* The company recorded an operating loss; therefore the diluted EPS will not be calculated as the diluted EPS effect is anti-dilutive.
Notes to Condensed Consolidated Financial Statements
September 30, 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. In September 2020, Mentor relocated its corporate office from San Diego, California to Plano, Texas.
The Company’s common stock trades 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 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 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 long standing 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 September 30, 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. On June 29, 2020, the Canadian Intellectual Property Office granted a Notice of Allowance for the Canada patent and on September 22, 2020, the Canadian patent was issued.
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, of which $30,000 had been funded at September 30, 2020 and December 31, 2019. Mentor, doing business as GlauCanna, was to hold an 80% interest in any commercial opportunities that result from the study. Dr. Mandelkorn would hold the remaining 20%. Subsequent to quarter end, on October 28, 2020, Dr. Mandelkorn paid the Company $31,000 in exchange for Mentor’s 80% interest.
The Company has a membership equity interest in Electrum Partners, LLC (“Electrum”) which is carried at cost of $194,028 and $194,028 as of September 30, 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).
12
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
Note 1 - Nature of operations (continued)
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 $803,399 and $765,001 as of September 30, 2020 and December 31, 2019, respectively, due to circumstances 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 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 $181,529 and $146,195 as of September 30, 2020 and December 31, 2019, respectively. 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 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 6.1% of NeuCourt’s issued and outstanding common stock as of September 30, 2020.
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 in early 2020.
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 recover amounts due us. We recorded a bad debt allowance of $765,001 on the finance lease receivable as of December 31, 2019, and increased the allowance by $19,519 for the nine months ended September 30, 2020, see Note 9. In 2020, the Company repossessed leased equipment under G Farma’s control and sold equipment with a cost of $622,670 to the highest offerors for net proceeds of $348,734, after shipping and delivery costs.
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, was also impaired and reduced to $0, at December 31, 2019, see Notes 8 and 10.
13
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
Note 1 - Nature of operations (continued)
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. All repossessed equipment was sold in the nine months ended September 30, 2020, see Note 9.
Note 2 - Summary of significant accounting policies
Condensed consolidated financial statements
The unaudited condensed consolidated financial statements of the Company for the nine month period ended September 30, 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.
As shown in the accompanying financial statements, the Company has a significant accumulated deficit of $10,581,116 as of September 30, 2020. The Company continues to experience negative cash flows from operations. The Company’s operating results in 2019 were significantly impacted by G Farma’s default on the notes receivable, failure of consideration related to G Farma’s purchase of shares of Common Stock, and loss of value of the equity interest in G Farma Equity Entities, described in Note 8 to the condensed consolidated financial statements, resulting in full impairment of these investments in the aggregate amount of $1,686,653. In addition, in 2019, the Company recorded a bad debt reserve on the G Farma equipment leases receivable of $765,001 and recorded an additional bad debt reserve of $19,519 in the nine months ended September 30, 2020, see Note 9.
The Company management believes it is more likely than not that Electrum will prevail in the legal action described in Note 10 to the consolidated financial statements, in which the Company has an interest. However, there is no surety that Electrum will prevail in its legal action or that we will be able to recover our funds and our percentage of the Litigation Recovery if Electrum does prevail.
The Company will be required to raise additional capital to fund its operations and will continue to attempt to raise capital resources from both related and unrelated parties until such time as the Company is able to generate revenues sufficient to maintain itself as a viable entity. These factors have raised substantial doubt about the Company's ability to continue as a going concern. These financial statements are presented on the basis that we will continue as a going concern. The going concern concept contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. There can be no assurances that the Company will be able to raise additional capital or achieve profitability. However, the Company has approximately 6.2 million warrants outstanding in which the Company can reset the exercise price substantially below the current market price. These condensed consolidated financial statements do not include any adjustments that might result from repricing the outstanding warrants.
14
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
Note 2 - Summary of significant accounting policies (continued)
Basis of presentation (continued)
Management's plans include increasing revenues through acquisition, investment, and organic growth. Management anticipates funding these activities by raising additional capital through the sale of equity securities and debt.
Impact Related to COVID-19
The effect of the novel coronavirus (“COVID-19”) has significantly impacted the United States and the global economy. COVID-19 and the measures taken by many countries in response have adversely affected and could in the future materially adversely impact the Company’s business, results of operations, financial condition, and stock price. As of September 30, 2020, the impact of COVID-19 continues to unfold. The ongoing worldwide economic situation, future weakness in the credit markets and significant liquidity problems for the financial services industry may impact our financial condition in a number of ways. For example, our current or potential customers, or the current or potential customers of our partners or affiliates, may delay or decrease spending with us, or may not pay us, or may delay paying us for previously purchased products and services. Also, we, or our partners or affiliates, may have difficulties in securing additional financing. 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 COVID-19 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 nine months ended September 30, 2020 increased by 15.6%, as compared to the same period in 2019, and any impact of COVID-19 for the first nine months of 2020 is estimated to be immaterial. We will closely monitor our customer accounts and continue to assess the impact on the collection of accounts receivable as we collect more information.
According to the Critical Infrastructure Standards released by the Cybersecurity and Infrastructure Security Agency on March 18, 2020, “Financial Services Sector” businesses, like Mentor, are considered “essential businesses.” Because of the financial nature of Mentor’s operations, which consist of oversight of our portfolio companies, accounting, compliance, investor relations, and sales, Mentor’s day to day operations are not substantially hindered by remote office work or telework.
We anticipate that current cash resources will be sufficient for us to execute our business plan for the next 9 months. The ultimate impact of COVID-19 on our business, results of operations, financial condition and cash flows is dependent on future developments, including the duration of COVID-19 and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time.
Use of estimates
The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates, assumptions, and judgments that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of our consolidated financial statements, and the reported amount of revenues and expenses during the reporting period.
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.
15
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
Note 2 - Summary of significant accounting policies (continued)
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.
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 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.
Debt with Conversion and Other Options, and Derivatives and Hedging on Contracts in an Entity’s Own Equity – Issued in August 2020, ASU 2020-06, “Debt – Debt with Conversion and Other Options and Derivatives and Hedging – Contracts in an Entity’s Own Equity”, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the EPS calculation in certain areas. ASU No. 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years; this ASU allows for early adoption at the beginning of the fiscal year. 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.
16
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
Note 2 - Summary of significant accounting policies (continued)
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 September 30, 2020 and December 31, 2019, the Company has recorded an allowance in the amount of $53,471 and $38,984, respectively.
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 $6,035 and $3,121 at September 30, 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 in exchange for 25,000 warrants exercisable at $0.02 per share that expire on November 7, 2029. A second $50,000 principal face amount note, which was to mature on October 31, 2020, was, subsequent to quarter end, extended to October 31, 2022 in exchange for 52,500 warrants exercisable at $0.02 per share that expire on October 31, 2023. 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 299,996 and 289,207 Conversion Shares at September 30, 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.
17
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
Note 2 - Summary of significant accounting policies (continued)
Finance leases receivable (continued)
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 $803,399 and $786,680 at September 30, 2020 and December 31, 2019, respectively, based on Management’s estimate of amounts we expect to recover. The September 30, 2020 impairment represents full impairment of the finance lease receivable from G Farma after applying proceeds from the sale of all recovered assets. The Company will continue to pursue collection for the lease payments remaining from the G Farma Lease Entities and G Farma Lease Guarantors.
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.
Goodwill
Goodwill of $1,324,142 was derived from consolidating WCI effective January 1, 2014, and $102,040 of goodwill resulted from the 2005 acquisition of a 50% interest in WCI. The Company accounts for its Goodwill in accordance with FASB Accounting Standards Codification 350, Intangibles – Goodwill and Other, which requires the Company to test goodwill for impairment annually or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, rather than amortize. Goodwill impairment tests consist of a comparison of each reporting unit’s fair value with its carrying value. Impairment exists when the carrying amount of goodwill exceeds the implied fair value for each reporting unit. To estimate the fair value, management used valuation techniques which included the discounted value of estimated future cash flows. The evaluation of impairment requires the Company to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and are subject to change as future events and circumstances change. Actual results may differ from assumed and estimated amounts. Management determined that no impairment write-downs were required as of September 30, 2020 and December 31, 2019.
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 September 30, 2020 and December 31, 2019, respectively. There were 87,456 and 87,456 potentially dilutive shares outstanding at September 30, 2020 and December 31, 2019, respectively.
Conversion of Series Q Preferred Stock into Common Stock would be anti-dilutive for the three and nine months ended September 30, 2020 and 2019 and is not included in calculating the diluted weighted average number of shares outstanding.
Paycheck Protection Program loans
The Company has recorded Paycheck Protection Program (“PPP”) loans as a liability in accordance with FASB ASC 470, “Debt” and has accrued interest through September 30, 2020. Proceeds from the loans will remain recorded as a liability until either (1) the loan is, in part or wholly, forgiven and the Company has been legally released, or (2) the Company pays off the loan. If the loan is, in part or wholly, forgiven, the liability will be reduced, and a gain on the extinguishment will be recognized. See Note 17.
18
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
Note 3 - Prepaid expenses and other assets
Prepaid expenses and other assets consist of the following:
|
|
September 30,
2020
|
|
December 31, 2019
|
Prepaid health insurance
|
$
|
5,240
|
$
|
5,867
|
Other prepaid costs
|
|
100,018
|
|
53,198
|
|
$
|
105,258
|
$
|
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:
|
|
September 30,
2020
|
|
December 31,
2019
|
Face value
|
$
|
702,000
|
$
|
706,000
|
Unamortized discount
|
|
(258,580)
|
|
(320,488)
|
Net balance
|
|
443,420
|
|
385,512
|
Current portion
|
|
(117,000)
|
|
(4,000)
|
Long term portion
|
$
|
326,420
|
$
|
381,512
|
For the three months ended September 30, 2020 and 2019, $23,691 and $19,999 of discount amortization is included in interest income, respectively. For the nine months ended September 30, 2020 and 2019, $61,908 and $59,996 of discount amortization is included in interest income, respectively.
Note 5 - Property and equipment
Property and equipment are comprised of the following:
|
|
September
30, 2020
|
|
December 31,
2019
|
Computers
|
$
|
38,545
|
$
|
37,271
|
Furniture and fixtures
|
|
23,429
|
|
22,075
|
Machinery and vehicles
|
|
103,375
|
|
93,817
|
|
|
165,349
|
|
153,163
|
Accumulated depreciation and amortization
|
|
(117,188)
|
|
(121,542)
|
|
|
|
|
|
Net Property and equipment
|
$
|
48,161
|
$
|
31,621
|
Depreciation and amortization expense was $5,930 and $5,585 for the three months ended September 30, 2020 and 2019, respectively. Depreciation and amortization expense was $14,869 and $16,756 for the nine months ended September 30, 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.
19
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 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, 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 $371,345 and $206,332 as of September 30, 2020 and December 31, 2019, respectively. Accumulated amortization associated with finance leases was $87,416 and $36,640 as of September 30, 2020 and December 31, 2019, respectively.
Lease costs recognized in our consolidated statements of operations is summarized as follows:
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Operating lease cost included in cost of goods
|
$
|
35,581
|
$
|
51,440
|
$
|
120,153
|
$
|
142,535
|
Operating lease cost included in operating costs
|
|
13,846
|
|
14,410
|
|
41,965
|
|
42,698
|
Total operating lease cost (1)
|
|
49,427
|
|
65,850
|
|
162,118
|
|
185,233
|
Finance lease cost, included in cost of goods:
|
|
|
|
|
|
|
|
|
Amortization of lease assets
|
|
19,349
|
|
11,140
|
|
50,776
|
|
23,583
|
Interest on lease liabilities
|
|
4,719
|
|
3,061
|
|
12,689
|
|
5,211
|
Total finance lease cost
|
|
24,068
|
|
14,201
|
|
63,465
|
|
28,794
|
Short-term lease cost
|
|
5,980
|
|
8,570
|
|
23,920
|
|
25,310
|
Total lease cost
|
$
|
79,475
|
$
|
88,621
|
$
|
249,503
|
$
|
239,337
|
(1)Right of use asset amortization under operating agreements was $45,707 and $49,804 for the three months ended September 30, 2020 and 2019, respectively. Right of use asset amortization under operating agreements was $141,429 and $143,571 for the nine months ended September 30, 2020 and 2019, respectively.
Other information about lease amounts recognized in our condensed consolidated financial statements is summarized as follows:
|
September 30,
2020
|
|
December 31,
2019
|
Weighted-average remaining lease term – operating leases
|
1.13 years
|
|
1.73 years
|
Weighted-average remaining lease term – finance leases
|
3.50 years
|
|
3.25 years
|
Weighted-average discount rate – operating leases
|
10.1%
|
|
10.2%
|
Weighted-average discount rate – finance leases
|
8.4%
|
|
9.0%
|
Finance lease liabilities were as follows:
|
|
September 30,
2020
|
|
December 31,
2019
|
Gross finance lease liabilities
|
$
|
301,499
|
$
|
208,641
|
Less: imputed interest
|
|
(43,880)
|
|
(54,548)
|
Present value of finance lease liabilities
|
|
257,619
|
|
154,093
|
Less: current portion
|
|
(71,616)
|
|
(41,675)
|
Long-term finance lease liabilities
|
$
|
186,003
|
$
|
112,418
|
20
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
Note 6 – Lessee Leases (Continued)
Operating lease liabilities were as follows:
|
|
September 30,
2020
|
|
December 31,
2019
|
Gross operating lease liabilities
|
$
|
210,036
|
$
|
356,958
|
Less: imputed interest
|
|
(26,695)
|
|
(31,622)
|
Present value of operating lease liabilities
|
|
183,341
|
|
325,336
|
Less: current portion
|
|
(153,602)
|
|
(184,436)
|
Long-term operating lease liabilities
|
$
|
29,739
|
$
|
140,900
|
Note 7 – Convertible notes receivable
Convertible notes receivable consists of the following:
|
|
September 30,
2020
|
|
December 31,
2019
|
|
|
|
|
|
November 22, 2017, NeuCourt, Inc. convertible note receivable including accrued interest of $1,131 and $191 at September 30, 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. *
|
$
|
26,131
|
$
|
25,191
|
|
|
|
|
|
October 31, 2018, NeuCourt, Inc. convertible note receivable including accrued interest of $4,904 and $2,930 at September 30, 2020 and December 31, 2019, respectively. The note bears interest at 5% per annum and was to mature October 31, 2020, and subsequent to quarter ended September 30, 2020, was extended to mature October 31, 2022. 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. *
|
|
54,904
|
|
52,930
|
|
|
|
|
|
Total convertible notes receivable
|
|
81,035
|
|
78,121
|
|
|
|
|
|
Less current portion
|
|
-
|
|
(52,930)
|
Long term portion
|
$
|
81,035
|
$
|
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 96,738 Conversion Shares and the October 31, 2018 Note would convert into 203,258 Conversion Shares at September 30, 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.
21
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 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. 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 VIII, resulting in a required fee of $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 $0 for the three months ended September 30, 2020 and 2019, respectively. Consulting fee revenue was $0 and $8,310 for the nine months ended September 30, 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 in early 2020.
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.
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 the nine month periods ended September 30, 2020 and 2019.
22
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
Note 9 – Finance leases receivable (continued)
Mentor Partner I (continued)
As discussed in Note 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 September 30, 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 earlier in 2020. Bad debt expense of $0 and $1,084 for the three months ended September 30, 2020 and 2019, respectively, is included in selling, general and administrative expenses in the condensed consolidated income statement. Bad debt expense of $19,519 and $730,469 for the nine months ended September 30, 2020 and 2019, respectively, is included in selling, general and administrative expenses in the condensed consolidated income statement.
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. In the quarter ended March 31, 2020, the Company sold a portion of the recovered equipment, with an original cost of $495,967, for net proceeds of $222,031. In the quarter ended June 30, 2020, the Company sold all remaining recovered equipment, with an original cost of $126,703, for net proceeds of $27,450, after deducting shipping and delivery costs. All proceeds from sale of repossessed equipment has been applied to the G Farma lease receivable balance. Remaining net lease payments receivable from G Farma are fully reserved for at September 30, 2020. The Company has initiated an action against the G Farma Lease Entities and the G Farma Lease Guarantors in the Superior Court of California in the County of Marin seeking, among other things, damages caused by G Farma’s and its guarantors’ breaches of the various agreements. We will continue to pursue collection to the maximum extent possible 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.
Net finance leases receivable, non-performing, consists of the following:
|
|
September 30,
2020
|
|
December 31,
2019
|
Gross minimum lease payments receivable
|
$
|
1,203,404
|
$
|
1,455,685
|
Less: unearned interest
|
|
(400,005)
|
|
(400,005)
|
Less: reserve for bad debt
|
|
(803,399)
|
|
(786,680)
|
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 $0 for the three months ended September 30, 2020 and 2019, respectively. Partner II recorded equipment sales revenue of $0 and $74,889 for the nine months ended September 30, 2020 and 2019, respectively. At September 30, 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.
23
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
Note 9 – Finance leases receivable (continued)
Mentor Partner II (continued)
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:
|
|
September 30,
2020
|
|
December 31,
2019
|
Gross minimum lease payments receivable
|
$
|
505,223
|
$
|
587,854
|
Accrued interest
|
|
2,119
|
|
2,463
|
Less: unearned interest
|
|
(113,637)
|
|
(145,445)
|
Finance leases receivable
|
|
393,705
|
|
444,872
|
Less current portion
|
|
(67,257)
|
|
(62,145)
|
Long term portion
|
$
|
326,448
|
$
|
382,727
|
Interest income recognized from Partner I finance leases for the three months ended September 30, 2020 and 2019, was $0 and $0, respectively. Interest income recognized from Partner I finance leases for the nine months ended September 30, 2020 and 2019, was $0 and $23,811, respectively.
Interest income recognized from Partner II finance leases for the three months ended September 30, 2020 and 2019, was $11,730 and $13,312, respectively. Interest income recognized from Partner II finance leases for the nine months ended September 30, 2020 and 2019, was $36,297 and $38,554, respectively.
At September 30, 2020, minimum future payments receivable for performing finance leases receivable were as follows:
12 months ending September 30,
|
|
Total
|
2021
|
$
|
67,257
|
2022
|
|
74,732
|
2023
|
|
83,038
|
2024
|
|
92,268
|
2025
|
|
65,487
|
Thereafter
|
|
10,923
|
|
$
|
393,705
|
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).
24
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
Note 10 - Contractual interests in legal recoveries (continued)
Interest in G FarmaLabs Limited legal recovery (continued)
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 the 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. 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 canceled and returned to unissued shares by the Company’s stock transfer agent.
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 September 30, 2020 and December 31, 2019, Mentor invested an additional $81,529 and $46,195, respectively, of capital in Electrum for payment of legal retainers and fees in consideration for an additional eight percent (8%) and four percent (4%), respectively, of the Recovery. At September 30, 2020 and December 31, 2019, the Recovery Agreement investment is reported in the condensed consolidated balance sheets at our cost of $181,529 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 September 30, 2020 and December 31, 2019.
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 September 30, 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 September 30, 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.
25
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
Note 11 – Investments and fair value
We account for our financial assets in accordance with ASC 820, “Fair Value Measurement.” This standard defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The fair value measurement disclosures are grouped into three levels based on valuation factors: Level 1 represents assets valued at quoted prices in active markets using identical assets; Level 2 represents assets valued using significant other observable inputs, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other observable inputs; and, Level 3 represents assets valued using significant unobservable inputs.
The hierarchy of Level 1, Level 2 and Level 3 Assets are listed as following:
|
|
|
|
Fair Value Measurement Using
|
|
|
Unadjusted
Quoted
Market
Prices
|
|
Quoted Prices
for Identical
or Similar
Assets in
Active
Markets
|
|
Significant
Unobservable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
(Level 3)
|
|
(Level 3)
|
|
|
Investment
in
Securities
|
|
|
|
Contractual
interest
Legal
Recovery
|
|
Investment in
Common
Stock
Warrants
|
|
Other Equity
Investments
|
Balance at December 31, 2018
|
$
|
362,585
|
$
|
-
|
$
|
800,002
|
$
|
5,669
|
$
|
245,628
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
(3,507)
|
|
-
|
|
-
|
|
(5,169)
|
|
-
|
Purchases, issuances, sales,
and settlements
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
38,115
|
|
-
|
|
50,717
|
|
-
|
|
-
|
Issuances
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Sales
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Settlements
|
|
-
|
|
-
|
|
(15,383)
|
|
-
|
|
-
|
Balance at September 30, 2020
|
$
|
34,608
|
$
|
-
|
$
|
381,529
|
$
|
500
|
$
|
204,028
|
26
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
Note 11 – Investments and fair value (continued)
The amortized costs, gross unrealized holding gains and losses, and fair values of the Company’s investment securities classified as equity securities, at fair value, at September 30, 2020 consists of the following:
Type
|
|
Amortized
Costs
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Values
|
NYSE listed company stock
|
$
|
38,115
|
$
|
-
|
$
|
(3,507)
|
$
|
34,608
|
The portion of unrealized gains and losses for the period related to equity securities still held at the reporting date is calculated as follows:
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net gains and losses recognized during the period on equity securities
|
$
|
(2,758)
|
$
|
(45,638)
|
$
|
(3,507)
|
$
|
(56,528)
|
|
|
|
|
|
|
|
|
|
Less: Net gains (losses) recognized during the period on equity securities sold during the period
|
|
-
|
|
-
|
|
-
|
|
50,521
|
|
|
|
|
|
|
|
|
|
Unrealized gains and losses recognized during the reporting period on equity securities still held at the reporting date
|
$
|
(2,758)
|
$
|
(45,638)
|
$
|
(3,507)
|
$
|
(107,049)
|
Note 12 - Common stock warrants
On August 21, 1998, the Company filed for voluntary reorganization with the United States Bankruptcy Court for the Northern District of California, and on January 11, 2000, the Company’s Plan of Reorganization was approved. Among other things, the Company’s Plan of Reorganization allowed creditors and claimants to receive new Series A, B, C, and D warrants in settlement of their prior claims. The warrants expire on May 11, 2038.
All Series A, B, C, and D warrants have been called, and all Series A and C warrants have been exercised. The Company intends to allow warrant holders or Company designees, in place of original holders, additional time as needed to exercise the remaining series B and D warrants. The Company may lower the exercise price of all or part of a warrant series at any time. Similarly, the Company could reverse split the stock to raise the stock price above the warrant exercise price. The warrants are specifically not affected and do not split with the shares in the event of a reverse split. If the called warrants are not exercised, the Company has the right to designate the warrants to a new holder in return for a $0.10 per share redemption fee payable to the original warrant holders. All such changes in the exercise price of warrants were provided for by the court in the Plan of Reorganization to provide a mechanism for all debtors to receive value even if they could not or did not exercise their warrant. Therefore, Management believes that the act of lowering the exercise price is not a change from the original warrant grants and the Company did not record an accounting impact as the result of such change in exercise prices.
All Series A and Series C warrants were exercised by December 31, 2014. Exercise prices in effect at January 1, 2015 through September 30, 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 September 30, 2020 and December 31, 2019, the weighted average contractual life for all Mentor warrants was 17.8 years and 18.5 years, respectively, and the weighted average outstanding warrant exercise price was $2.11 and $2.11 per share, respectively.
During the nine months ended September 30, 2020 and 2019, there were no warrants exercised and there were no warrants issued. The intrinsic value of outstanding warrants at September 30, 2020 and December 31, 2019 was $0 and $875, respectively.
27
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
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 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 September 30, 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 September 30, 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 nine months ended September 30, 2020 and 2019, no warrants were redeemed.
28
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
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 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 September 30, 2020 and December 31, 2019.
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 September 30, 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.
29
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
Note 14 - 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 September 30, 2020 and December 31, 2019 include this interest. The Core Q Holdings Asset Value at September 30, 2020 and December 31, 2019 was $15,768 and $14,621 per share, respectively. There is no contingent liability for the Series Q Preferred Stock conversion at September 30, 2020 and December 31, 2019. At September 30, 2020 and December 31, 2019, the Series Q Preferred Stock could have been converted at the Conversion Price of $0.074 and $0.13, respectively, into an aggregate of 2,343,839 and 1,237,166 shares of the Company’s Common Stock, respectively. Because there were net losses for the three and nine month periods ended September 30, 2020 and 2019, these shares were anti-dilutive and therefore are not included in the weighted average share calculation for these periods.
Note 15 – 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
September 30,
|
|
Finance
leases
|
|
Operating
leases
|
2021
|
$
|
71,616
|
$
|
153,602
|
2022
|
|
78,629
|
|
29,739
|
2023
|
|
61,332
|
|
-
|
2024
|
|
32,549
|
|
-
|
2025
|
|
13,493
|
|
-
|
Total
|
|
257,619
|
|
183,341
|
Less: Current maturities
|
|
71,616
|
|
153,602
|
Long-term liability
|
$
|
186,003
|
$
|
29,739
|
30
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
Note 16 - Term Loan
Term debt as of September 30, 2020 and December 31, 2019 consists of the following:
|
|
September 30,
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.
|
$
|
4,499
|
$
|
24,017
|
Note 17 – Paycheck Protection Plan loans and Economic Injury Disaster Loans
Paycheck protection plan loans
On April 23, 2020 and May 5, 2020, The Company and WCI each received loans in the amount of $76,500 and $383,342, respectively, from the Bank of Southern California and Republic Bank of Arizona (collectively, the “PPP Loans”). The Paycheck Protection Program was established under Sections 1102 and 1106 of the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"), which was enacted March 27, 2020. The CARES Act temporarily amends Section 7(a) of the Small Business Act to expand the scope and criterion of a business’s eligibility to receive financial assistance from the Small Business Administration (“SBA”).
Originally, Section 1106 of the CARES Act limited the period during which PPP loan expenditures were eligible for forgiveness to eight weeks after the loan disbursement date. On June 5, 2020, the Paycheck Protection Program Flexibility Act (“PPP Flexibility Act”) extended the PPP loan term and forgiveness period to the earlier of (i) twenty-four weeks after the PPP loan disbursement date, or (ii) December 31, 2020. Section 1106 of the CARES Act required that 75% of PPP loan proceeds be spent on eligible payroll costs during the forgiveness period to qualify for loan forgiveness, with the remaining 25% of PPP proceeds spent on qualified non-payroll expenses. In contrast, the PPP Flexibility Act requires that borrowers spend at least 60% of PPP loan proceeds on eligible payroll costs, with the remaining 40% of PPP loan proceeds spent on any combination of qualified non-payroll expenses. Section 3(c) of the PPP Flexibility Act provides for deferment of PPP loan payments for ten months after the end of the loan forgiveness covered period. On October 7, 2020, the SBA further clarified that lenders must recognize that the PPP Flexibility Act automatically extended the deferral period for payments on all PPP loans, even if the executed promissory note indicated a shorter deferral period. The Company’s PPP loan payment schedules have been revised to reflect the extended term for deferral of payments.
The PPP Loans may be forgivable so long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the forgiveness period.
The Company has recorded the PPP Loans as a liability in accordance with FASB ASC 470, “Debt” and has recorded accrued interest through September 30, 2020. Proceeds from the PPP Loans will remain recorded as a liability until either (1) the PPP Loans are, in part or wholly, forgiven, and the Company has been legally released, or (2) the Company pays off the PPP Loans. If the PPP Loans are, in part, or wholly forgiven, the liability will be reduced and a gain on the extinguishment will be recognized.
The Company has used approximately 96% of its PPP Loans proceeds to fund payroll expenses, with the remainder spent for utilities and rent. As of September 30, 2020, the Company has met the PPP eligibility criteria for forgiveness of all PPP Loan amounts in excess of the $10,000 Economic Injury Disaster Loan Advance (“EIDL Advance”) received by WCI. WCI applied for forgiveness in August 2020 but has not yet received formal notice of forgiveness. Mentor expects to apply for forgiveness of its PPP Loan in the fourth quarter of 2020.
The Company has not taken any action that would cause any portion of the loans to be ineligible for forgiveness. However, to the extent that any amount is deemed unforgivable, such amount is payable over two years at an interest rate of 1%, following the deferral provided under the PPP Flexibility Act of ten months after the covered period.
31
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
Note 17 – Paycheck protection program loans and Economic injury disaster loan (continued)
PPP loan balances at September 30, 2020 consist of the following:
|
|
September 30,
2020
|
|
|
|
April 23, 2020 loan from Bank of Southern California to Mentor Capital, Inc., including accrued interest of $270 at September 30, 2020. The note bears interest at 1% per annum, with a revised maturation date of January 23, 2023, with monthly principle and interest payments of $4,305 beginning August 23, 2021. The note may be forgiven in its entirety if used for eligible purposes.
|
$
|
76,770
|
|
|
|
May 5, 2020, loan from Republic Bank of Arizona to Waste Consolidators, Inc., including accrued interest of $1,529 at September 30, 2020. The note bears interest at 1% per annum, with a revised maturation date of November 6, 2022, with monthly principle and interest payments of $21,579 beginning June 6, 2021. The note may be forgiven for all except $10,000 if used for eligible purposes.
|
|
384,871
|
|
|
|
|
|
|
Total paycheck protection program loan balances
|
|
461,640
|
|
|
|
Less: Current maturities
|
|
90,574
|
|
|
|
Long-term portion of paycheck protection plan loans
|
$
|
371,066
|
Interest expense on PPP Loans for the three and nine months ended September 30, 2020 was $1,048 and $1,798, respectively.
Economic injury disaster loan
On April 24, 2020, WCI received a $10,000 SBA EIDL Advance. The EIDL Advance is an emergency grant under Section 1110 of the Cares Act, which expands businesses’ access to Economic Injury Disaster Loans under Section 7(b)(2) of the Small Business Act. Because EIDL Advance repayment is not required, the EIDL Advance is recognized in other income for the nine months ended September 30, 2020. This amount will reduce the portion of PPP Loans available for forgiveness by $10,000.
On July 9, 2020, WCI received an additional Economic Injury Disaster Loan in the amount of $150,000 through the SBA. The loan is secured by all tangible and intangible personal property of WCI, bears interest at 3.75% per annum, requires monthly installment payments of $731 beginning July 2020, and matures July 2050. The loan is collateralized by all tangible and intangible assets of WCI.
EIDL loan balances at September 30, 2020 consist of the following:
|
|
September
30, 2020
|
July 9, 2020, WCI received an additional Economic Injury Disaster Loan, including accrued interest of $1,172 as of September 30, 2020. The note is secured by all tangible and intangible personal property of WCI, bears interest at 3.75% per annum, requires monthly installment payments of $731 beginning July 2021, and matures July 2050.
|
$
|
151,172
|
|
|
|
Less: Current maturities
|
|
-
|
|
|
|
Long-term portion of economic injury disaster loan
|
$
|
151,172
|
Interest expense on the EIDL Loan for the three and nine months ended September 30, 2020 was $1,172.
32
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
Note 18 - Accrued salary, accrued retirement, and incentive fee - related party
As of September 30, 2020 and December 31, 2019, the Company had an outstanding liability to its CEO as follows:
|
|
September 30,
2020
|
|
December 31,
2019
|
Accrued salaries and benefits
|
$
|
840,874
|
$
|
829,231
|
Accrued retirement and other benefits
|
|
547,166
|
|
540,860
|
Offset by shareholder advance
|
|
(261,653)
|
|
(261,653)
|
|
$
|
1,126,387
|
$
|
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 and nine months ended September 30, 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 September 30, 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.
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, to recover collateral under a security agreement, and to collect from guarantors on the agreements. The Company previously sought, and the Court granted, the Company’s request for a writ of possession to recover leased equipment within G Farma’s possession. Mentor intends to vigorously pursue this matter; however, collection is uncertain at this time. Due to uncertainty of collection, the Company has fully reserved 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. In the quarter ended March 31, 2020, the Company sold a portion of the recovered equipment, with an original cost of $495,967, for net proceeds of $222,031. In the quarter ended June 30, 2020, the Company sold all remaining recovered equipment, with an original cost of $126,703, for net proceeds of $27,450, after deducting shipping and delivery costs. All proceeds from sale of repossessed equipment has been applied to the G Farma lease receivable balance.
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.
33
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
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 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 long standing investment in WCI which works with business park owners, governmental centers, and apartment complexes to reduce their facility related operating costs. The Company also has a small investment in General Dynamics Corp. (NYSE: GD), an aerospace and defense corporation, an investment in note receivable from a non-affiliated party, the fair value of convertible notes receivable and accrued interest from NeuCourt, and the investment in Neucourt that is included in the Corporate, Other, and Eliminations section below. The NeuCourt investments were previously reported as an investment that would be useful in the cannabis space, however, NeuCourt has determined it will not become a cannabis legal services company. Prior period segment information presented below contains reclassification of NeuCourt investments from the cannabis and medical marijuana segment to the Corporate, other, and eliminations segment.
|
|
Cannabis and
Medical
Marijuana
Segment
|
|
Facility
Operations
Related
|
|
Corporate,
Other and
Eliminations
|
|
Consolidated
|
Three months ended September 30, 2020
|
|
|
|
|
|
|
|
|
Net revenue
|
$
|
11,730
|
$
|
1,219,800
|
$
|
-
|
$
|
1,231,530
|
Operating income (loss)
|
|
4,516
|
|
(230,490)
|
|
(189,005)
|
|
(414,979)
|
Interest income
|
|
8
|
|
-
|
|
24,960
|
|
24,968
|
Interest expense
|
|
-
|
|
9,517
|
|
(1,004)
|
|
8,513
|
Property additions
|
|
-
|
|
6,490
|
|
2,581
|
|
9,071
|
Depreciation and amortization
|
|
-
|
|
3,892
|
|
2,038
|
|
5,930
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2019
|
|
|
|
|
|
|
|
|
Net revenue
|
$
|
13,312
|
$
|
1,058,025
|
$
|
-
|
$
|
1,071,337
|
Operating income (loss)
|
|
(38,426)
|
|
9,276
|
|
(280,397)
|
|
(309,547)
|
Interest income
|
|
30
|
|
4
|
|
21,507
|
|
21,541
|
Interest expense
|
|
-
|
|
7,214
|
|
(1,134)
|
|
6,080
|
Property additions
|
|
-
|
|
-
|
|
-
|
|
-
|
Depreciation and amortization
|
|
-
|
|
2,653
|
|
2,932
|
|
5,585
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2020
|
|
|
|
|
|
|
|
|
Net revenue
|
$
|
36,297
|
$
|
3,503,563
|
$
|
-
|
$
|
3,539,860
|
Operating income (loss)
|
|
(16,624)
|
|
(174,878)
|
|
(665,076)
|
|
(856,578)
|
Interest income
|
|
-
|
|
-
|
|
65,504
|
|
65,504
|
Interest expense
|
|
-
|
|
25,829
|
|
(3,132)
|
|
22,697
|
Property additions
|
|
-
|
|
23,231
|
|
7,593
|
|
30,824
|
Depreciation and amortization
|
|
-
|
|
10,190
|
|
4,679
|
|
14,869
|
Total assets
|
|
2,095,569
|
|
1,955,675
|
|
702,561
|
|
4,753,805
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2019
|
|
|
|
|
|
|
|
|
Net revenue
|
$
|
145,564
|
$
|
3,031,519
|
$
|
-
|
$
|
3,177,083
|
Operating income (loss)
|
|
(734,818)
|
|
67,162
|
|
(784,471)
|
|
(1,452,127)
|
Interest income
|
|
19,745
|
|
10
|
|
67,251
|
|
87,006
|
Interest expense
|
|
-
|
|
19,857
|
|
(3,402)
|
|
16,455
|
Property additions
|
|
-
|
|
8,159
|
|
-
|
|
8,159
|
Depreciation and amortization
|
|
-
|
|
7,959
|
|
8,796
|
|
16,755
|
Total assets
|
|
2,661,427
|
|
1,662,764
|
|
945,089
|
|
5,269,280
|
34
Mentor Capital, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 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
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Operating loss
|
$
|
(414,979)
|
$
|
(309,547)
|
$
|
(856,578)
|
$
|
(1,452,127)
|
Gain (loss) on investments
|
|
(2,758)
|
|
(45,638)
|
|
(8,676)
|
|
(1,747,608)
|
Interest income
|
|
24,968
|
|
21,541
|
|
65,504
|
|
87,006
|
Interest expense
|
|
(8,513)
|
|
(6,080)
|
|
(22,697)
|
|
(16,455)
|
Gain on equipment disposals
|
|
3,372
|
|
-
|
|
3,372
|
|
1,500
|
EIDL Advance
|
|
-
|
|
-
|
|
10,000
|
|
-
|
Other income
|
|
7,994
|
|
-
|
|
24,352
|
|
11,340
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
$
|
(389,916)
|
$
|
(339,724)
|
$
|
(784,723)
|
$
|
(3,116,344)
|
Note 22 – Subsequent events
On October 28, 2020, Mentor received $31,000 for its 80% interest in any commercial opportunities resulting from a study performed by Dr. Mandelkorn. Mentor had provided $30,000 of funding for the study, see Note 1.
On October 28, 2020, the $50,000 convertible note receivable from NeuCourt, originally maturing October 31, 2020, was amended to extend the maturity date to October 31, 2022. As consideration for the extension of the maturity date for the $50,000 note plus accrued interest of $5,132, a warrant to purchase up to 52,500 shares of NeuCourt common stock at $0.02 per share was issued to Mentor, see Note 7.
On November 4, 2020, Mentor’s Motion for Summary Adjudication was granted as to several causes of action against G FarmaLabs Limited and guarantors Atanachi Gonzalez and Nicole Gonzalez in the Superior Court California for the County of Marin. The Court found that G FarmaLabs Limited had breached its obligations under both promissory notes and that each of Mr. Gonzalez and Ms. Gonzalez owed duties to Mentor and Mentor Partner I as guarantors of those same promissory notes.
35