Long-term liability

$

166,016

$

101,989


35


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

Note 17 - Long term debt

 

Long term debt

 

Long term debt at March 31, 2020 and December 31, 2019 consists of the following:

 

 

 

March 31,

2020

 

December 31,

2019

 

 

 

 

 

Loan through American Express National Bank, AENB, interest at 8.99% per annum, monthly principal and interest payments of $2,284, maturing December 2020.

$

17,656

$

24,017

 

 

 

 

 

Total notes payable

 

17,656

 

24,017

 

 

 

 

 

Less: Current maturities

 

17,656

 

24,017

 

 

 

 

 

Long-term debt

$

-

$

-

 

Note 18 - Accrued salary, accrued retirement and incentive fee - related party

 

As of March 31, 2020 and December 31, 2019, the Company had an outstanding liability to its CEO as follows:

 

 

 

March 31,

2020

 

December 31,

2019

Accrued salaries and benefits

$

834,129

$

829,231

Accrued retirement and other benefits

 

543,026

 

540,860

Offset by shareholder advance

 

(261,653)

 

(261,653)

 

$

1,115,502

$

1,108,438

 

As approved by resolution of the Board of Directors in 1998, the CEO will be paid an incentive fee and a bonus which are payable in installments at the CEO’s option. The incentive fee is 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. For the three months ended March 31, 2020 and 2019, the incentive fee expense was $0 and $0, respectively.

 

Note 19 – Related party transactions

 

WCI received a short term loan from an officer of WCI in December 2018. The loan did not originally bear interest and the balance reported on the condensed consolidated balance sheet as a related party payable, at March 31, 2020 and December 31, 2019, was $0 and $27,472, respectively. Due to the length of time the loan was outstanding, interest of $2,065 (6%) was paid with the final balance due on January 23, 2020.


36


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

Note 20 – Commitments and contingencies

 

On May 28, 2019, the Company and Mentor Partner I, LLC filed suit against the G Farma Entities and three guarantors to the G Farma agreements, described in Notes 1, 8, 9, and 10, in the California Superior Court in and for the County of Marin. The Company is primarily seeking monetary damages for breach of the G Farma agreements including promissory notes, leases, and other agreements, as well as actions for an injunction to recover leased property, to recover collateral under a security agreement, and to collect from guarantors on the agreements. Mentor intends to vigorously pursue this matter; however, collection is uncertain at this time. Due to uncertainty of collection, the Company has recorded reserves against the finance leases receivable described in Note 9 and has fully impaired all other notes receivables and investments in G Farma described in Notes 8, 9 and 10.

 

On January 31, 2020, all remaining equipment leased to G Farma by Mentor Partner I which was not impounded by the Corona Police was repossessed by the Company and moved to storage under the Company’s control. On March 5, 2020, the Company sold a portion of the recovered equipment, with an original cost of $495,967, for $240,000, however, because a component of the equipment was reported missing by the purchaser, the Company refunded $17,969 to the purchasing party. The net sale proceeds of $222,031 was credited against the gross lease receivable at March 31, 2020. The remainder of repossessed equipment is classified as held for sale equipment in the condensed consolidated balance sheet at March 31, 2020 at an estimated net realizable value of $40,000.

 

For G Farma notes receivable we will continue to pursue collection from G Farma, its affiliates, and the guarantors of the various G Farma note purchase agreements, see Note 8. We will continue to pursue collection for lease payments remaining, after applying proceeds from the sale of recovered assets, from the G Farma Lease Entities and G Farma Lease Guarantors, see Note 9.

 

On November 13, 2019, G Farma filed a Cross-Complaint for declaratory relief and breach of contract relating to the consulting agreement between Mentor and G Farma. The Company filed an answer on December 6, 2019 denying each and every allegation of the Cross-Complaint and intends to vigorously defend itself in this matter.

 

Note 21 – Segment Information

 

The Company is an operating, acquisition, and investment business. Subsidiaries in which the Company has a controlling financial interest are consolidated. The Company has determined that there are two reportable segments; 1) the cannabis and medical marijuana segment which includes the cost basis of membership interests of Electrum, the contractual interest in the Electrum legal recovery, the fair value of convertible notes receivable 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 finance leases to Pueblo West, the operation of subsidiaries in the cannabis and medical marijuana sector, and in 2019, included the fair value of cannabis stock securities investments, 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, a small investment in General Dynamics Corp. (NYSE: GD), an aerospace and defense corporation, 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 March 31, 2020

 

 

 

 

 

 

 

 

Net revenue

$

12,538

$

1,136,924

$

-

$

1,149,462

Operating income (loss)

 

(8,905)

 

34,176

 

(261,994)

 

(236,723)

Interest income

 

980

 

-

 

18,423

 

19,403

Interest expense

 

-

 

8,471

 

(1,134)

 

7,337

Property additions

 

-

 

3,329

 

-

 

3,329

Depreciation and amortization

 

-

 

2,640

 

1,202

 

3,842

 

 

 

 

 

 

 

 

 

Three months ended March 31, 2019

 

 

 

 

 

 

 

 

Net revenue

$

120,089

$

955,906

$

-

$

1,075,995

Operating income (loss)

 

(606,697)

 

17,179

 

(266,726)

 

(856,244)

Interest income

 

20,679

 

3

 

21,898

 

42,580

Interest expense

 

-

 

5,657

 

(1,134)

 

4,523

Property additions

 

-

 

8,159

 

-

 

8,159

Depreciation and amortization

 

-

 

2,653

 

2,932

 

5,585


37


 

 

Mentor Capital, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020 and 2019

 

Note 21 – 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

March 31,

 

 

2020

 

2019

Operating loss

$

(236,723)

$

(856,244)

Interest income

 

19,403

 

42,580

Gain (loss) on investments

 

(10,206)

 

(1,569,881)

Interest expense

 

(7,337)

 

(4,523)

Other income

 

12,084

 

-

 

 

 

 

 

Income (loss) before income taxes

$

(222,779)

$

(2,388,068)

 

Note 22 – Subsequent events

 

On April 23, 2020, Mentor received a Paycheck Protection Program loan of $76,500 from the U.S. Small Business Administration (“SBA”) which matures April 22, 2022. Mentor may apply to the SBA for forgiveness of the amount due on the loan in an amount equal to the sum of the following costs incurred by Mentor during the 8-week period beginning on the date of first disbursement of the loan, April 24, 2020: a) payroll costs; b) any payment of interest on a covered mortgage obligation; c) any payment on a covered rent obligation; and d) any covered utility payment. The amount of loan forgiveness shall be calculated in accordance with the requirements of the Paycheck Protection Program, including the provisions of Section 1106 of the Coronavirus Aid, Relief, and Economic Security Act. Not more than 25% of the amount forgiven can be attributable to non-payroll costs. Loan interest is one percent (1%) per annum, with monthly principal and interest payments of $4,305 beginning November 1, 2020.

 

On April 30, 2020, $15,383 of Mentor’s funds invested in Electrum Partners, LLC, used a legal retainer in its ongoing litigation, described in Note 10, was returned which decreased Mentor’s additional investment in the legal recovery to $81,547.

 

On May 5, 2020, the United States patent was issued for MCIP’s interest in the patent application for THC and CBD vape pens for various THC and CBD percentage ranges and concentrations, as discussed in Note 1.

 

On May 6, 2020, WCI received a Paycheck Protection Program loan of $383,342 from the SBA which matures May 5, 2022. WCI may apply to the SBA for forgiveness of the amount for costs incurred by WCI during the 8-week period beginning on the date of first disbursement of the loan, May 7, 2020. Loan interest is one percent (1%) per annum, with monthly principal and interest payments of $21,579 beginning December 1, 2020.


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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion will assist in the understanding of our financial position at March 31, 2020 and the results of operations for the three months ended March 31, 2020 and 2019. The information below should be read in conjunction with the information contained in the unaudited Condensed Consolidated Financial Statements and related notes to the financial statements included within this Quarterly Report on Form 10-Q for the three months ended March 31, 2020 and 2019 and our Annual Report on Form 10-K for the year ended December 31, 2019.

 

Corporate Background

 

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 9, 2015, as OTCQB: MNTR and after August 6, 2018, under the trading symbol OTCQX: MNTR and after May 1, 2020, under the trading symbol OTCQB: MNTR. Due to market fluctuations, the Company’s market capitalization has been below $5 million for more than 30 consecutive calendar days resulting in the Company’s move to the OTCQB on and after May 1, 2020.

 

In 2009 the Company began focusing its investing activities in leading-edge cancer companies. In response to government limitations on reimbursement for 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 fully divest of its cancer assets and focus its next round of investments in the medical marijuana and cannabis sector. In March 2018, the Company sold its equity interest in our final remaining cancer investment. In late 2019, the Company expanded its target industry focus to potentially include energy, mining and minerals, technology, consumer products, management services, and manufacturing sectors with the goal of ensuring investment diversification.

 

Acquisitions and investments

 

Waste Consolidators, Inc. (WCI)

 

WCI is a legacy investment of which the Company owns a 51% interest and is included in the condensed consolidated financial statements for the three months ended March 31, 2020 and 2019.

 

Electrum Partners, LLC (Electrum)

 

Electrum is a Nevada based consulting, investment, and management company. The Company’s equity investment in Electrum is reported in the consolidated balance sheets as an investment at cost of $194,028 and $194,028 at March 31, 2020 and December 31, 2019, respectively. At March 31, 2020 and December 31, 2019, the Company had approximately 4.70% and 4.70% interest of Electrum’s outstanding equity, respectively.

 

On October 30, 2018, the Company entered into a Recovery Purchase Agreement with Electrum to purchase a portion of Electrum’s potential recovery in its legal action captioned Electrum Partners, LLC, Plaintiff, and Aurora Cannabis Inc., Defendant, pending in the Supreme Court of British Columbia (“Litigation”). As described further in Note 10 to the attached financial statements, as of March 31, 2020 and December 31, 2019, Mentor has provided $196,912 and $146,195, respectively, in capital for payment of Litigation costs. Subsequent to quarter-end, on April 30, 2020, $15,383 of Mentor’s funds were returned. In exchange, after repayment to Mentor of all funds invested for payment of Litigation costs, Mentor will receive 18% of anything of value received by Electrum as a result of the Litigation (“Recovery”). On October 31, 2018, Mentor entered into a secured Capital Agreement with Electrum and invested an additional $100,000 in Electrum. Under the Capital Agreement, on the payment date, Electrum will pay to Mentor the sum of (i) $100,000, (ii) ten percent (10%) of the Recovery, and (iii) 0.083334% of the Recovery for each full month from October 31, 2018 to the payment date for each full month that $833 is not paid to Mentor. The payment date for the Capital Agreement is the earlier of November 1, 2021, or the final resolution of the Litigation. On January 28, 2019, the Company entered into a second secured Capital Agreement with Electrum and invested an additional $100,000 in Electrum with payment terms similar to the October 31, 2018 Capital Agreement. As part of the January 28, 2019 Capital Agreement Mentor was granted an option to convert its 6,198 membership interests in Electrum into a cash payment of $194,027.78 plus an additional 19.4% of the Recovery. See note 10 to the consolidated financial statements.


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Mentor IP, LLC (MCIP)

 

On April 18, 2016, the Company formed Mentor IP, LLC (“MCIP”), a South Dakota limited liability company and wholly owned subsidiary of Mentor. MCIP was formed to hold interests related to patent rights obtained on April 4, 2016, when Mentor Capital, Inc. entered into that certain "Larson - Mentor Capital, Inc. Patent and License Fee Facility with Agreement Provisions for an -- 80% / 20% Domestic Economic Interest -- 50% / 50% Foreign Economic Interest" with R. L. Larson and Larson Capital, LLC (“MCIP Agreement”). Pursuant to the MCIP Agreement, MCIP obtained rights to an international patent application for foreign THC and CBD cannabis vape pens under the provisions of the Patent Cooperation Treaty of 1970, as amended. R. L. Larson continues its efforts to obtain exclusive licensing rights in the United States for THC and CBD cannabis vape pens for various THC and CBD percentage ranges and concentrations. Activity in 2019 and 2018 was limited to payment of patent application maintenance fees in Canada. Patent application national phase maintenance fees were expensed when paid and there were no assets related to MCIP on the consolidated financial statements at March 31, 2020 and December 31, 2019. On January 21, 2020, the United States Patent and Trademark Office granted a Notice of Allowance for the United States patent application and on May 5, 2020 the United States patent was issued. On March 23, 2020 MCIP applied for expedited prosecution with the Canadian Intellectual Property Office under the Patent Cooperation Treaty Patent Prosecution Highway Program based on the claims allowed in the corresponding United States patent application.

 

NeuCourt, Inc.

 

NeuCourt is a Delaware corporation that is developing a technology that is expected to be useful to the dispute resolution industry.

 

On November 22, 2017, the Company invested $25,000 in NeuCourt, Inc. (“NeuCourt”) as a convertible note receivable. The note bears interest at 5% per annum, originally matured November 22, 2019, and was amended on November 7, 2019 to extend the maturity date to November 22, 2021. No payments are required prior to maturity, however, at the time the November 22, 2017 note was extended, interest accrued through November 4, 2019 was remitted to Mentor. As consideration for the extension of the maturity date for the $25,000 note, a warrant to purchase up to 25,000 shares of NeuCourt common stock at $0.02 per share was issued to Mentor. On October 31, 2018, the Company invested an additional $50,000 as a convertible note receivable in NeuCourt which bears interest at 5% and matures October 31, 2020. Principal and unpaid interest on the Notes 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 December 21, 2018, the Company purchased 500,000 shares of NeuCourt Common Stock for $10,000. This represents approximately 6.2% of the issued and outstanding NeuCourt shares at March 31, 2020.

 

GlauCanna

 

On April 13, 2017, the Company agreed to provide $40,000 of funding to offset costs for the application of cannabis oil in a glaucoma study conducted by and otherwise paid for by Dr. Robert M. Mandelkorn, MD. In exchange for the funding Mentor, dba GlauCanna will hold an 80% interest in any commercial opportunities that result from the study while Dr. Mandelkorn will hold the remaining 20%. As of December 31, 2019 and 2018, the Company had paid $30,000 and $25,000 of the funding, respectively.

 

Mentor Partner I, LLC

 

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. In 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 expanded the Lessee under the agreement to include G FarmaLabs Limited, and G FarmaLabs DHS, LLC, (collectively referred to as “G Farma Lease Entities”). The finance leases resulting from this investment have been impaired by $771,970 and $765,001 at March 31, 2020 and December 31, 2019, respectively, due to circumstances further described in footnote 9 to the condensed consolidated financial statements.

 

Mentor Partner II, LLC

 

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. 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 under a Master Equipment Lease Agreement dated February 11, 2018, as amended, see Note 9 to the condensed consolidated financial statements. On March 12, 2019, Mentor agreed to use Partner II earnings of $61,368 to facilitate the purchase of additional manufacturing equipment to Pueblo West under a Second Amendment to the lease, see Note 9 to the consolidated financial statements.


40


 

 

Mentor Partner III, LLC

 

On February 20, 2018, the Company formed Mentor Partner III, LLC (“Partner III”), a California limited liability company, as a wholly owned subsidiary of Mentor for the purpose of acquisition and investing. Partner III had no activity from inception through March 31, 2020.

 

Mentor Partner IV, LLC

 

On February 28, 2018, the Company formed Mentor Partner IV, LLC (“Partner IV”), a California limited liability company, as a wholly owned subsidiary of Mentor for the purpose of acquisition and investing. Partner IV had no activity from inception through March 31, 2020.

 

Overview

 

The Company expanded its target industry focus, beginning in the third quarter of 2019, from investments in the medical marijuana and social use cannabis sector to include energy, mining and minerals, technology, consumer products, management services, and manufacturing sectors with the goal of ensuring investment diversification. Our general business operations are intended to provide management consultation and headquarters functions, especially with regard to accounting and audits, for our larger investment targets and our majority-owned subsidiaries. We monitor our smaller and less than majority positions for value and investment security. Management also spends considerable effort reviewing possible acquisition candidates on an ongoing basis.

 

Mentor seeks to take significant positions in the companies it invests in to provide public market liquidity for founders, protection for investors, funding for the companies, and to incubate private companies that Mentor believes to have significant potential. When Mentor takes a significant position in its investees, it provides financial management when needed but leaves operating control in the hands of the company founders. Retaining control, receiving greater liquidity, and working with an experienced organization to efficiently develop disclosures and compliance are three potential key advantages to founders working with Mentor Capital, Inc.

 

Because adult social use and medical marijuana opportunities often overlap, Mentor Capital has participated in the legal recreational marijuana market. However, Mentor’s preferred focus is medical, and the Company seeks to facilitate the application of cannabis to cancer wasting, Parkinson’s disease, calming seizures, reducing ocular pressures from glaucoma and blunting chronic pain.

 

Business Segments

 

We manage our operations through two operating segments, a cannabis and medical marijuana segment which has been our focus of business, and a legacy investment. The legacy investment is in WCI which works with business park owners, governmental centers, and apartment complexes to reduce their facilities operating costs. In late 2019, the Company expanded its target industry focus to potentially include energy, mining and minerals, technology, consumer products, management services, and manufacturing sectors with the goal of ensuring investment diversification.

 

Liquidity and Capital Resources

 

The Company’s future success is dependent upon its ability to make a return on its investments, to generate positive cash flow and to obtain sufficient capital from non-portfolio-related sources. Management believes they have approximately 13 months of operating resources on hand and can raise additional funds as may be needed to support their business plan and develop an operating, cash flow positive company.

 

Results of Operations

 

Three Months Ended March 31, 2020 compared to Three Months Ended March 31, 2019

 

Revenues

Revenue for the three months ended March 31, 2020 was $1,149,463 compared to $1,075,995 for the three months ended March 31, 2019 (“the prior year period”), an increase of $73,468 or 6.8%. This increase is due to an increase in WCI service fees of $181,018, partially offset by a decrease of ($74,889) in lease equipment sales, a decrease of ($24,351) in finance lease revenue, and a decrease of ($24,351) in consulting revenue in the current period as compared to the prior year period. There was no lease equipment sales or consulting revenue in the three months ended March 31, 2020.


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Gross profit

 

Gross profit for the three months ended March 31, 2020 was $385,103 compared to $370,374 for the prior year period. Cost of goods sold relate primarily to WCI and also to Partner I and Partner II in the prior year period. WCI experienced gross profit of $372,564 or 32.8% of revenue for the three months ended March 31, 2020 compared to $307,894 or 32.2% for the prior year period, an increase of $64,670 with an increase of 0.6% as a percentage of revenue. Partner I had no gross profit for the three months ended March 31, 2020 as compared to $23,811 of gross profit in the prior year period. Partner II had gross profit of $12,539 for the three months ended March 31, 2020 as compared to $30,361 in the prior year period. Mentor had no gross profit for the three months ended March 31, 2020 as compared to $8,308 in the prior year period.

 

The increase in WCI gross profit percentage was due to an decrease in salary and related costs of 0.2%, a decrease in vehicle costs of 1.8%, and a decrease in other costs of goods sold of 0.7%, partially offset by an increase in fuel costs of fuel costs of (0.2%) and an increase in disposal costs of (1.9%), as a percent of WCI revenue over the prior year period.

 

The decrease in Partner I gross profit is due to the fact Partner I leases receivable from G Farma were moved to a non-performing classification and a non-accrual status due to financial difficulties experienced by G Farma, as discussed in Footnotes 1 and 9 to the condensed consolidated financial statements. Partner I had $0 of finance revenue in the quarter ended March 31, 2020 compared to $23,811 in the prior year period.

 

Partner II did not have any equipment sales in the quarter ended March 31, 2020, compared $17,282 of gross profit on equipment sales of $74,889, recognized in the prior year period. In addition, Partner II finance lease revenue decreased by ($540) in the three months ended March 31, 2020, compared to the prior year period.

 

Selling, general and administrative expenses

 

Our selling, general and administrative expenses for the three months ended March 31, 2020 was $621,825 compared to $1,226,618 for the prior year period, a decrease of ($604,793). We experienced a decrease of ($646,889) in bad debt expense and a decrease of ($40,718) in other selling, general and administrative expenses, partially offset by a $10,000 increase in management fees, a $8,292 increase in professional fees, and a $22,426 increase in salaries and related costs in the current period as compared to the prior year period.

 

Other income and expense

 

Other income and expense, net, totaled $13,945 for the three months ended March 31, 2020 compared to ($1,531,824) for the prior year period, an increase of $1,545,769. We experienced an increase of $1,559,675 due to loss on investment of ($10,206) in the current year period as compared to a loss in prior year period of ($1,569,881), and we experienced an increase of $12,085 in other income, partially offset by a decrease of ($23,177) in interest income, and ($2,814) is due to an increase in interest expense as compared to the prior year period.

 

Net results

 

The net result for the three months ended March 31, 2020 was net loss attributable to Mentor of ($247,768) or ($0.011) per Mentor common share compared to net loss attributable to Mentor in the prior year period of ($2,406,595) or ($0.104) per Mentor common share. Management will continue to make an effort to lower operating expenses and increase revenue and gross margin. The Company will continue to look for acquisition opportunities to expand its portfolio in larger companies that are positive for operating revenue or have the potential to become positive for operating revenue. In addition, the Company will make continued efforts to recover funds invested in the G Farma Entities.

 

Liquidity and Capital Resources

 

Since our reorganization, we have raised capital through warrant holder exercise of warrants to purchase shares of Common Stock. At March 31, 2020 we had cash and cash equivalents of $707,868 and a working capital of $905,872.

 

Operating cash outflows in the three months ended March 31, 2020 were ($74,826), including ($233,957) of net loss, less non-cash amortization of discount on our investment in account receivable of ($18,345), a decrease in accrued interest income of ($957), partially offset by non-cash depreciation and amortization of $3,842, non-cash amortization on right of use assets of $17,199, non-cash bad debt expense of $22,069, a $5,037 unrealized loss on investment in securities, a $5,169 unrealized loss on long-term investments, a $75,828 decrease in operating assets, and a $49,289 increase in operating liabilities.


42


 

 

Cash inflows from investing activities in the three months ended March 31, 2020 were $140,877 due to $238,642 proceeds from finance leases receivable, and $4,000 proceeds received on investment in accounts receivable, partially offset by ($38,115) investment in securities, ($50,717) purchase of contractual interest in legal recovery, ($3,329) purchase of property and equipment, and ($9,604) down payments on right of use assets.

 

Net outflows from financing activities during the three months ended March 31, 2020 were ($44,794) consisting of ($27,472) of payments on related party payable, ($6,361) of payments on long-term debt, and ($10,961) of payments on finance lease liabilities. We will be required to raise additional funds through financing, additional collaborative relationships or other arrangements until we are able to raise revenues to a point of positive cash flow.

 

In addition, on February 9, 2015, in accordance with Section 1145 of the United States Bankruptcy Code and the Company’s court-approved Plan of Reorganization, the Company announced a minimum 30 day partial redemption of up to 1% 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 may continue to be recalculated and repeated until such unexercised warrants are exhausted, or the partial redemption is otherwise temporarily paused, suspended or truncated by the Company.

 

For the three months ended March 31, 2020, there were no redemptions of Series D Warrants. There were no redemptions of Series D Warrants in 2019. We believe that if warrants are redeemed and exercised, partial warrant redemptions would provide monthly cash in excess of what is required for monthly operations for an extending period of time while we are exploring other major sources of funding for further acquisitions.

 

Disclosure About Off-Balance Sheet Arrangements

 

We do not have any transactions, agreements or other contractual arrangements that constitute off-balance sheet arrangements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

As a “smaller reporting company” as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information called for by this item.

 

Item 4. Controls and Procedures

 

Evaluation of disclosure controls and procedures

 

Management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

Based on management’s evaluation, our chief executive officer and chief financial officer concluded that, as of March 31, 2020, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our managers, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in internal control over financial reporting.

 

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

 

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2020 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.


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PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

G FarmaLabs Limited

 

On May 28, 2019, Mentor Capital, Inc. and Mentor Partner I, LLC filed a complaint in the Superior Court of California in the County of Marin for, among other things, breach of contract against G FarmaLabs Limited, Atanachi (“Ata”) Gonzalez, Nicole Gonzalez, G FarmaLabs DHS, LLC, GFBrands, Inc., fka G FarmaBrands, Inc., Finka Distribution, Inc., G FarmaLabs WA, LLC, and Goya Ventures, LLC (together “Defendants”). Under the complaint, among other things:

 

Mentor Capital, Inc. alleges that G FarmaLabs Limited and Ata Gonzalez and Nicole Gonzalez as guarantors of the G Farma obligations have failed to perform their several obligations under a Note Purchase Agreement and two secured Promissory Notes dated March 17, 2017, as amended. At December 31, 2019, the aggregate amount due, owing, and unpaid under both Notes is $1,045,051. Interest of approximately $67,770 is also due but has not been accrued in the financial statements due to uncertainty of collection. 

 

Mentor Partner I, LLC alleges that G FarmaLabs Limited, G FarmaLabs DHS, LLC as Lessees and GFBrands, Inc, Ata Gonzalez, and Nicole Gonzalez as guarantors of the lease obligations have failed to perform their several obligations under a Master Equipment Lease dated January 16, 2018, as amended. At December 31, 2019, the aggregate amount due, owing, and unpaid under the Lease is $1,055,680. Interest of approximately $93,710 is also due but has not been accrued in the financial statements due to uncertainty of collection.  

 

Mentor Capital, Inc. also alleges that the G FarmaLabs Limited and Ata Gonzalez and Nicole Gonzalez as guarantors have failed to perform their obligations under (i) a Consulting Agreement dated March 17, 2017, as amended, (ii) a Rights Agreement dated March 17, 2017, and (iii) a Security Agreement dated March 17, 2017, as amended. 

 

Mentor Capital, Inc. also alleges that G FarmaLabs Limited, G FarmaLabs DHS, LLC, GFBrands, Inc., Finka Distribution, Inc., G FarmaLabs WA, LLC, and Goya Ventures, LLC have failed to perform their obligations under an Equity Purchase and Issuance Agreement dated September 6, 2018, as amended.  

 

Mentor Capital, Inc. and Mentor Partner I, LLC sought an injunction against all Defendants preventing Defendants from keeping equipment leased under the Master Lease Agreement. 

 

On or about November 13, 2019, G FarmaLabs Limited, Ata Gonzales, and Nicole Gonzales filed a cross-complaint against Mentor Capital, Inc. alleging breach of contract related to the Consulting Agreement dated March 17, 2017, and seeking declaratory relief related to the validity of the agreements between the parties. Mentor Capital, Inc. filed its answer to the cross-complaint on December 6, 2019.

 

On December 6, 2019, Mentor Capital, Inc. and Mentor Partner I, LLC filed a motion for summary judgment seeking judgment on the first eleven causes of action for breach of contract under its complaint, as amended. Due to the COVID-19 pandemic, the San Mateo County Superior Court has been closed and hearing dates have been continued for several months. Currently, the hearing on the motion for summary judgment is set for June 10, 2020, but it may be continued to a future date.

 

The Company plans to vigorously pursue the litigation.

 

On October 11, 2019, Mentor Capital, Inc. and Mentor Partner I, LLC filed a motion for writ of possession seeking return of the equipment leased under the Master Equipment Lease and a preliminary injunction preventing Defendants from transferring, selling, or otherwise refusing to return such equipment. On January 22, 2020, the Superior Court of California in the County of Marin issued an order granting the Company’s motion for writ of possession and preliminary injunction prohibiting the defendants from retaining control of or selling leased property. On January 31, 2020, all remaining equipment, which was not impounded by the Corona Police, was repossessed by the Company and moved to storage under the Company’s control. On March 5, 2020, the Company sold a portion of the recovered equipment, with an original cost of $495,967, for $240,000, however, because a component of the equipment was reported missing by the purchasing party, the Company refunded $17,969 to the purchasing party. The remainder of repossessed equipment is classified as held for sale equipment in the condensed consolidated balance sheet at March 31, 2020 at an estimated net realizable value of $40,000.


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Item 1A. Risk Factors.

 

In addition to other information in this Quarterly Report on Form 10-Q, the following risk factors should be carefully considered in evaluating our business since it operates in a highly changing and complex business environment that involves numerous risks, some of which are beyond our control. The following discussion highlights a few of these risk factors, any one of which may have a significant adverse impact on our business, operating results and financial condition.

 

As a result of the risk factors set forth below and elsewhere in this Form 10-Q and in our Form 10-K, and the risks discussed in our Rule 15c2-11 and other publicly disclosed submissions, actual results could differ materially from those projected in any forward-looking statements.

 

We face significant risks, and the risks described below may not be the only risks we face. Additional risks that we do not know of or that we currently consider immaterial may also impair our business operations. If any of the events or circumstances described in the following risks actually occurs, our business, financial condition or results of operations could be harmed, and the trading price of our Common Stock could decline.

 

Management voluntarily transitioned to a fully reporting company and spends considerable time meeting the associated reporting obligations.

 

Management has operated Mentor Capital, Inc. as a non-reporting public company for over 25 years, and only five years ago voluntarily transitioned to reporting company status subject to financial and other SEC-required disclosures. Prior to such voluntary transition, management has not been required to prepare and make such required disclosures. As a reporting company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (“Exchange Act”), the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of a national securities exchange, and other applicable securities rules and regulations. The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating activities. Preparing and filing periodic reports imposes a significant expense, time, and reporting burden upon management. This distraction can divert management from its operation of the business to the detriment of core operations. Also, improper reporting due to Mentor’s officers; limited reporting experience can result in trading restrictions and other sanctions that may impair or even suspend trading in the Company’s Common Stock.

 

Investors may suffer risk of dilution following exercise of warrants for cash.

 

As of March 31, 2020, the Company had 22,850,947 outstanding shares of its Common Stock trading at approximately $0.10. As of the same date the Company also had 6,252,954 outstanding Series D warrants exercisable for shares of Common Stock at $1.60 per share. These Series D warrants do not have a cashless exercise feature. The Company anticipates that the warrants will be increasingly exercised when the per share price of the Company’s Common Stock is greater than $1.60 per share. Exercise of these Series D warrants may result in immediate and potentially substantial dilution to current holders of the Company’s Common Stock. At March 31, 2020, there were 87,456 Series B warrants exercisable at $0.11 that do not have a cashless exercise feature. In addition, the Company has 689,159 outstanding Series H warrants with a per share exercise price of $7.00 held by an investment bank and its affiliates. These $7.00 Series H warrants include a cashless exercise feature. Current and future shareholders may suffer dilution of their investment and equity ownership if any of the warrant holders elect to exercise their warrants.

 

Beginning on February 9, 2015, in accordance with Section 1145 of the United States Bankruptcy Code and in accordance with the Company’s court-approved Plan of Reorganization, the Company announced that it would allow for partial redemption of up to 1% per month of the outstanding Series D warrants to provide for the court specified redemption mechanism for warrants not exercised timely by the original holder or their estates. On October 7, 2016, the Company announced that the 1% redemptions which were formerly priced on a calendar month schedule would subsequently be initiated and priced on a random date schedule after the prior 1% redemption is complete to prevent potential third-party manipulation of share prices during the pricing period at month-end. Company designees that apply during the redemption period must pay 10 cents per warrant to redeem the warrants and then exercise the Series D warrant to purchase a share of the Company’s Common Stock at a maximum of one-half of the closing bid price on the day preceding the 1% partial redemption. The 1% partial redemption may continue to be periodically recalculated and repeated according to the court formula until such unexercised warrants are exhausted or the partial redemption is otherwise suspended or truncated by the Company. There were no warrant redemptions the three months ended March 31, 2020, and there were no warrant redemptions in 2019.


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We operate in a turbulent market populated by businesses that are highly volatile.

 

The U.S. market for cannabis products is highly volatile. While we believe that it is an exciting and growing market, many companies involved in cannabis products and services used to be involved in illegal activities, some still are, and many of them operate in unconventional ways. Some of these differences which represent challenges to us include not keeping appropriate financial records, inexperience with business contracts, not having access to customary business banking or brokerage relationships, not having quality manufacturing relationships, and not having customary distribution arrangements. Any one of these challenges, if not managed well, could materially adversely impact our business.

 

Many cannabis activities, products, and services still violate law.

 

The legal patchwork to which cannabis companies are subject is still evolving and frequently uncertain. While we believe that anti-cannabis laws are softening and that the trend is toward legalization of cannabis products, many states, and the U.S. government still view some or all cannabis activity as illegal. Notwithstanding this uncertainty, we intend to do our best to engage in activities that are unambiguously legal and to use what influence we have with our affiliates for them to do the same. But we will not always have control over those companies with whom we do business, and there is a risk that we could suffer a substantial and material loss due to routine legal prosecution. Similarly, many jurisdictions have adopted so-called “zero tolerance” drug laws and laws prohibiting the sale of what is considered drug paraphernalia. If our, or our affiliates’ activities related to cannabis activities, products, and services are deemed to violate one or more federal or state laws, we may be subject to civil and criminal penalties, including fines, impounding of cannabis products, and seizure of our assets. A company in which we invested suffered asset seizure which included some equipment licensed by us that we have so far been unable to recover.

 

Our business model is to partner with or acquire other companies.

 

We do not manufacture or sell products or services. Rather, we try to find businesses whose products, managers, technology or other factors we like and acquire or invest in those businesses. There is no certainty that we will find suitable partners or that we will be able to engage in transactions on advantageous terms with partners we identify. There is also no certainty that we will be able to consummate a transaction on favorable terms, or any transaction at all, with any potential acquisitions or that our partners will be able to navigate the maze of laws that may affect them. To date, several of our acquisitions/investments have not turned out well for us.

 

The Federal Government’s attitude toward cannabis could materially harm our business

 

Changes to the Federal Government’s administration and the manner in which the federal government regulates cannabis, including how it intends to enforce laws prohibiting medical marijuana and recreational cannabis use could materially negatively affect our business. Eliminating recreational cannabis use would be an existential threat to many cannabis entities. Being historically illegal, many cannabis contracts, including our contracts, may not be able to be enforced in the courts.

 

Many of the people and entities with whom we work in the cannabis industry are not used to engaging in other than normal course business transactions.

 

Many of the people and entities with whom we engage may not be used to operating in business transactions in the normal course. Entities and persons operating in the cannabis industry may be unaccustomed to entering into written agreements or keeping financial records according to GAAP. Additionally, entities and persons with whom we engage may not pay particular attention to the obligations with which they have agreed in written contracts. We have experienced these differences with several different entities in which we have invested or considered investing in, including several entities which failed to comply with contractual obligations, which led us into litigation and other legal remedies.

 

Our actual results could differ materially from those anticipated in our forward-looking statements.

 

This Form 10-Q contains forward-looking statements within the meaning of the federal securities laws that relate to future events or future financial performance. When used in this report, you can identify forward-looking statements by terminology such as “believes,” “anticipates,” “seeks,” “looks,” “hopes,” “plans,” “predicts,” “expects,” “estimates,” “intends,” “will,” “continue,” “may,” “potential,” “should” and similar expressions. These statements are only expressions of expectation. Our actual results could, and likely will, differ materially from those anticipated in such forward-looking statements as a result of many factors, including those set forth above and elsewhere in this report and including factors unanticipated by us and not included herein. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Neither we nor any other person assumes responsibility for the accuracy and completeness of these statements. Accordingly, we caution readers not to place undue reliance on these statements. Where required by applicable law, we will undertake to update any disclosures or forward-looking statements.


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A failure to obtain financing could prevent us from executing our business plan

 

We anticipate that current cash resources will be sufficient for us to execute our business plan for the next 13 months. It is possible that if future financing is not obtained, we will not be able to execute our plans. We believe that securing substantial additional sources of financing is possible, but there is no assurance of our ability to secure such financing. A failure to obtain additional financing could prevent us from making necessary expenditures for advancement and growth to partner with more pre-IPO businesses and hire additional personnel. If we raise additional financing by selling equity, or convertible debt securities, the relative equity ownership of our existing investors could be diluted, or the new investors could obtain terms more favorable than previous investors. If we raise additional funds through debt financing, we could incur significant borrowing costs and be subject to adverse consequences in the event of a default.

 

If we are unable to protect our intellectual property, our competitive position would be adversely affected.

 

We, and our partners and subsidiaries intend to rely on patent protection, trademark and copyright law, trade secret protection and confidentiality agreements with our employees and others to protect our intellectual property. Despite our precautions, unauthorized third parties may copy our, and our affiliates’ and partners’, products and services or reverse engineer or obtain and use information that we regard as proprietary. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent as do the laws of the United States. Our means of protecting our, and our affiliates’ and partners’ proprietary rights may not be adequate, and third parties may infringe or misappropriate our, and our affiliates’ and partners’ patents, copyrights, trademarks, and similar proprietary rights. If we, or our affiliates and partners, fail to protect intellectual property and proprietary rights, our business, financial condition and results of operations would suffer. We believe that neither we nor our affiliates and partners infringe upon the proprietary rights of any third party, and no third party has asserted an infringement claim against us. It is possible, however, that such a claim might be asserted successfully against us in the future. We may be forced to suspend our operations to pay significant amounts to defend our rights, and a substantial amount of the attention of our management may be diverted from our ongoing business, all of which would materially adversely affect our business.

 

We are engaged in litigation.

 

On May 28, 2019, we filed a complaint against the G Farma Entities and three guarantors of the G Farma agreements in the Superior Court of California in the County of Marin, for breach of the G Farma agreements including promissory notes, leases, and other agreements, as well as actions for an injunction to recover leased property, to recover collateral under a security agreement, and to collect from guarantors on the agreements, among other things. Mentor intends to vigorously pursue this matter; however, collection is uncertain at this time. There is no surety that we will prevail in this lawsuit or that we will be able to recover funds if we do prevail.

We depend on our key personnel and may have difficulty attracting and retaining the skilled staff we need to execute our growth plans.

 

Our success will be dependent largely upon the personal efforts of our Chief Executive Officer, Chet Billingsley, and other senior managers. The loss of key staff could have a material adverse effect on our business and prospects. To execute our plans, we will have to retain current employees. Competition for recruiting and retaining highly skilled employees with technical, management, marketing, sales, product development, and other specialized training is intense. We may not be successful in retaining such qualified personnel. Specifically, we may experience increased costs in order to retain skilled employees. If we are unable to retain experienced employees as needed, we would be unable to execute our business plan.

 

Founder and CEO Chet Billingsley, along with other members of the Company Board of Directors, have considerable control over the company through their aggregate ownership of 21.13% of the outstanding shares of the Company’s Common Stock on a fully diluted basis.

 

As of May 4, 2020, Mr. Billingsley owned approximately 14.52% of the outstanding shares of the Company’s Common Stock on a fully diluted basis. Together with other members of the Company’s Board of Directors, management of the Company owns approximately 21.13% of the outstanding shares of the Company’s Common Stock on a fully diluted basis. Mr. Billingsley also holds 2,050,228 Series D warrants, exercisable at $1.60 per share, and 87,456 Series B warrants, exercisable at $0.11 per share. Additionally, Robert Meyer, Stan Shaul, David Carlile, and Lori Stansfield, directors of the Company, hold an aggregate of 854,352 Series D warrants exercisable at $1.60 per share. Due to the large number of shares of Common Stock owned by the management of the Company, management has considerable ability to exercise control over the Company and matters submitted for shareholder approval, including the election of directors and approval of any merger, consolidation or sale of substantially all of the assets of the Company. Additionally, due to his position as CEO and Chairman of the Board, Mr. Billingsley has the ability to control the management and affairs of the Company. As board members and officers, Mr. Billingsley and the other persons in management positions of the Company owe a fiduciary duty to our shareholders and must act in good faith in a manner each reasonably believes to be in the best interests of our shareholders. As shareholders, Mr. Billingsley and the other officers and directors are entitled to vote their shares in their own interests, which may not always be in the interests of our shareholders generally.


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We face rapid change.

 

The market for our partners’ and subsidiaries’ products and services is characterized by rapidly changing laws and technologies, marketing efforts, and extensive research and the introduction of new products and services. We believe that our future success will depend in part upon our ability to continue to invest in companies that develop and enhance products and services offered in the energy, mining and minerals, technology, consumer products, management services, manufacturing, or cannabis markets. As a result, we expect to continue to make investments in our partners and subsidiaries to promote further engineering, research, and development. There can be no assurance that our partners and subsidiaries will be able to develop and introduce new products and services or enhance initial products in a timely manner to satisfy customer needs, achieve market acceptance or address technological changes in our target markets. Failure to develop products and services and introduce them successfully and in a timely manner could adversely affect our competitive position, financial condition, and results of operations.

 

If we experience rapid growth, we will need to manage such growth well.

 

We may experience substantial growth in the size of our staff and the scope of our operations, resulting in increased responsibilities for management. To manage this possible growth effectively, we will need to continue to improve our operational, financial and management information systems, will possibly need to create departments that do not now exist, and hire, train, motivate and manage a growing number of staff. Due to a competitive employment environment for qualified technical, marketing and sales personnel, we expect to experience difficulty in filling our needs for qualified personnel. There can be no assurance that we will be able to effectively achieve or manage any future growth, and our failure to do so could delay product development cycles and market penetration or otherwise have a material adverse effect on our financial condition and results of operations.

 

We could face product liability risks and may not have adequate insurance.

 

Our partners’ and affiliates’ products may be used for medical purposes. We may become the subject of litigation alleging that our partners’ and affiliates’ products were ineffective or unsafe. Thus, we may become the target of lawsuits from injured or disgruntled customers or other users. We intend to, but do not now, carry product and liability insurance, but in the event that we are required to defend more than a few such actions, or in the event we are found liable in connection with such an action, our business and operations may be severely and materially adversely affected.

 

There is a limited market for our Common Stock.

 

Our Common Stock is not listed on any exchange and trades on the OTC Markets OTCQB system. As such, the market for our Common Stock is limited and is not regulated by the rules and regulations of any exchange. Freely trading shares of even fully reporting cannabis companies receive careful scrutiny by brokers who may require legal opinion letters, proof of consideration, medallion guarantees, or expensive fee payments before accepting or declining share deposit. Further, the price of our Common Stock and its volume in the market may be subject to wide fluctuations. Our stock price could decline regardless of our actual operating performance, and stockholders could lose a substantial part of their investment as a result of industry or market-based fluctuations. Our stock may trade relatively thinly. If a more active public market for our stock is not sustained, it may be difficult for stockholders to sell shares of our Common Stock. Because we do not anticipate paying cash dividends on our Common Stock for the foreseeable future, stockholders will not be able to receive a return on their shares unless they are able to sell them. The market price of our Common Stock will likely fluctuate in response to a number of factors, including but not limited to, the following:

 

sales, sales cycle, and market acceptance or rejection of our affiliates’ products; 

our ability to engage with partners who are successful in selling products; 

economic conditions within the cannabis industry; 

development of law related to cannabis products and services; 

the timing of announcements by us or our competitors of significant products, contracts or acquisitions or publicity regarding actual or potential results or performance thereof;  

domestic and international economic, business and political conditions; 

justified or unjustified adverse publicity; and 

proper or improper third-party short sales or other manipulation of our stock. 

 

We have a long business and corporate existence.

 

We began in Silicon Valley in 1985 as a limited partnership and operated as Mentor Capital, LP until we incorporated as Main Street Athletic Clubs, Inc. in California in 1994. We were privately owned until September 1996; our Common Stock began trading on the Over The Counter Pink Sheets on March 12, 1997. Our merger and acquisition and business development activities have spanned many business sectors, and we went through a bankruptcy reorganization in 1998. In late 2015, we reincorporated under the laws of the State of Delaware.


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Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our stock price.

 

Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC require annual management assessments of the effectiveness of our internal control over financial reporting. If we fail to adequately maintain compliance with, or maintain the adequacy of, our internal control over financial reporting, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC. If we cannot favorably assess our internal controls over financial reporting, investor confidence in the reliability of our financial reports may be adversely affected, which could have a material adverse effect on our stock price.

 

We have indemnified our officers and directors.

 

We have indemnified our Officers and Directors against possible monetary liability to the maximum extent permitted under California and Delaware law.

 

The worldwide economy could impact the company in numerous ways.

 

The effects of negative worldwide economic events, such as the recent coronavirus outbreak, may cause disruptions and extreme volatility in global financial markets, increased rates of default and bankruptcy, impact levels of consumer spending, and may impact our business, operating results, or financial condition. The ongoing worldwide economic situation, future weakness in the credit markets and significant liquidity problems for the financial services industry may also impact our financial condition in a number of ways. For example, current or potential customers may delay or decrease spending with us, or our partners and affiliates, or may not pay us, or our partners or affiliates, or may delay paying us, or our partners or affiliates, for previously purchased products and services. Also, we may have difficulties in securing additional financing.

 

Competitors in the Canadian public market may have a material advantage over us. The Canadian government has loosened the laws and regulations with regard to cannabis earlier and at a faster pace than in the United States. The financial regulations with regard to cannabis investing and banking are also more favorable in Canada than for the Company in the United States. This Canadian advantage may have a material negative effect on the Company business.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

On March 22, 2017, Mentor sold 222,223 shares of its unregistered Common Stock in a private placement for $500,002.

On October 3, 2019, the Company rescinded the sale and on March 6, 2020, cancelled the issuance of 222,223 shares of its Common Stock due to a complete failure of consideration, see notes 11 and 25.

 

On April 28, 2017, Mentor sold 66,667 shares of its unregistered Common Stock in a private placement for $100,000.

On October 3, 2019, the Company rescinded the sale and on March 6, 2020, cancelled the issuance of 66,667 shares of its Common Stock due to a complete failure of consideration, see notes 11 and 25.

 

On May 30, 2018, Mentor sold 11 shares of its unregistered Series Q Preferred Stock in a private placement for $110,000.

 

Other than as stated above, there have been no other unregistered securities sold within the past three years.

 

Each of these sales of shares of Common Stock was made in reliance on Rule 506(b) of Regulation D and Section 4(a)(2) of the Securities Act of 1933, as amended.

 

Proceeds of $600,002 were to be used to invest in a right to recover proceeds from a civil action further described in note 20 to the condensed consolidated financial statements.

 

Proceeds of $110,000 were invested in the Company’s wholly-owned subsidiary, Mentor Partner II, for purposes of purchasing equipment.

 

Item 3. Defaults Upon Senior Securities and Use of Proceeds.

 

None.


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Item 4. Mine Safety Disclosures.

 

None.

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits.

 

The following exhibits are filed as part of this report:

 

Exhibit Number

Description

3.1

Amended and Restated Certificate of Incorporation of the Company (Incorporated by reference to Mentor’s Definitive Information Statement on Schedule 14C filed with the SEC on July 10, 2015).

3.2

Bylaws of the Company (Incorporated by reference to Mentor’s Definitive Information Statement on Schedule 14C filed with the SEC on July 10, 2015).

4.1

Instrument Defining Rights of Security Holders. (A copy of our Bankruptcy Plan of Reorganization, including Mentor’s Sixth Amended Disclosure Statement, incorporated by reference to Exhibit 4 of our Registration Statement on Form 10, filed with the SEC on November 19, 2014.)

4.2

Description of assumed warrants to purchase shares of Mentor’s Common Stock (Incorporated by reference to Mentor’s Definitive Information Statement on Schedule 14C filed with the SEC on July 10, 2015).

4.3

Certificate of Designations of Rights, Preferences, Privileges and Restrictions of Series Q Preferred Stock (Incorporated by reference to Exhibit 4.3 to Mentor’s Quarterly Report on Form 10-Q for the Period Ended September 30, 2017, filed with the SEC on November 9, 2017)

31.1

Certification of the Chief Executive Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of the Chief Financial Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101

XBRL Exhibits


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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

Mentor Capital, Inc.

 

 

 

Date: May 13, 2020

By:

/s/ Chet Billingsley

 

 

Chet Billingsley, Chief Executive Officer

 

 

 

Date: May 13, 2020

By:

/s/ Lori Stansfield

 

 

Lori Stansfield, Chief Financial Officer


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