Notes to Consolidated Financial Statements
December 31, 2017 and 2016
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 late 2015. The entity was originally founded as an investment partnership in Silicon Valley, California by the current CEO in 1985 and subsequently incorporated under the laws of the State of California on July 29, 1994. On September 12, 1996, the Company’s offering statement was qualified pursuant to Regulation A of the Securities Act, and the Company began to trade its shares publicly. On August 21, 1998, the Company filed for voluntary reorganization and, on January 11, 2000, the Company emerged from Chapter 11. The Company relocated to San Diego, California and contracted to provide financial assistance and investment into small businesses. On May 22, 2015, a corporation, named Mentor Capital, Inc. (“Mentor Delaware”) was incorporated under the laws of the State of Delaware. A shareholder approved merger between Mentor and Mentor Delaware was approved by the California and Delaware Secretaries of State, and became effective September 24, 2015, thereby establishing Mentor as a Delaware corporation.
Since the September 2008, name change back to Mentor Capital, Inc., the Company’s Common Stock has traded publicly under the trading symbol OTCQB: MNTR.
In 2009, the Company began focusing its investing activities in leading edge cancer companies. In 2012, in response to government limitations on reimbursement for highly technical and expensive cancer treatments and a resulting business decline in the cancer development sector, the Company decided to exit that space. In the summer of 2013 the Company was asked to consider investing in a medical marijuana related project with a cancer focus. On August 29, 2013, the Company decided to divest of its cancer assets and focus future investments in the cannabis and medical marijuana sector.
Mentor has a 51% interest in Waste Consolidators, Inc. (“WCI”). WCI was incorporated in Colorado in 1999 and operates in Arizona and Texas. It is a legacy investment which was acquired prior to the Company’s current focus on the cannabis sector and is included in the consolidated financial statements presented.
On February 28, 2014, the Company entered into an agreement to purchase 60% of the outstanding shares of Bhang Corporation, formerly known as Bhang Chocolate Company, Inc. (“Bhang”), which was ultimately rescinded. Following arbitration, on December 29, 2016, Mentor obtained a judgment against Bhang in the United States District Court for the Northern District of California. The judgment is comprised of $1,500,000 invested by Mentor into Bhang plus pre-judgment interest in the amount of $421,535. The judgment also accrued post-judgment interests at the rate of 10% from December 29, 2016 through November 20, 2017, when the parties agreed to stipulated payment terms. The judgment was paid in full in January 2018, see Notes 5 and 26. The receivable from Bhang at December 31, 2017 includes $1,500,000 of principal plus accrued interest of $540,521 and reimbursed costs of $5,147, less $58,569 interest due to two Bhang shareholders for shares of Mentor Common Stock which were returned to the Company in January 2018 per the stipulated agreement. Mentor accounted for the return of Common Stock held by the Bhang shareholders at the time the stock was received in January 2018. The Receivable from Bhang Chocolate Company at December 31, 2016 was reported as other assets and did not include interest receivable, which was fully reserved pending the outcome of the Company’s collection process.
On April 20, 2015, the Company acquired 100% of the assets of a Georgia sole proprietorship, dba Investor Webcast, valued at $469,611 in exchange for 4,696 to-be-created Series B convertible preferred shares of Mentor. On May 7, 2015, Mentor formed a Delaware limited liability company subsidiary, Investor Webcast, LLC (“CAST”), to hold the purchased assets. Revenue was lower than anticipated for CAST and on March 1, 2016, the Company entered into a Mutual Termination Agreement and General Release in which the certain Investor Webcast – Mentor Capital Cannabis Owners Public Liquidity Agreement effective April 20, 2015 and the Convertible Security Agreement between Mentor and the prior owner of the CAST assets were cancelled and terminated, resulting in a disposition of CAST assets and liabilities by the Company. The prior owner of the CAST assets received assets valued at $7,408, assumed liabilities of $17,587 and received $500 in cash. Mentor forgave an intercompany note receivable from CAST of $23,225, direct intercompany charges of $10,284, and $17,043 of intercompany overhead receivable from CAST. Two prior employees were also paid $50 each. CAST was formally dissolved on June 2, 2016.
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9
Mentor Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
Note 1 - Nature of operations (continued)
On April 18, 2016, the Company formed Mentor IP, LLC (“MCIP”), a South Dakota limited liability company and wholly owned subsidiary of Mentor. MCIP was formed to invest in intellectual property and specifically to hold the investment in patent interests obtained on April 4, 2016 when Mentor Capital, Inc. entered into an agreement with R. Larson and Larson Capital (“Larson”) to seek and secure the benefits of mutual effort directed toward the capture of license fees from domestic and foreign THC and CBD cannabis vape patents. See Note 20.
On April 13, 2017, Mentor entered into an agreement to provide $40,000 of funding to offset costs of the application of cannabis oil in a glaucoma study conducted by and otherwise paid for by Dr. Robert M. Mandelkorn, MD. Mentor, doing business as GlauCanna, will hold an 80% interest in any commercial opportunities that result from the study. Dr. Mandelkorn will hold the remaining 20%.
On June 30, 2017, the Company converted its original $100,000 convertible promissory note to Electrum Capital Partners, LLC (“Electrum”) plus accrued and unpaid interest of $7,772 into an equity interest in Electrum, at a conversion price of $19 per interest, for 5,672 membership interests, representing approximately 4.51% interest in Electrum at December 31, 2017. The investment in Electrum is reported in the consolidated balance sheets as a minority investment at cost of $107,772 at December 31, 2017, see Note 11. Prior to conversion, the convertible note receivable was reported in the consolidated balance sheets as a $100,000 convertible note receivable with accrued interest of $6,874 at December 31, 2016, see Notes 8.
On April 28, 2017 the Company invested a second $100,000 in Electrum (Note II) as a convertible note with interest at 10% compounded monthly, with monthly payments of principal and interest of $2,290 beginning June 12, 2017 and maturing May 12, 2022 or until the Company requests that the principal and unpaid interest be converted into an equity investment in Electrum, based upon a fixed equity conversion rate of $164 per interest. The outstanding balance on Note II at December 31, 2017 was $94,806, see Note 8.
On September 19, 2017, the Company formed Mentor Partner I, LLC (“Partner I”), a California limited liability company as a wholly owned subsidiary of Mentor for the purpose of cannabis-focused investing. For the period of inception to December 31, 2017 there were no operations. Subsequent to December 31, 2017, Mentor contributed $800,000 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, see Note 26.
Subsequent to December 31, 2017, on February 1, 2018, the Company formed Mentor Partner II, LLC (“Partner II”), a California limited liability company as a wholly owned subsidiary of Mentor for the purpose of cannabis-focused investing. On February 8, 2018, Mentor contributed $400,000 to Partner II to facilitate the purchase of manufacturing equipment to be leased from Partner II by Pueblo West Organics, LLC under a Master Equipment Lease Agreement dated February 11, 2018, see Note 26.
Note 2 - Summary of significant accounting policies
Basis of presentation
The accompanying consolidated financial statements and related notes include the activity of majority owned subsidiaries of 51% or more. 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 year amounts have been reclassified to conform to current year presentation.
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.
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10
Mentor Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
Note 2 - Summary of significant accounting policies (continued)
Use of estimates
The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates, assumptions, and judgements that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of our consolidated financial statements, and the reported amount of revenues and expenses during the reporting period.
Significant estimates relied upon in preparing these consolidated financial statements include revenue recognition, accounts and notes receivable reserves, expected future cash flows used to evaluate the recoverability of long-lived assets, estimated fair values of long-lived assets used to record impairment charges related to goodwill, amortization periods, accrued expenses, and recoverability of the Company’s net deferred tax assets and any related valuation allowance.
Although the Company regularly assesses these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results may differ from management’s estimates if past experience or other assumptions do not turn out to be substantially accurate.
Concentrations of cash
The Company maintains its cash and cash equivalents in bank deposit accounts which at times may exceed federally insured limits. The Company has not experienced any losses in such accounts nor does the Company believe it is exposed to any significant credit risk on cash and cash equivalents.
Cash and cash equivalents
The Company considers all short-term debt securities purchased with a maturity of three months or less to be cash equivalents. The Company had no short-term debt securities as of December 31, 2017 and 2016.
Cash in attorney trust account
The Company had $314,536 and $0 in two attorney trust accounts at December 31, 2017 and 2016, respectively. The balances may be withdrawn at the option of the Company and do not bear interest.
Accounts receivable
Accounts receivable consist of trade accounts arising in the normal course of business and are classified as current assets and carried at original invoice amounts less an estimate for doubtful receivables based on a review of outstanding balances on a monthly basis. The estimate of allowance for doubtful accounts is based on the Company's bad debt experience, market conditions, and aging of accounts receivable, among other factors. If the financial condition of the Company's customers deteriorates resulting in the customer's inability to pay the Company's receivables as they come due, additional allowances for doubtful accounts will be required. At December 31, 2017 and 2016, the Company has recorded an allowance in the amount of $73,105 and $33,837, respectively.
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11
Mentor Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
Note 2 - Summary of significant accounting policies (continued)
Convertible notes receivable
The convertible note receivable from Electrum Partners, LLC (“Electrum”) was recorded at the principal face amount of $100,000 plus accrued interest of $6,874 at December 31, 2016. The note bore interest at 10% per annum and would have matured March 12, 2022. The note called for monthly interest payments of $898 through March 12, 2017 after which monthly payments of principal and interest would be $2,290 until the note was paid full. On April 28, 2017, an addendum to the convertible note provided for continued monthly interest payments of $898 until such time as the Company requested commencement of principal and interest of $2,290 per month. Effective June 30, 2017, the Company elected to convert the note plus accrued interest of $7,772 into equity in Electrum at a conversion price of $19 per interest. The conversion resulted in an ownership of 5,672 membership interests, representing an approximately 4.51% interest in Electrum as of December 31, 2017.
On April 28, 2017, the Company entered into an Addendum to Convertible Note and Purchase Option Agreement (“Addendum”) with Electrum. Under the Addendum, the Company invested an additional $100,000 in Electrum by purchase of a second promissory note in principal face amount of $100,000 (“Note II”) from Electrum with interest at 10% per annum compounded monthly. Note II is recorded at the principal face amount plus accrued interest of $0 at September 30, 2017. Note II requires monthly principal and interest payments of $2,290 to the Company beginning June 12, 2017, until fully repaid on May 12, 2022 or until the Company requests that the residual principal and unpaid interest be converted into an equity investment in Electrum, based upon a fixed equity conversion rate of $164 per interest. The note is collateralized by cannabis equity securities owned by Electrum.
The Company has convertible notes receivable from NeuCourt, Inc. that are recorded at the principal face amount of $50,000 and $25,000 plus accrued interest of $1,565 and $181 at December 31, 2017 and 2016, respectively. The notes bear 5% interest with $25,000 face amount maturing on November 8, 2018 and $25,000 maturing on October 25, 2019. No payments are required prior to maturity. Principal and unpaid interest may be converted into a blend of shares of a to-be-created series of Preferred Stock, and Common Stock, of NeuCourt (defined as “Conversion Shares”) (i) on closing of a future financing round of at least $750,000, (ii) on the election of NeuCourt on maturity of the Note, or (iii) an election of Mentor following NeuCourt’s election to prepay the Note. The Conversion Price for the Note is the lower of (i) 75% of the price paid in the Next Equity Financing, or the price obtained by dividing a $3,000,000 valuation cap by the fully diluted number of shares. The number of Conversion Shares issued on conversion shall be the quotient obtained by dividing the outstanding principal and unpaid accrued interest on a Note to be converted on the date of conversion by the Conversion Price (the “Total Number of Shares”), The Total Number of Shares shall consist of Preferred Stock and Common Stock as follows: (i) That number of shares of Preferred Stock obtained by dividing (a) the principal amount of each Note and all accrued and unpaid interest thereunder by (b) the price per share paid by other purchasers of Preferred Stock in the Next Equity Financing (such number of shares, the "Number of Preferred Stock") and (ii) that number of shares of Common Stock equal to the Total Number of Shares minus the Number of Preferred Stock. Using the valuation cap of $3,000,000, the Notes would convert into 242,666 Conversion Shares at December 31, 2017. In the event of a Corporate Transaction prior to repayment or conversion of the Note, the Company shall receive back two times its investment, plus all accrued unpaid interest. NeuCourt is a Delaware corporation that is developing a technology that is expected to be useful in the cannabis space.
Investments
Available-for-sale investment securities consist of readily marketable debt and equity securities. Unrealized gains or losses are generally recorded in other comprehensive income.
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.
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12
Mentor Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
Note 2 - Summary of significant accounting policies (continued)
Long-lived assets impairment assessment
In accordance with the FASB Accounting Standards Codification (“ASC”) 350, we regularly review the carrying value of intangible and other long-lived assets for the existence of facts or circumstances, both internally and externally, that suggest impairment. The carrying value and ultimate realization of these assets is dependent upon our estimates of future earnings and benefits that we expect to generate from their use. If our expectations of future results and cash flows are significantly diminished, intangible assets and other long-lived assets may be impaired and the resulting charge to operations may be material. When we determine that the carrying value of intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, we use the projected undiscounted cash flow method to determine whether an impairment exists, and then measure the impairment using discounted cash flows.
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 installment payments of $117,000 per year 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.
Property and equipment
Property and equipment is recorded at cost less accumulated depreciation. Depreciation is computed on the straight-line and declining balance methods 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, vehicles and trailers, five years.
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.
Goodwill
Goodwill of $1,324,142 was derived from consolidating WCI effective January 1, 2014 and $102,040 of goodwill related to the 1999 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 December 31, 2017 and December 31, 2016.
Revenue recognition
The Company recognizes revenue in accordance with ASC 605 “Revenue Recognition”. The Company records revenue under each contract once persuasive evidence of an agreement exists, delivery has occurred, or services have been rendered, the fee is fixed or determinable and collectability is reasonably assured. Service fees are generated by WCI for monthly services performed to reduce customer’s operating costs. Service fees are invoiced and recognized as revenue in the month services are performed. Consulting revenue is recognized at the time the related services are provided as specified in the related consulting agreements.
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13
Mentor Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
Note 2 - Summary of significant accounting policies (continued)
Basic and diluted income (loss) per common share
We compute net loss per share in accordance with ASC 260, Earnings per Share. Under the provisions of ASC 260, basic net loss per share includes no dilution and is computed by dividing the net loss available to common stockholders for the period by the weighted average number of shares of Common Stock outstanding during the period. Diluted net loss per share takes into consideration shares of Common Stock outstanding (computed under basic net loss per share) and potentially dilutive securities that are not anti-dilutive.
Outstanding warrants that had no effect on the computation of dilutive weighted average number of shares outstanding as their effect would be antidilutive were approximately 7,400,000 and 8,900,000 as of December 31, 2017 and 2016, respectively. There were 0 and 4,500 potentially dilutive shares outstanding at December 31, 2017 and 2016, respectively.
Income taxes
The Company accounts for income taxes in accordance with accounting guidance now codified as FASB ASC 740, "Income Taxes," which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that some or all deferred tax assets will not be realized.
The Company applies the provisions of ASC 740, "Accounting for Uncertainty in Income Taxes". The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company utilizes a two-step approach to recognizing and measuring uncertain tax positions (tax contingencies). The first step evaluates the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that we will sustain the position on audit, including resolution of related appeals or litigation processes. The second step measures the tax benefit as the largest amount more than 50% likely of being realized upon ultimate settlement. The Company did not identify any material uncertain tax positions on returns that have been filed or that will be filed. The Company did not recognize any interest or penalties for unrecognized tax benefits during the years ended December 31, 2017 and 2016, nor were any interest or penalties accrued as of December 31, 2017 and 2016. To the extent the Company may accrue interest and penalties, it elects to recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense.
Advertising and promotion
The Company expenses advertising and promotion costs as incurred. Advertising and promotion costs were $48,809 and $17,534 for the years ended December 31, 2017 and 2016, respectively.
Fair value measurements
The Company adopted ASC 820 which defines fair value as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal, or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs.
The Fair Value Measurements and Disclosure Topic establish a fair value hierarchy, which prioritizes the valuation inputs into three broad levels. These three general valuation techniques that may be used to measure fair value are as follows: Market approach (Level 1) – which uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. Prices may be indicated by pricing guides, sale transactions, market trades, or other sources. Cost approach (Level 2) – which is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost); and the Income approach (Level 3) – which uses valuation techniques to convert future amounts to a single present amount based on current market expectations about the future amounts (including present value techniques, and option-pricing models). Net present value is an income approach where a stream of expected cash flows is discounted at an appropriate market interest rate.
The carrying amounts of cash, cash in attorney trust account, accounts receivable, prepaid expenses and other current assets, accounts payable, customer deposits and other accrued liabilities approximate their fair value due to the short-term nature of these instruments.
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14
Mentor Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
Note 2 - Summary of significant accounting policies (continued)
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 principle payments. The carrying value approximates fair value as interest rates charged are comparable to market rates for similar investments.
The fair value of notes receivable is based on the net present value of calculated interest and principle payments. The carrying value approximates fair value as interest rates charged are comparable to market rates for similar notes.
The fair value of long-term notes payable is based on the net present value of calculated interest and principle payments. The carrying value of long-term debt approximates fair value due to the fact that the interest rate on the debt is based on market rates.
Recent Accounting Standards
From time to time, the FASB or other standards setting bodies issue new accounting pronouncements. Updates to the FASB ASCs are communicated through issuance of an Accounting Standards Update ("ASU"). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our consolidated financial statements upon adoption.
Recent Accounting Standards (continued)
In May 2014 the FASB issued guidance on revenue from contracts with customers, which implements a five-step process of how an entity should recognize revenue in order to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective at the beginning of fiscal year 2018, and early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We are currently evaluating the impact that the adoption will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method, nor have we determined the effect of the standard on our ongoing reporting.
In February 2016, the FASB issued guidance on leases which requires entities to recognize right-of-use assets and lease liabilities on the balance sheet for the rights and obligations created by all leases, including operating leases, with terms of more than 12 months. The new guidance also requires additional disclosures on the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative information. The new guidance will be effective for us at the beginning of fiscal year 2019. Early adoption is permitted. We are in the process of evaluating the impact the adoption of this guidance will have on our consolidated financial statements and related disclosures.
Note 3 – Cash in attorney trust accounts
At December 31, 2017 and 2016, the Company has $314,536 and $0 held in attorney trust accounts. The accounts do not bear interest and the Company may withdraw funds any time at its discretion.
Note 4 – Prepaid expenses and other assets
Prepaid expenses and other assets consist of the following at December 31, 2017 and 2016:
|
|
2017
|
|
2016
|
Prepaid insurance
|
$
|
5,005
|
$
|
3,784
|
Prepaid Legal
|
|
12,000
|
|
-
|
Other prepaid costs
|
|
27,107
|
|
39,079
|
|
$
|
44,112
|
$
|
42,863
|
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15
Mentor Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
Note 5 – Bhang Corporation (formerly known as Bhang Chocolate Company, Inc.) and Judgment
The Company entered into an agreement with Bhang Chocolate Company, Inc., the predecessor in interest to Bhang Corporation (together “Bhang”), effective February 28, 2014. As part of that agreement, which was ultimately rescinded, Mentor delivered $1,500,000 to Bhang which Bhang refused to return following rescission of the agreement. Following arbitration of the dispute, on December 29, 2016, Mentor obtained a judgment in the amount of $1,921,534 against Bhang Corporation and its predecessor in interest, Bhang Chocolate Company, Inc., in the United States District Court for the Northern District of California. The judgment accrued interest at the rate of 10% from December 29, 2016 until November 20, 2017, when the parties stipulated to payment terms.
On January 23, 2018, the Company received a net payment of $1,758,949 in satisfaction of the judgment and 117,000 shares of Mentor common stock, originally sold to two Bhang shareholders, were returned to Mentor in exchange for a payment of $286,719, which was offset from the accrued judgment of $2,045,668, see Note 26. Receipt of Common Stock returned by the Bhang shareholders is accounted for as a reduction of outstanding Common Stock and reduction to the Receivable from Bhang Chocolate Company by the original purchase price of $228,150 upon their receipt by Mentor in January 2018, see Note 26.
The Company collected and recognized $55,585 of interest income in the quarter ended September 30, 2017. In the fourth quarter of 2017, at the time the parties stipulated to payment terms, $540,521 of interest income was recognized on the judgement. At December 31, 2016, accrued interest was fully reserved pending the Company’s ability to collect on the judgement.
The receivable and accrued interest consists of the following at December 31, 2017 and 2016:
|
|
2017
|
|
2016
|
Receivable from Bhang Chocolate Company
|
$
|
1,500,000
|
$
|
1,500,000
|
Accrued interest
|
|
540,521
|
|
422,588
|
Reimbursed costs
|
|
5,147
|
|
-
|
Sub-total
|
|
2,045,668
|
|
1,922,588
|
Reserve pending collection efforts
|
|
-
|
|
(422,588)
|
Interest payable to Bhang owners
|
|
(58,569)
|
|
-
|
Receivable from Bhang Chocolate Company
|
|
1,987,099
|
|
1,500,000
|
Current portion
|
|
(1,987,099)
|
|
-
|
Long term portion
|
$
|
-
|
$
|
1,500,000
|
Note 6 – Investment in account receivable
On April 10, 2015, the Company entered into an exchange agreement whereby the Company received an investment in an account receivable with installment payments of $117,000 per year for 11 years totaling $1,287,000 in exchange for 757,059 shares of Mentor Common Stock obtained through exercise of Series D warrants at $1.60 per share. The Counterparty to the exchange agreement could have elected to partially rescind the exchange at any time after June 1, 2017 and ending on the earlier of (i) December 1, 2017, and (ii) two weeks following the date on which the Counterparty receives notice from Mentor that Mentor’s warrant holders have been notified that they have approximately 30 days left to exercise Mentor warrants. The partial rescission election terms required return of all or part of 313,820 of the Mentor shares exchanged for all or part of the installment payments due in or around January of each of 2018, 2019, 2020 and 2021. In May 2017, the 313,820 shares were deposited into a brokerage account resulting in termination of the partial rescission option.
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.
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16
Mentor Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
Note 6 – Investment in account receivable (continued)
The investment in account receivable is supported by an exchange agreement and consisted of the following at December 31, 2017 and 2016:
|
|
2017
|
|
2016
|
Face value
|
$
|
1,053,000
|
$
|
1,053,000
|
Unamortized discount
|
|
(479,638)
|
|
(571,013)
|
Net balance
|
|
573,362
|
|
481,987
|
Current portion *
|
|
(117,000)
|
|
-
|
Long term portion
|
$
|
456,362
|
$
|
481,987
|
* The 2016 installment receivable was exchanged with a third party as payment for service on December 13, 2016 and therefore there is no current balance due at December 31, 2016.
For the years ended December 31, 2017 and 2016, $91,375 and $103,413 of discount amortization is included in interest income.
Note 7 - Property and equipment
Property and equipment is comprised of the following at December 31, 2017 and 2016:
|
|
2017
|
|
2016
|
Computers
|
$
|
29,958
|
$
|
22,251
|
Furniture and fixtures
|
|
24,406
|
|
23,043
|
Machinery and vehicles
|
|
148,928
|
|
169,740
|
|
|
203,292
|
|
215,034
|
Accumulated depreciation and amortization
|
|
(162,563)
|
|
(178,482)
|
|
|
|
|
|
Net Property and equipment
|
$
|
40,729
|
$
|
36,552
|
Depreciation and amortization expense was $15,706 and $25,762 for the years ended December 31, 2017 and 2016, respectively.
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17
Mentor Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
Note 8 – Convertible notes receivable
Convertible notes receivable consists of the following at December 31, 2017 and 2016:
|
|
2017
|
|
2016
|
March 12, 2014 Electrum convertible note receivable including accrued interest of $0 and $6,874, respectively. The note bore interest at 10% per annum, compounded until maturity or until converted to shares of equity in Electrum. From October 12, 2015 to March 12, 2017 interest only payments were required; and from March 12, 2017 through March 12, 2022 payments of principal and interest in the amount of $2,289.83 were required. Effective June 30, 2017, the Company elected to convert the note plus accrued interest of $7,772 into equity in Electrum. *
|
$
|
-
|
$
|
106,874
|
|
|
|
|
|
April 28, 2017 Electrum convertible note receivable bearing interest at 10% and maturing May 12, 2022, with monthly principal and interest payments of $2,290 beginning June 12, 2017. The Company may request that any residual principal and unpaid interest be converted into an equity investment in Electrum based upon a fixed equity conversion rate of $164 per interest. The note is collateralized by cannabis equity securities owned by Electrum.
|
|
90,731
|
|
-
|
|
|
|
|
|
NeuCourt, Inc. convertible note receivable including accrued interest of $1,430 and $182 at December 31, 2017 and 2016. The note bears interest at 5% per annum and matures November 8, 2018. Principal and accrued interest are due at maturity. Principal and unpaid interest may be converted into a blend of shares of a to-be-created series of Preferred Stock and Common Stock of NeuCourt (i) on closing of a future financing round of at least $750,000, (ii) on the election of NeuCourt on maturity of the Note, or (iii) on election of Mentor following NeuCourt’s election to prepay the Note. **
|
|
26,430
|
|
25,181
|
|
|
|
|
|
NeuCourt, Inc. convertible note receivable including accrued interest of $135 and $0 at December 31, 2017 and 2016. The note bears interest at 5% per annum and matures October 25, 2019. Principal and accrued interest are due at maturity. Principal and unpaid interest may be converted into a blend of shares of a to-be-created series of Preferred Stock and Common Stock of NeuCourt (i) on closing of a future financing round of at least $750,000, (ii) on the election of NeuCourt on maturity of the Note, or (iii) on election of Mentor following NeuCourt’s election to prepay the Note. **
|
|
25,135
|
|
-
|
Total convertible notes receivable
|
|
142,296
|
|
132,055
|
Less current portion
|
|
(43,628)
|
|
(12,951)
|
Long term portion
|
$
|
98,668
|
$
|
119,104
|
* The conversion price is the Electrum Partners, LLC note balance plus any accrued interest at conversion date. The conversion percentage is (conversion price divided by (conversion price plus $1.9 million)).
**
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, each Note would today convert into 121,333 Conversion Shares. In the event of a Corporate Transaction prior to repayment or conversion of the Note, the Company shall receive back two times its investment, plus all accrued unpaid interest.
F-
18
Mentor Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
Note 9 - Note purchase agreement and consulting agreement with G FarmaLabs Limited
On March 17, 2017, the Company entered into a Notes Purchase Agreement with G Farmalabs Limited (“G Farma”), a Nevada corporation. Under the Agreement the Company purchased two secured promissory notes from G Farma in an aggregate principal amount of $500,000, both of which bear interest at 7.42% per annum, with monthly payments beginning on April 15, 2017, and mature on April 15, 2022. The first promissory note in the amount of $120,000 is for the purchase of real estate, which was to be secured by a deed of trust on real property and requires monthly payments of $1,107 beginning April 15, 2017 with a balloon payment of approximately $94,164 at maturity. Should no property be selected to secure the real estate loan it will be converted to a working capital loan. The second promissory note in the amount of $380,000 was to be used for working capital and requires monthly payments of $3,505 with a balloon payment of approximately $298,185 at maturity. The two G Farma notes are secured by all property, real and personal, tangible or intangible of G Farma and are guaranteed by two majority shareholders of G Farma. The Company and G Farma have executed five addenda subsequent to the original agreement.
Addendum II (the “Addendum II”) on April 28, 2017, in which Mentor invested an additional $100,000 in G Farma by increasing the aggregate principal face amount of the working capital note to $480,000 and increasing the monthly payments on the working capital note to $4,427 per month. The maturity date remained the same resulting in a total balloon payment of approximately $377,095 at maturity. Addendum II also provides that if the contemplated real estate transaction or a similar transaction is not consummated the real estate note will be consolidated into the working capital note with extension of the security pledges and guarantees.
Addendum III (the “Addendum III”) on June 4, 2017, in which Mentor invested an additional $100,000 in G Farma by increasing the aggregate principal face amount of the working capital note to $580,000 and increasing the monthly payments on the working capital note to $5,350 per month. The maturity date remained the same resulting in a total balloon payment of approximately $456,877 at maturity.
Addendum IV (the “Addendum IV”) on September 26, 2017, in which Mentor invested an additional $100,000 in G Farma by increasing the aggregate principal face amount of the of the working capital note to $680,000, resulting in payments of $6,272 per month beginning November 15, 2017. The maturity date remained the same resulting in a total balloon payment of approximately $538,372 at maturity.
Addendum V (the “Addendum V”) on December 6, 2017, in which Mentor invested an additional $100,000 in G Farma by increasing the aggregate principal face amount of the of the working capital note to $780,000, resulting in payments of $8,301 per month beginning January 15, 2018. The maturity date remained the same resulting in a total balloon payment of approximately $620,708 at maturity.
The G Farma notes are secured by all property, real and personal, tangible or intangible of G Farma and are guaranteed by a majority owner of G Farma. Addendum VI (the “Addendum VI”) was executed on January 17, 2018 subsequent to year-end, see Note 26.
Associated with the Notes Purchase Agreement, on March 17, 2017, the Company and G Farma entered into a Rights Agreement which provides that G Farma will not register its stock in a public offering unless it either (i) obtains the written consent of the Company, or (ii) without the Company’s written consent if G Farma issues to the Company shares of each class or series of G Farma stock then outstanding equal to 1.5% of each such number of shares, calculated on a full dilution full conversion basis. Each addendum has increased item (ii) resulting in a rate of 2.7% as of December 31, 2017 in Addendum V. This rate increased to 3.0% subsequent to year-end in Addendum VI.
In addition, on March 17, 2017, the Company entered into a Consulting Agreement with G Farma whereby the Company will receive a monthly consulting fee in arears of $1,400 per month beginning April 15, 2017 and continuing until the later of (i) 12 months, and (ii) the date on which G Farma has paid in full all obligations under the Notes Purchase Agreement. This monthly consulting fee increased to $1,680 by Addendum II beginning with the May 15, 2017 payment, was not changed by Addendum III, increased to $1,960 by Addendum IV beginning with the November 15, 2017 payment, increased to $2,240 by Addendum V beginning with the January 15, 2018, and subsequent to year-end was increased to $2,520 by Addendum VI beginning on
F-
19
Mentor Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
Note 9 - Note purchase agreement and consulting agreement with G FarmaLabs Limited (continued)
March 15, 2018. For the years ended December 31, 2017 and 2016, $15,400 and $0 of consulting fees from G Farma is included in revenue, respectively.
Notes receivable from G Farma consists of the following at December 31, 2017:
Real estate note
|
$
|
116,632
|
Working capital note
|
|
764,388
|
|
|
881,021
|
Less current portion
|
|
(35,445)
|
|
|
|
Long term portion of notes receivable
|
$
|
845,576
|
Note 10 - Contractual interest in legal recovery
On March 17, 2017, G Farma purchased 222,223 restricted shares of the Company’s Common Stock in a private placement at a price of $2.25 per share, for an aggregate purchase price of $500,002. Pursuant to Addendum II entered into on April 28, 2017, G Farma purchased an additional 66,667 shares of the Company’s Common Stock at $1.50 per share for a purchase price of $100,000. The combined total purchase of $600,002 is to be paid as follows: (i) Assignment to the Company of an interest, equal to the amount of the purchase price, in any and all civil forfeiture or similar recoveries received by, or due to, G Farma including a $10 million claim filed March 29, 2017 against the County of Calaveras, or (ii) at any time before payment of the full purchase price from recovery, the Company may elect to have G Farma pay all or some of the purchase price on the date of the maturity of the promissory notes, described above under the Notes Purchase Agreement, or (iii) The Company may elect to have G Farma pay all or some of the purchase price by issuance to the Company of G Farma securities in aggregate amount equal to the purchase price as are offered to any other person (other than stock options offered to employees).
Note 11 – Investments and fair value
We account for our financial assets in accordance with ASC 820,
Fair Value Measurement
. This defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under this standard certain assets and liabilities must be measured at fair value, and disclosures are required for items measured at fair value.
The fair value measurement disclosures are grouped into three levels based on valuation factors:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. The fair value of the Company’s cash is based on quoted prices and therefore classified as Level 1.
Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 - Unobservable inputs that reflect management’s assumptions about the assumptions that market participants would use in pricing the asset or liability.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
F-
20
Mentor Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
Note 11 – Investments and fair value (continued)
Level 1, Level 2 and Level 3 Assets are listed as following:
|
|
Fair Value Measurement Using
|
|
|
Unadjusted
Quoted Market
Prices
|
|
Quoted Prices
for
Identical or
Similar Assets in
Active Markets
|
|
Significant
Unobservable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
(Level 3)
|
|
|
Equity
Securities
|
|
Other
Investment
|
|
Contractual
interest Legal
Recovery
|
|
Equity Funding
Agreements
|
Balance at December 31, 2015
|
$
|
37,500
|
$
|
-
|
$
|
-
|
$
|
55,943
|
Total gains or losses
Included in earnings
(or changes in net assets)
|
|
|
|
|
|
|
|
|
|
(8,831)
|
|
-
|
|
-
|
|
(20,000)
|
Purchases, issuances, sales,
and settlements
|
|
|
|
|
|
|
|
|
Purchases
|
|
-
|
|
-
|
|
-
|
|
-
|
Issuances
|
|
-
|
|
-
|
|
-
|
|
50,000
|
Sales
|
|
(28,669)
|
|
-
|
|
-
|
|
-
|
Settlements
|
|
-
|
|
-
|
|
-
|
|
(30,000)
|
Balance at December 31, 2016
|
|
-
|
|
-
|
|
-
|
|
55,943
|
Total gains or losses
|
|
|
|
|
|
|
|
|
Included in earnings (or changes in net assets)
|
|
(128,623)
|
|
-
|
|
600,002
|
|
-
|
Purchases, issuances, sales,
and settlements
|
|
|
|
|
|
|
|
|
Purchases
|
|
1,071,902
|
|
-
|
|
-
|
|
107,771
|
Issuances
|
|
-
|
|
-
|
|
-
|
|
-
|
Sales
|
|
(754,644)
|
|
-
|
|
-
|
|
-
|
Settlements
|
|
-
|
|
-
|
|
-
|
|
-
|
Balance at December 31, 2017
|
$
|
188,635
|
$
|
-
|
$
|
600,002
|
$
|
163,714
|
The Company’s investment securities are presented in available-for-sale investment securities. The amortized costs, gross unrealized holding gains and losses, and fair values of the Company’s investment securities classified as available-for-sale at December 31, 2017 consists of the following:
Type
|
|
Amortized
Costs
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Values
|
NASDAQ listed company stock
|
$
|
130,997
|
$
|
1,013
|
$
|
-
|
$
|
132,010
|
OTCQB listed company stock
|
|
22,816
|
|
33,809
|
|
-
|
|
56,625
|
|
$
|
153,813
|
$
|
34,822
|
$
|
-
|
$
|
188,635
|
At December 31, 2016 there were no investment securities held by the Company.
F-
21
Mentor Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
Note 11 – Investments and fair value (continued)
The portion of unrealized gains and losses for the period related to equity securities still held at December 31, 2017 and 2016 is calculated as follows:
|
|
2017
|
|
2016
|
Net gains and losses recognized during the period on equity securities
|
$
|
(128,623)
|
$
|
-
|
Less: Net gains (losses) recognized during the period on equity securities
sold during the period
|
|
(163,445)
|
|
-
|
Unrealized gains and losses recognized during the reporting period on
equity securities still held at the reporting date
|
$
|
34,822
|
$
|
-
|
Note 12 - 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.
Each warrant is callable by the Company if the share price exceeds the exercise price by the lesser of $1 or 100%. The warrant holders have a minimum of 30 calendar days during which to exercise their warrants once they are called. The Company may lower the exercise price of all or part of a warrant series at any time. Similarly, the Company could, but does not anticipate, reverse splitting the stock to raise the stock price above the warrant exercise price. The warrants are specifically not affected and do not split with the shares in the event of a reverse split. If the called warrants are not exercised, the Company has the right to designate the warrants to a new holder in return for a $0.10 per share redemption fee payable to the original warrant holders as discussed further in Note 13. All such changes in the exercise price of warrants were provided for by the court in the Plan of Reorganization in order to provide a mechanism for all debtors to receive value even if they could not or did not exercise their warrant. Therefore, management believes that the act of lowering the exercise price is not a change from the original warrant grants and the Company has not recorded an accounting impact as the result of such change in exercise prices.
All Series A and Series C warrants were exercised by December 31, 2014. Exercise prices in effect at January 1, 2015 through December 31, 2017 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 One Securities, LLC and a related Strategic Advisory Agreement with Lenox Hill Partners, LP with regard to a potential merger with a cancer development company. In conjunction with those related agreements, the Company issued 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 December 31, 2017 and 2016, the weighted average contractual life for all Mentor warrants was 20.5 and 21.5 years, respectively, and the weighted average outstanding warrant exercise price was $2.11 and $2.02 per share, respectively.
During the years ended December 31, 2017 and 2016, a total of 1,544,883 and 4,503,346 warrants were exercised, respectively. There were no warrants issued during the years ended December 31, 2017 and 2016. The intrinsic value of outstanding warrants at December 31, 2017 and 2016 was $0 and $4,275, respectively.
Subsequent to year end, on January 23, 2018, 117,000 shares of Mentor’s Common Stock purchased in 2014 through warrant exercises by two Bhang shareholders under an agreement that was ultimately rescinded, were returned to the Company (see Note 5) and the associated exercise of warrants was reversed with 98,456 Series B warrants and 29,544 Series D warrants reinstated. At this time the CEO was reallocated the 87,456 B warrants, and his D warrants were reduced by the same amount, see Notes 18 and 26.
F-
22
Mentor Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
Note 12 - Common Stock warrants (continued)
The following table summarizes Series B and Series D Common Stock warrants as of each period:
|
|
Series B
|
|
Series D
|
|
B, D Total
Warrants
|
Outstanding at December 31, 2015
|
|
4,500
|
|
12,709,736
|
|
12,714,236
|
Issued
|
|
-
|
|
-
|
|
-
|
Exercised
|
|
-
|
|
(4,503,346)
|
|
(4,503,346)
|
Outstanding at December 31, 2016
|
|
4,500
|
|
8,206,390
|
|
8,210,890
|
Issued
|
|
-
|
|
-
|
|
-
|
Exercised
|
|
(4,500)
|
|
(1,540,383)
|
|
(1,544,883)
|
Outstanding at December 31, 2017
|
|
-
|
|
6,666,007
|
|
6,666,007
|
Series E, F, G and H warrants were issued for investment banking and advisory services during 2009. Series E, F and G warrants were exercised in 2014.
The following table summarizes H warrants as of each period:
|
|
Series H
$7.00
exercise price
|
Outstanding at December 31, 2015
|
|
689,159
|
Issued
|
|
-
|
Exercised
|
|
-
|
Outstanding at December 31, 2016
|
|
689,159
|
Issued
|
|
-
|
Exercised
|
|
-
|
Outstanding at December 31, 2017
|
|
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 temporarily suspended or truncated by the Company. Warrants redemptions from February 15, 2017 through December 31, 2017 were exercised at the full redemption price. The regular and 1% partial redemption authorization, which was recalculated and repeated according to the court formula, resulted in a combined average exercise price of $1.55 and $0.32 for the years ended December 31, 2017 and 2016, respectively.
F-
23
Mentor Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
Note 13 - Warrant redemption liability
The Plan of Reorganization provides the right for the Company to call, and the Company or its designee to redeem warrants that are not exercised timely, as specified in the Plan, by transferring a $0.10 redemption fee to the former holders. Certain individuals desiring to become a Company designee to redeem warrants have deposited redemption fees with the Company that, when warrants are redeemed, will be forwarded to the former warrant holders at their last known address 30 days after the last warrant of a class is exercised, or earlier at the discretion of the Company. The Company has arranged for a service to process the redemption fees in offset to an equal amount of liability.
In prior years the Series A and Series C redemption fees have been distributed through DTCC into holder’s brokerage accounts or directly to the holders and are no longer outstanding. On April 14, 2017, the remaining Series B warrants were exercised for 4,500 shares of Common Stock. The Company announced on April 17, 2017 that warrant holders to whom approximately 3,000,000 Series B Warrants were originally issued will receive the $0.10 per warrant redemption payment per the Plan. Payment of the Series B redemption fee was made by the Company’s redemption service and funded personally by Chet Billingsley who has assumed liability for paying the warrant redemptions. For warrant holders who had deposited their Series B warrants with a broker their redemption payments were processed electronically on April 20, 2017 through the DTCC participant system. Payment to other Series B warrant holders who had presented their Series B warrants to the Company were mailed directly to the warrant holder by April 20, 2017.
Once the Series D warrants have been fully redeemed and exercised the fees for the Series D warrant series will likewise be distributed. Chet Billingsley has agreed to assume liability for paying the redemption fees and therefore warrant redemption fees received are retained by the Company for operating costs. Should Mr. Billingsley be incapacitated or otherwise become unable to pay the warrant redemption fees, the Company will remit the warrant redemption fees to former holders from amounts due Mr. Billingsley from the Company which are sufficient to cover the redemption fee at December 31, 2017 and 2016.
Note 14 - 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 December 31, 2017 and 2016, 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. No preferred shares are issued or outstanding.
On July 13, 2017, the Company filed a Certificate of Designation of Rights, Preferences, Privileges and Restrictions of Series Q Preferred Stock (“Certificate of Designation”) with the Delaware Secretary of State to designate 200,000 preferred shares as Series Q Preferred Stock, such series having a par value of $0.0001 per share. Series Q Preferred Stock are convertible into Common Stock, at the option of the holder, at any time after the date of issuance of such share and prior to notice of redemption of such share of Series Q Preferred Stock by the Company, into such number of fully paid and nonassessable shares of Common Stock as determined by dividing the Series Q Conversion Value by the conversion price at the time in effect for such share.
F-
24
Mentor Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
Note 14 - Stockholders’ equity (continued)
Preferred Stock (continued)
The per share “Series Q Conversion Value”, as defined in the Certificate of Designation, shall be calculated by the Company at least 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. Defined terms used in the Series Q Conversion Value shall bear the following meanings: 1) 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; and 2) "Core Q Holdings" shall consist of all proceeds received by the Company on sale of shares of Series Q Preferred Stock and all securities, acquisitions, and business acquired therewith by the Company which shall periodically, but at least once each calendar quarter, identify, update, account for and value, the assets that comprise the Core Q Holdings.
The "Conversion Price" of the Series Q Preferred Stock shall be 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.
Note 15 - Lease commitments
Operating Leases
Mentor currently rents approximately 2,000 square feet of office space under a one year lease in Ramona, California in San Diego County, expiring in July 2018. Rent expense for the years ended December 31, 2017 and 2016 were $30,240 and $28,400, respectively.
WCI rents approximately 3,000 of office and warehouse space in Tempe, Arizona under an operating lease expiring in January 2018. Rent expense for the year ended December 31, 2017 and 2016 was $24,200 and $26,160, respectively.
WCI leases vehicles under a master fleet management agreement with initial terms of 4 years expiring through July 2020. Vehicle lease expense of $173,853 and $123,567 is included in cost of sales in the consolidated income statement for the years ended December 31, 2016 and 2015, respectively.
WCI has two small operating leases on office equipment entered into in 2015 with terms of 5 years expiring in 2020.
The approximate remaining annual minimum lease payments under the non-cancelable operating leases existing as of December 31, 2017 with original or remaining terms over one year were as follows:
Years ending
December 31,
|
|
Rental
expense
|
|
2017
|
|
210,311
|
2018
|
|
158,758
|
2019
|
|
121,379
|
2020
|
|
72,769
|
|
$
|
563,217
|
F-
25
Mentor Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
Note 16 - Income tax
In December 2017, the Tax Cuss and Jobs Act (the “2017 Tax Act”) was enacted. The 2017 Tax Act includes a number of changes to existing U.S. tax laws that affect the Company, most notably a reduction of the top U.S. corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017. The 2017 Tax Act also provides for the acceleration of depreciation for certain assets placed in service after September 27, 2017 as well as prospective changes beginning in 2018, including additional limitations on the deductibility of executive compensation and interest.
The Company and its subsidiary, WCI, are taxed as C-Corporations for federal income tax purposes. Mentor subsidiary LLCs were disregarded entities for income, therefore, MIP, Partner I, CAST, MCB and CCH taxable income or loss is reported by their respective shareholders.
The provision (benefit) for income taxes for the years ended December 31, 2017 and 2016 consist of the following:
|
|
2017
|
|
2016
|
Current:
|
|
|
|
|
Federal
|
$
|
-
|
$
|
-
|
State
|
|
9,222
|
|
10,400
|
|
|
9,222
|
|
10,400
|
Deferred:
|
|
|
|
|
Federal
|
|
(632,800)
|
|
237,100
|
State
|
|
13,900
|
|
61,800
|
Change in valuation
|
|
618,900
|
|
(298,900)
|
Total provision (benefit)
|
$
|
9,222
|
$
|
10,400
|
The Company has net deferred tax assets resulting from a timing difference in recognition of depreciation and reserves for uncollectible accounts receivable and from net operating loss carryforwards.
At December 31, 2017, the Company had approximately 6,260,000 of federal net operating loss carryforwards that begin expiring in 2032, $4,600,000 of California net operating loss carryforwards that begin expiring in 2022, and $1,630,000 of Arizona net operating loss carryforwards that begin expiring in 2027.
The income tax provision (benefit) differs from the amount computed by applying the US federal statutory tax rate of 34% to net income (loss) before income taxes for the years ended December 31, 2017 and 2016 as a result of the following:
|
|
2017
|
|
2016
|
Net income (loss) before taxes
|
$
|
(705,943)
|
$
|
(843,341)
|
US federal income tax rate
|
|
34%
|
|
34%
|
|
|
|
|
|
Computed expected tax provision (benefit)
|
|
(240,021)
|
|
(286,736)
|
Permanent differences and other
|
|
1,501
|
|
35,696
|
Change in valuation
|
|
238,520
|
|
251,040
|
Federal income tax provision
|
$
|
-
|
$
|
-
|
|
|
|
|
|
F-
26
Mentor Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
Note 16 - Income tax (continued)
The significant components of deferred income tax assets as of December 31, 2017 and 2016 after applying enacted corporate income tax rates are as follows:
|
|
2017
|
|
2016
|
|
|
|
|
|
Net Operating Losses carried forward
|
$
|
1,844,200
|
$
|
2,249,800
|
Deferred officer bonus and other
|
|
(9,500)
|
|
204,800
|
Valuation allowance
|
|
(1,835,700)
|
|
(2,454,600)
|
|
$
|
-
|
$
|
-
|
The Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. All tax years from 2013 to 2016 are subject to examination
Note 17 - Long term debt and revolving line of credit
Long term debt
Long term debt at December 31, 2017 and 2016 consists of the following:
|
|
2017
|
|
2016
|
Commercial credit agreement with Bond Street Servicing, LLC at 11.6% interest per
annum, semi-monthly payments of $1,648, maturing October 16, 2019. Net of
$2,390 and $3,723 loan service fee.
|
$
|
62,659
|
$
|
91,488
|
|
|
|
|
|
Auto loan through Hyundai Motor Finance, interest at 2.99% per annum,
monthly principle and interest payments of $878, maturing December 2018.
|
|
-
|
|
6,004
|
|
|
|
|
|
Total notes payable
|
|
62,659
|
|
97,492
|
|
|
|
|
|
Less: Current maturities
|
|
(33,854)
|
|
(28,226)
|
|
$
|
28,805
|
$
|
69,266
|
Commercial credit agreement with Bond Street Servicing, LLC
WCI entered into a commercial credit agreement with Bond Street Servicing, LLC for proceeds of $100,000 which were used to pay off WCI’s revolving line of credit with Bank of America. WCI was charged a $4,000 loan service fee which is being amortized as additional interest over the life of the loan on a straight line basis. The unamortized loan service fee balance was $2,390 and $3,723 at December 31, 2017 and 2016, respectively.
Revolving line of credit
WCI had a $75,000 unsecured revolving line of credit with Bank of America, with interest at the bank’s prime rate plus 3% due monthly. The line of credit matured on September 4, 2016 and was due November 4, 2016. On October 14, 2016, WCI paid the revolving line of credit in full.
F-
27
Mentor Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
Note 18 - Accrued salary, accrued retirement and related party incentive fee
As of December 31, 2017 and 2016, the Company had an outstanding liability to its Chief Executive Officer ("CEO") as follows:
|
|
2017
|
|
2016
|
Accrued salaries and benefits
|
$
|
780,666
|
$
|
759,701
|
Accrued incentive fee and bonus
|
|
-
|
|
190,581
|
Accrued retirement and other benefits
|
|
465,744
|
|
457,079
|
Offset by shareholder advance
|
|
(276,929)
|
|
(368,983)
|
|
$
|
969,481
|
$
|
1,038,378
|
The Company agreed to advance the CEO $944,000 against the accrued liabilities due him, in January 2014, to exercise additional warrants into shares to be used as collateral for a potential loan to the Company. The warrant exercise was a cashless transaction made solely for the benefit of the Company in its efforts to obtain financing.
After the warrants were exercised in 2014, Mr. Billingsley deposited 100% of his shares owned, 5,000,486 shares, in an escrow which was to guarantee the potential loan. The loan turned out to be fraudulent and the shares remained in escrow until March 28, 2016, at which time Mr. Billingsley’s shares were removed from escrow.
In January 2014, the CEO, for the benefit of the Company, allowed two Bhang shareholders to act in his stead as designees and exercise 87,456 of his Series B warrants under the agreement described in Note 5 that was ultimately rescinded. [In exchange for allowing the Bhang shareholders to exercise his lower priced Series B warrants, Mr. Billingsley was named as designee of 87,456 of the higher priced Series D warrants.] Subsequent to year end, the shares of Common Stock held by the Bhang shareholders were returned to and cancelled by Mentor and the warrants from which the shares arose were reinstated, see Note 26. On March 17, 2018, the Board approved reallocation of the reinstated 87,456 Series B warrants back to Mr. Billingsley and his holdings of warrants were concurrently decreased by 87,456 Series D warrants (although Mr. Billingsley may be designated as a Series D warrant designee at any time), see Note 26.
As approved by resolution of the Board of Director in 1998, Mr. Billingsley will be paid an incentive fee and a bonus which are payable in cash upon merger, resignation or termination or in installments at Mr. Billingsley’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 $1.00 increase in stock price up to a maximum of $8 per share (4%) based on the bid price of the stock beyond the book value at confirmation of the bankruptcy. The incentive fee expense was $175,997 and $0 for the years ended December 31, 2017 and 2016, respectively.
Note 19 – Related Party Loans
The Company borrowed $15,000 from an employee in January of 2016 at 10% interest for three months. The loan balance and accrued interest of $1,500 was repaid in April 2016. In addition, the Company’s CEO, Chet Billingsley loaned the Company $10,000 for three months with no interest. The loan from the Company’s CEO was also repaid in April 2016.
Note 20 – Patent and License Fee Facility with Larson
Effective April 4, 2016 Mentor Capital, Inc. entered into a certain "Larson - Mentor Capital, Inc. Patent and License Fee Facility with Agreement Provisions for an -- 80% / 20% Domestic Economic Interest -- 50% / 50% Foreign Economic Interest" agreement with R. L. Larson and Larson Capital, LLC (“Larson”). Under this agreement, Mentor’s subsidiary Mentor Capital IP, LLC (“MCIP”) obtained rights in an international patent application for foreign THC and CBD cannabis vape pens under the provisions of the Patent Cooperation Treaty of 1970, as amended. On approval of the United States patent application, MCIP intends to seek exclusive licensing rights in the United States for THC and CBD cannabis vape pens for various THC and CBD percentage ranges and concentrations. Per the agreement Mentor paid $25,000 in exchange for 15.7% of the domestic licensing rights and 41.4% of international licensing rights for the vape pens.
F-
28
Mentor Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
Note 21 – Consulting Agreement with Green Vision Systems, Corp.
On September 15, 2016, the Company entered into a consulting agreement with GVS, a Puerto Rico corporation. The Company received 500,000 to-be-registered shares of GVS Common Stock. The shares were recorded as an investment at cost based on the value of consulting services provided by the Company of $50,000. For the year ended December 31, 2016, the Company recognized $20,000 of consulting fees from this investment and deferred the remaining value against future consulting services. Mentor provided consulting services with regard to GVS’s legal cultivation, manufacturing and transportation of medical cannabis products from GVS’s planned state of the art facility in Puerto Rico, as well as associated hemp farming in this tropical setting. However, in February 2017, GVS management stated that the Puerto Rico operations would be conducted through a separate entity rather than GVS and GVS was no longer seeking registration of its shares as agreed to in the Company’s consulting agreement with GVS. The GVS shares and related deferred revenue were fully impaired at December 31, 2016.
Note 22 – Liquidity Agreement for Purchase of Investor Webcast and Subsequent Termination
On April 20, 2015, the Company entered into an agreement to acquire 100% of the assets of a sole proprietorship, dba Investor Webcast, which were valued at $469,611 in exchange for 4,696 to-be-created Series B convertible preferred shares of Mentor. Mentor placed the purchased assets into Investor Webcast, LLC, a Delaware limited liability company and wholly owned subsidiary of Mentor (“CAST”). The purchase price was based on projected future earnings of CAST and discounted at 17.87% (the discount rate used for the 2015 investment in installment receivable described in Note 6).
After one year, the to-be-created Series B convertible preferred shares could be converted, in steps or in whole, into Mentor common shares. Due to Mentor’s reincorporation in Delaware, the series B convertible preferred shares had not yet been created and therefore, a convertible security was issued to the prior owner of the CAST assets which could be converted to Mentor Series B convertible preferred shares once they were created.
Purchase price allocation of CAST assets and liabilities:
CAST assets and liabilities:
|
|
|
Current assets
|
$
|
106,305
|
Property and equipment
|
|
4,378
|
Current liabilities
|
|
(107,837)
|
Net equity
|
|
2,846
|
Goodwill
|
|
466,765
|
Purchase valuation based on projected future earnings using 17.87% discount rate
|
$
|
469,611
|
Actual operating results of CAST in future periods and the share price of Mentor common shares at the date of conversion would determine the number of common shares issued upon conversion of the Series B convertible preferred shares, in whole or in part. The conversion formula was to be evaluated in subsequent periods to determine if actual CAST operations result in a contingent asset or liability relating to the Series B convertible preferred shares. The Company evaluated CAST revenue and income for the period from the purchase date, April 20, 2015, to December 31, 2015 along with revised projections. The revenue and net loss realized in 2015 and the lower revised projections resulted in a fair value of $0 for the convertible security at December 31, 2015.
On March 1, 2016, the Company entered into a Mutual Termination Agreement and General Release in which the certain Investor Webcast – Mentor Capital Cannabis Owners Public Liquidity Agreement effective April 20, 2015 (the “Purchase Agreement”) and the Convertible Security Agreement between Mentor and the prior owner of the CAST assets were cancelled and terminated, resulting in a disposition of CAST assets and liabilities by the Company. Pursuant to Section 3 of the Purchase Agreement, the CAST owner was to receive Mentor shares according to Mentor’s conversion formula specified in the Purchase Agreement. However, the CAST business has not evolved as quickly as CAST owners expected and the result of the conversion formula was a negative number less than zero at the time of the termination. Therefore, the parties by mutual consent dissolved their relationship.
F-
29
Mentor Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
Note 22 – Liquidity Agreement for Purchase of Investor Webcast and Subsequent Termination (continued)
The prior owner of the CAST assets received assets valued at $7,408, assumed liabilities of $7,063 as follows:
CAST assets and liabilities disposed:
|
|
|
Liabilities:
|
|
|
Accounts payable
|
$
|
5,427
|
Accrued expenses
|
|
420
|
Deferred revenue
|
|
1,216
|
Total liabilities transferred
|
|
7,063
|
Assets:
|
|
|
Prepaid expenses
|
|
2,885
|
Accounts receivable, net of $10,000 allowance
|
|
190
|
Employee advance
|
|
1,013
|
Fixed assets, net of accumulated depreciation
|
|
3,320
|
Total assets disposed
|
|
7,408
|
Loss on disposition of assets and liabilities
|
$
|
(345)
|
Mentor forgave an intercompany note receivable from CAST of $23,225, direct intercompany charges of $10,284, and $17,043 of intercompany overhead receivable from CAST. In addition, Mentor paid $500 to the prior owner and $50 each to two prior employees.
Note 23 – Commitments and contingencies
On December 29, 2016, Mentor obtained a judgment in the amount of $1,921,535 against Bhang Corporation and its predecessor in interest, Bhang Chocolate Company, Inc., in the United States District Court for the Northern District of California related to an action filed by Mentor on August 11, 2014 seeking rescission of the February 28, 2014 co-operative funding agreement with Bhang Corporation (“Bhang Agreement”) and return of the $1,500,000 paid by the Company to Bhang. The judgment accrued interest at the rate of 10% from December 29, 2016 until November 20, 2017, when the parties agreed to stipulated payment terms. Collections of $55,585 received in the quarter ended September 30, 2017 were applied against accrued interest and, in addition, the associated reserve pending collections was reduced and interest income of $55,585 was recognized during the quarter.
Subsequent to year-end, on January 23, 2018, the Company received a net payment of $1,758,949 in satisfaction of the judgement and 117,000 shares of Mentor common stock, originally sold to two Bhang founders, were returned to Mentor in exchange for a payment of $286,719, which was offset from the accrued judgment of $2,045,668, see Note 5 and 26. The Company also collected and recognized $55,585 of interest income in the quarter ended September 30, 2017. In the fourth quarter of 2017, at the time the parties agreed to stipulated payment terms, $540,521 of interest income was recognized on the judgement. At December 31, 2016, the likelihood of collecting interest was not known, therefore accrued interest receivable from Bhang was fully reserved at December 31, 2016, pending the outcome of collection efforts.
Mentor accounted for the return of the shares from the Bhang owners as a capital transaction subsequent to year-end when the physical shares were received by Mentor and cancelled through our stock transfer agent, see Note 26.
In July 2015, Mentor was served with a complaint in an action in the United States District Court for the District of Utah initiated by the wife and daughter of Bhang’s corporate counsel related to 75,000 shares of Mentor’s Common Stock purchased from Bhang Corporation’s CEO in a secondary sale. The 75,000 shares at issue were returned to Mentor as a part of the Bhang settlement above.
On December 21, 2017, the plaintiffs filed a motion to dismiss their complaint with prejudice which was granted on January 25, 2018. Within the same order, the Court vacated an earlier order dated September 25, 2017, related to issuance of Mentor’s stock. On February 2, 2018, Mentor’s third-party claims, related to plaintiffs’ now-dismissed complaint, were dismissed with prejudice, see Note 26.
F-
30
Mentor Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
Note 24 – Segment Information
The Company is operating an acquisition and investment business. Majority owned subsidiaries of 51% or more are consolidated. The Company has determined that there are two reportable segments: 1) the cannabis and medical marijuana segment which includes the receivable from Bhang, the fair value of securities investment in GW Pharmaceuticals plc (GWPH) stock, Investment in Kush Bottles, Inc (KSHB) stock, the equity investment in Electrum, convertible notes receivables from Electrum and NeuCourt, the notes receivable from GFarma, the contractual interest in the G Farma legal recovery, and the operation of subsidiaries in the Cannabis and medical marijuana sector, and 2) the Company’s legacy investment in WCI which works with business park owners, governmental centers, and apartment complexes to reduce their facility related operating costs. The Company also has certain small cancer related legacy investments and an investment in note receivable from a non-affiliated party that is included in the Corporate and Eliminations section below.
|
|
Cannabis and
Medical
Marijuana
Segment
|
|
Trash
Management
|
|
Corporate
and
Eliminations
|
|
Consolidated
|
2017
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
15,400
|
$
|
3,167,300
|
$
|
-
|
$
|
3,182,700
|
Operating income (loss)
|
|
(17,414)
|
|
130,066
|
|
(1,323,163)
|
|
(1,210,511)
|
Interest income
|
|
49,664
|
|
5
|
|
687,915
|
|
737,584
|
Interest expense
|
|
-
|
|
19,429
|
|
54,033
|
|
73,462
|
Total assets
|
|
3,906,978
|
|
1,168,171
|
|
2,588,785
|
|
7,663,934
|
Property additions
|
|
-
|
|
6,622
|
|
13,815
|
|
20,437
|
Depreciation and amortization
|
|
-
|
|
11,123
|
|
4,583
|
|
15,706
|
|
|
Cannabis and
Medical
Marijuana
Segment
|
|
Trash
Management
|
|
Corporate
and
Eliminations
|
|
Consolidated
|
2016
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
20,450
|
$
|
2,740,187
|
$
|
608
|
$
|
2,761,245
|
Operating income (loss)
|
|
(50,043)
|
|
34,485
|
|
(880,416)
|
|
(895,974)
|
Interest income
|
|
10,958
|
|
1
|
|
103,877
|
|
114,836
|
Interest expense
|
|
-
|
|
17,275
|
|
23,350
|
|
40,625
|
Total assets
|
|
1,632,055
|
|
1,119,407
|
|
2,627,137
|
|
5,378,599
|
Property additions
|
|
-
|
|
29,210
|
|
1,029
|
|
30,239
|
Depreciation and amortization
|
|
295
|
|
21,752
|
|
3,715
|
|
25,762
|
The following table reconciles operating segments and corporate-unallocated operating income (loss) to consolidated income before income taxes for the years ended December 31, 2017 and 2016, as presented in the consolidated income statements:
|
|
2017
|
|
2016
|
Operating loss
|
$
|
(1,210,511)
|
$
|
(895,974)
|
Interest income
|
|
737,584
|
|
114,836
|
Interest expense
|
|
(73,462)
|
|
(40,625)
|
Realized gain (loss) on investments
|
|
(164,590)
|
|
(42,289)
|
Gain (loss) on equipment disposals
|
|
-
|
|
11,568
|
Other income
|
|
5,036
|
|
9,143
|
Income before income taxes
|
$
|
(705,943)
|
$
|
(843,341)
|
F-
31
Mentor Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
Note 25 – Accumulated other comprehensive income (loss)
The changes in the balances for accumulated other comprehensive income (loss) (“AOCI”) for the years ended December 31 were as follows:
|
|
2017
|
|
2016
|
Marketable securities
|
|
|
|
|
Beginning balance
|
$
|
-
|
$
|
(12,563)
|
Gains (losses) on available for sale securities
|
|
34,822
|
|
-
|
Less: Tax (tax benefit)
|
|
-
|
|
-
|
Net gains (losses) on available for sale securities
|
|
34,822
|
|
-
|
|
|
|
|
|
(Gains) Losses reclassified from AOCI to net income
|
|
-
|
|
12,563
|
Less: Tax (tax benefit)
|
|
-
|
|
-
|
Net gains (losses) reclassified from AOCI to net income
|
|
-
|
|
12,563
|
Other comprehensive income (loss), net of tax
|
|
34,822
|
|
12,563
|
Ending balance
|
$
|
34,822
|
$
|
-
|
Note 26 - Subsequent events
From January 1, 2018 through the March 15, 2018, the Company raised $607,098 from the exercise of warrants into Common Stock and $0 from warrant redemption fees.
The Company entered into Addendum VI with G Farma on January 17, 2018, in which Mentor invested an additional $100,000 in G Farma by increasing the aggregate principal face amount of the working capital note to $880,000, resulting in payments of $9,223 per month beginning February 15, 2018. The maturity date remained the same resulting in a total balloon payment of approximately $703,874 at maturity. See Note 9.
On January 23, 2018 the Company received a net payment on the Bhang judgement receivable at December 31, 2017 of $1,758,949 representing $2,045,668 for satisfaction of the judgement amount, accrued interest and reimbursed costs less $286,719 withheld for payment to two Bhang shareholders for return of 117,000 shares of Mentor Common Stock originally purchased for $228,150, plus interest. The payment and cost of Mentor Common Stock returned represents collection of the $1,987,099 Receivable from Bhang Chocolate Company at December 31, 2017.
The returned Mentor Common Stock is accounted for on January 23, 2018 as a reduction of the Receivable from Bhang Chocolate Company and reduction of outstanding Common Stock, see Note 5. The Bhang shareholders purchased the 117,000 shares of Common Stock in 2014 through the designation and exercise of 87,456 Series B warrants, exercisable at $0.11 plus $0.10 warrant redemption fee per warrant, and 29,544 Series D warrants, exercisable at $7.00 plus a $0.10 redemption fee per warrant, for an average exercise price of $1.95 per share, including the $0.10 warrant redemption fee. Upon return of such shares, the Company treated this as reduction of outstanding shares of Common Stock and reinstated the original warrants designated and exercised by the Bhang shareholders. In 2014, at the time the Bhang shareholders were designated as designees to exercise the warrants, Mr. Billingsley was also attempting to exercise warrants into shares of Mentor Common Stock to be used as collateral for a potential loan to the Company. Because the Series B warrants, exercisable at $0.11 per warrant, were offered to the two Bhang shareholders, they were not available to Mr. Billingsley. Instead of the Series B warrants Mr. Billingsley exercised 87,456 of his Series D warrants at $1.60 per warrant to obtain the necessary shares to collateralize the loan. Subsequent to year end, on January 23, 2018, the 117,000 shares of Mentor common stock exercised by the Bhang shareholders through Series B and Series D warrants were returned to the Company (see Note 5) and the associated exercise of warrants was reversed with 87,456 Series B warrants and 29,544 Series D warrants being reinstated.
On March 17, 2018, the Board approved reallocation of recently reinstated 87,456 Series B warrants to Mr. Billingsley to compensate him for the increased costs he incurred in exercising 87,456 Series D warrants in 2014.
Mr. Billingsley’s holdings of Series D warrants were reduced by 87,456 warrants (though Mr. Billingsley could become a Series D warrant designee at any time), see Notes 12 and 26.
On January 25, 2018, the complaint against Mentor in the United States District Court for the District of Utah was dismissed with prejudice. Within the same order, the Court vacated an earlier order dated September 25, 2017, related to issuance of Mentor’s stock. On February 2, 2018, Mentor’s third-party claims, related to plaintiffs’ now-dismissed complaint, were dismissed with prejudice. This complaint related to 75,000 shares of Mentor’s Common Stock purchased from Bhang Corporation’s CEO in a secondary sale to which Mentor was not a party. See Note 23.
F-
32
Mentor Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
Note 26 - Subsequent events (continued)
In January and February 2018, Mentor contributed $800,000 of capital to its wholly owned subsidiary, 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, see Note 1.
On February 1, 2018, the Company formed Mentor Partner II, LLC (“Partner II”), a California limited liability company as a wholly owned subsidiary of Mentor for the purpose of cannabis-focused acquisition and investing. On February 8, 2018, Mentor contributed $400,000 to Partner II to facilitate the purchase of manufacturing equipment to be leased from Partner II by Pueblo West Organics, LLC under a Master Equipment Lease Agreement dated February 11, 2018, see Note 26.
F-
33