Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
Note
1 - Nature of operations
Corporate
Structure Overview
Mentor
Capital, Inc. (“Mentor” or “the Company”), was 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 Ramona, California to Plano, Texas.
The
Company’s common stock trades publicly under the trading symbol OTCQB: MNTR.
The
Company’s broad target industry focus includes energy, medical products, manufacturing, cannabis-related entities, cryptocurrency,
real estate, and international projects, with the goal of ensuring increased market opportunities.
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 of the Company since 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.
On May 5, 2020, a patent was issued by the United States Patent and Trademark Office and on September 22, 2020, a patent was issued by
the Canadian Intellectual Property Office. Patent application national phase maintenance fees were expensed when paid rather than capitalized
and therefore, no capitalized assets related to MCIP are recognized on the consolidated financial statements at December 31, 2021 and
2020.
Mentor
Partner I, LLC (“Partner I”) was reorganized as a limited liability company under the laws of the State of Texas as of February
17, 2021. The entity was originally organized as a limited liability company under the laws of the State of California on September 19,
2017. Partner I was formed as a wholly owned subsidiary of Mentor for the purpose of cannabis-focused acquisition and investment. 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 were fully impaired at December 31, 2021 and 2020, see
Note 8.
Mentor
Capital, Inc.
Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
Mentor
Partner II, LLC (“Partner II”) was reorganized as a limited liability company under the laws of the State of Texas on February
17, 2021. The entity was originally organized as a limited liability company under the laws of the State of California on February
1, 2018. Partner II was formed as a wholly owned subsidiary of Mentor for the purpose of cannabis-focused investing and acquisition.
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, as amended. 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. This lease is fully performing, see Note 8.
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 acquisition and investing purposes. Partner III had no activity subsequent to formation and was
dissolved on December 16, 2020.
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 acquisition and investing purposes. Partner IV had no activity subsequent to formation and was
dissolved on December 16, 2020.
The
Company has a membership equity interest in Electrum Partners, LLC (“Electrum”) which is carried at cost of $194,028 and
$194,028 at December 31, 2021 and 2020, respectively.
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 9, Mentor provided capital
for payment of Litigation costs in the amount of $196,666
and $181,529
as of December 31, 2021 and 2020, respectively.
After repayment to Mentor of all funds invested for payment of Litigation costs, Mentor will receive 19% 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 was the earlier of November 1, 2021, or the final resolution of the Litigation.
Due to the coronavirus and the resulting delay
in the trial date of the Litigation, on November 1, 2021 the parties amended the October 31, 2018 Capital Agreement for the purpose of
extending the payment to the earlier of November 1, 2023, or the final resolution of the Litigation and increased the monthly
payment payable by Electrum to $834. 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. On November 1, 2021, the parties also amended the January 28, 2019 Capital Agreement to extend
the payment date to the earlier of November 1, 2023, or the final resolution of the Litigation and increased the monthly payment payable
by Electrum to $834. 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. Under the Security Agreement, all liabilities and investments owed to Mentor from Electrum are secured by all of the
tangible and intangible assets of Electrum. See Note 9.
On
December 21, 2018, Mentor paid $10,000 to purchase 500,000 shares of NeuCourt, Inc. common stock, representing approximately 6.13% of
NeuCourt’s issued and outstanding common stock at December 31, 2021.
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 the full amounts due us. 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. Proceeds were credited against the finance lease receivable balance. The remaining finance lease receivable balance of $803,399
and $803,399 is fully reserved and reflected on the consolidated balance sheet at $0 and $0, at December 31, 2020 and 2021, respectively;
see Note 8.
Mentor
Capital, Inc.
Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
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 7, 8, and 9, in the Superior Court of California in the County of Marin. The Company
primarily sought 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. 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. In March 2020, we discovered that an additional component valued at $36,594
was missing from the equipment we recovered in
early 2020. All repossessed equipment was sold in 2020. See Note 8.
On
July 2, 2020, Mentor Capital, Inc. and Mentor Partner I, LLC filed a motion for summary adjudication seeking judgment on four of its
sixteen causes of action related to breach of the Promissory Notes and the related guarantees.
On
November 4, 2020, the Court granted Mentor Capital, Inc.’s and Mentor Partner I’s motion for summary adjudication as to all
four causes of action: both causes of action against G FarmaLabs Limited for breach of the two promissory notes totaling $1,166,570 and
one cause of action against each of Mr. Gonzalez and Ms. Gonzalez related to their duties as guarantors of G FarmaLabs Limited’s
obligations under the promissory notes.
On
August 27, 2021, the Company and Mentor Partner I entered into a Settlement Agreement and Mutual Release with the G Farma Entities
to resolve and settle all outstanding claims (“Settlement Agreement”). The
Settlement Agreement requires the G Farma Entities to pay the Company an aggregate of $500,000 plus
interest, payable monthly as follows: (i) $500 per month for 12 months beginning on September 5, 2021, (ii) $1,000 per month for 12 months
beginning September 5, 2022, (iii) $2,000 per month for 12 months beginning September 5, 2023, and (iv) increasing by an additional $1,000
per month on each succeeding September 5th thereafter, until the settlement amount and accrued unpaid interest are paid in full. Interest
on the unpaid balance shall initially accrue at the rate of 4.25% per annum, commencing February 25, 2021, compounded monthly, and shall
be adjusted on February 25th of each year to equal the Prime Rate as published in the Wall Street Journal plus 1%.
In the event that the G Farma Entities fail to make any monthly payment and have not cured two such defaults within 10 days of notice
from the Company, the parties have stipulated that an additional $2,000,000
will be immediately added to the
amount payable by the G Farma Entities.
On
October 12, 2021, the parties filed a Stipulation for Dismissal and Continued Jurisdiction with the Superior Court of California in the
County of Marin. The Court ordered that it retain jurisdiction over the parties under Section 664.6 of the California Code of Civil Procedure
to enforce the Settlement Agreement until performance in full of its terms.
The
Company has retained the reserve on collections of the unpaid lease receivable balance due to the long history of uncertain payments
from G Farma. Payments from G Farma will be recognized in Other Income as they are received. See Footnotes 7 and 8.
Note
2 - Summary of significant accounting policies
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.
As
shown in the accompanying financial statements, the Company has a significant accumulated deficit of $10,874,079 as of December 31, 2021.
The Company continues to experience negative cash flows from operations.
The
Company management believes it is more likely than not that Electrum will prevail in the legal action described in Note 9 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.
Mentor
Capital, Inc.
Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
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 consolidated financial statements do not
include any adjustments that might result from repricing the outstanding warrants.
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 December 31, 2021, 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. Our legal recovery efforts have been hindered, and may continue to be hindered, due to the closure of the courts
in California and British Columbia, including delay of the litigation concerning Electrum Partners and receipt of our interest
in any such recovery. Additionally, collectability of our investment in accounts receivable was impaired by $116,430
and $139,148
at December 31, 2021 and 2020, respectively,
due to a reduction in our estimated collection amount for the 2020 and 2021 annual installment
payments which were affected by the COVID-19 pandemic, see Note 3.
Public
health efforts to mitigate the impact of COVID-19 have included government actions such as travel restrictions, limitations on public
gatherings, shelter in place orders, and mandatory closures. These actions are being lifted to varying degrees. WCI has not experienced
an overall reduced demand for services initially anticipated because WCI helps lower monthly service costs paid by its client properties.
However, WCI’s clients may experience a delay in collecting rent from tenants, which may cause slower payments to WCI. WCI closely
monitors customer accounts and has not experienced significant delays in the collection of accounts receivable.
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 available resources and opportunities will be sufficient for us to execute our business plan for one year after
the date these financial statements are issued. 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.
Segment
reporting
The
Company has determined that there are currently two reportable segments: 1) the cannabis and medical marijuana segment, and 2) the Company’s
legacy investment in WCI, which works with business park owners, governmental centers, and apartment complexes to reduce their facility
related operating costs.
Mentor
Capital, Inc.
Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
Use
of estimates
The
preparation of our 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.
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.
Simplifying
the Accounting for Income Taxes – As of January 1, 2021, we adopted 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 The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.
Mentor
Capital, Inc.
Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
Concentrations
of cash
The
Company maintains its cash and cash equivalents in bank deposit accounts which at times may exceed federally insured limits. The Company
has not experienced any losses in such accounts nor does the Company believe it is exposed to any significant credit risk on cash and
cash equivalents.
Cash
and cash equivalents
The
Company considers all short-term debt securities purchased with a maturity of three months or less to be cash equivalents. The Company
had no short-term debt securities as of December 31, 2021 and 2020.
Accounts
receivable
Accounts
receivables 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 historical losses as a percent of revenue in conjunction with 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 December 31, 2021 and 2020, the Company has an allowance for doubtful receivables
in the amount of $74,676 and $59,461, respectively.
Investments
in securities, at fair value
Investment
in securities consists of debt and equity securities reported at fair value. Under ASU 2016-01, “Financial Instruments - Overall:
Recognition and Measurement of Financial Assets and Financial Liabilities,” the Company elected to report changes in the fair
value of equity investment in realized investment gains (losses), net.
Long
term investments
The
Company’s investments in entities where it is a minority owner and does not have the ability to exercise significant influence
are recorded at fair value if readily determinable. If the fair market value is not readily determinable, the investment is recorded
under the cost method. Under this method, the Company’s share of the earnings or losses of such investee company is not included
in the Company’s financial statements. The Company reviews the carrying value of its long-term investments for impairment each
reporting period.
Investments
in debt securities
The
Company’s investment in debt securities consists of two convertible notes receivable from NeuCourt, Inc. which are recorded at
the aggregate principal face amount of $75,000 plus accrued interest of $11,140 and $7,038 at December 31, 2021 and 2020, respectively,
as presented in Note 6.
Mentor
Capital, Inc.
Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
Investment
in account receivable, net of discount
The
Company’s investment in account receivable is stated at face value, net of unamortized purchase discount which approximates fair
value. The discount is amortized to interest income over the term of the exchange agreement. Due to the effect of COVID-19 collection
of the 2020 and 2021 installments are uncertain. Based on management’s estimate of collections, coupled with actual collections
in 2021, we recorded a loss on this investment of $139,148
for the year ended December 31, 2020 and a gain
of $22,718 in
the year ended December 31, 2021, reflected in other income on the consolidated income statement. See Note 3.
Credit
quality of notes receivable and finance leases receivable and credit loss reserve
As
our notes receivable and finance leases receivable are limited in number, our management is able to analyze estimated credit loss reserves
based on a detailed analysis of each receivable as opposed to using portfolio-based metrics. Our management does not use a system of
assigning internal risk ratings to each of our receivables. Rather, each note receivable and finance lease receivable are analyzed quarterly
and categorized as either performing or non-performing based on certain factors including, but not limited to, financial results, satisfying
scheduled payments and compliance with financial covenants. A note receivable or finance lease receivable will be categorized as non-performing
when a borrower experiences financial difficulty and has failed to make scheduled payments. As part of the monitoring process, we may
physically inspect the collateral or a borrower’s facility and meet with a borrower’s management to better understand such
borrower’s financial performance and its future plans on an as-needed basis.
Property,
and equipment
Property
and equipment is recorded at cost less accumulated depreciation. Depreciation is computed on the declining balance method over the estimated
useful lives of various classes of property. The estimated lives of the property and equipment are generally as follows: computer equipment,
three to five years; furniture and equipment, seven years; and vehicles and trailers, four to five years. Depreciation on vehicles used
by WCI to service its customers is included in cost of goods sold in the consolidated income statements. All other depreciation is included
in selling, general and administrative costs in the consolidated income statements.
Expenditures
for major renewals and improvements are capitalized, while minor replacements, maintenance, and repairs, which do not extend the asset
lives, are charged to operations as incurred. Upon sale or disposition, the cost and related accumulated depreciation are removed from
the accounts and any gain or loss is included in operations. The Company continually monitors events
and changes in circumstances that could indicate that the carrying balances of its property and
equipment may not be recoverable in accordance with the provisions of ASC 360, “Property, Plant, and Equipment.” When
such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether
the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash
flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying
amount over the fair value of the assets. See Note 6, “Property, Equipment and Leasehold Improvements, Net” for further
information.
The
Company reviews intangible assets subject to amortization quarterly to determine if any adverse conditions exist or a change in circumstances
has occurred that would indicate impairment or a change in the remaining useful life. Conditions that may indicate
impairment include, but are not limited to, a significant adverse change in legal factors or business
climate that could affect the value of an asset, a product recall, or an adverse action or assessment by a regulator. If an impairment
indicator exists, we test the intangible asset for recoverability. For purposes of the recoverability test, we group our amortizable
intangible assets with other assets and liabilities at the lowest level of identifiable cash flows if the intangible asset does not generate
cash flows independent of other assets and liabilities. If the carrying value of the intangible asset (asset group) exceeds the undiscounted
cash flows expected to result from the use and eventual disposition of the intangible asset (asset group), the Company will write the
carrying value down to the fair value in the period identified.
Lessee
Leases
We
determine whether an arrangement is a lease at inception. Lessee leases are classified as either finance leases or operating leases.
A lease is classified as a finance lease if any one of the following criteria are met: the lease transfers ownership of the asset by
the end of the lease term, the lease contains an option to purchase the asset that is reasonably certain to be exercised, the lease term
is for a major part of the remaining useful life of the asset or the present value of the lease payments equals or exceeds substantially
all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any one of these criteria. Our operating
leases are comprised of office space leases, and office equipment. Fleet vehicle leases entered into prior to January 1, 2019, are classified
as operating leases based on expected lease term of 4 years. Fleet vehicle leases entered into beginning January 1, 2019, for which the
lease is expected to be extended to 5 years, are classified as finance leases . Our leases have remaining lease terms of 1 month to 48
months. Our fleet finance leases contain a residual value guarantee which, based on past lease experience, is unlikely to result in a
liability at the end of the lease. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based
on the information available at commencement date in determining the present value of lease payments.
Mentor
Capital, Inc.
Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
Costs
associated with operating lease assets are recognized on a straight-line basis, over the term of the lease, within cost of goods sold
for vehicles used in direct servicing of WCI customers and in operating expenses for costs associated with all other operating leases.
Finance lease assets are amortized within cost of goods sold for vehicles used in direct servicing of WCI customers and within operating
expenses for all other finance lease assets, on a straight-line basis over the shorter of the estimated useful lives of the assets or
the lease term. The interest component of a finance lease is included in interest expense and recognized using the effective interest
method over the lease term. We have agreements that contain both lease and non-lease components. For vehicle fleet operating leases,
we account for lease components together with non-lease components (e.g., maintenance fees).
Goodwill
Goodwill
of $1,324,142
was derived from consolidating WCI effective
January 1, 2014, and $102,040
of goodwill was derived from the
1999 acquisition of a 50%
interest in WCI. In accordance with ASC 350, “Intangibles-Goodwill and Other,” goodwill and other intangible assets
with indefinite lives are no longer subject to amortization but are tested for impairment annually or whenever events or changes in circumstances
indicate that the asset might be impaired.
The
Company reviews the goodwill allocated to each of our reporting units for possible impairment annually as of December 31 and whenever
events or changes in circumstances indicate carrying amount may not be recoverable. In the impairment test, the Company measures the
recoverability of goodwill by comparing a reporting unit’s carrying amount, including goodwill, to the estimated fair value of
the reporting unit. If the carrying amount of a reporting unit is in excess of its fair value, the Company recognizes an impairment charge
equal to the amount in excess. To estimate the fair value, management uses valuation techniques which included the discounted value of
estimated future cash flows. The evaluation of impairment requires the Company to make assumptions about future cash flows over the life
of the asset being evaluated. These assumptions require significant judgment and are subject to change as future events and circumstances
change. Actual results may differ from assumed and estimated amounts. Management determined that no impairment write-downs were required
as of December 31, 2021 and 2020.
Mentor
Capital, Inc.
Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
Revenue
recognition
The
Company recognizes revenue in accordance with ASC 606, “Revenue from Contracts with Customers,” and FASB ASC Topic
842, “Leases.” Revenue is recognized net of allowances for returns and any taxes collected from customers, which are
subsequently remitted to government authorities.
WCI
works with business park owners, governmental centers, and apartment complexes to reduce facilities related costs. WCI performs monthly
services pursuant to agreements with customers. Customer monthly service fees are based on WCI’s assessment of the amount and frequency
of monthly services requested by a customer. WCI may also provide additional services, such as apartment cleanout services, large item
removals, or similar services, on an as needed basis at an agreed upon rate as requested by customers. All services are invoiced and
recognized as revenue in the month the agreed on services are performed.
For
each finance lease, the Company recognized as a gain the amount equal to (i) the net investment in the finance lease less (ii) the net
book value of the equipment at the inception of the applicable lease. At lease inception we capitalize the total minimum finance lease
payments receivable from the lessee, the estimated unguaranteed residual value of the equipment at lease termination, if any, and the
initial direct costs related to the lease, less unearned income. Unearned income is recognized as finance income over the term of the
lease using the effective interest rate method.
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.
Basic
and diluted income (loss) per common share
We
compute net loss per share in accordance with ASC 260, “Earnings Per Share.” Under the provisions of ASC 260, basic net loss
per share includes no dilution and is computed by dividing the net loss available to common stockholders for the period by the weighted
average number of shares of Common Stock outstanding during the period. Diluted net loss per share takes into consideration shares of
Common Stock outstanding (computed under basic net loss per share) and potentially dilutive securities that are not anti-dilutive.
Outstanding
warrants that had no effect on the computation of dilutive weighted average number of shares outstanding as their effect would be anti-dilutive
were approximately 7,000,000 and 7,000,000 as of December 31, 2021 and 2020, respectively. There were 87,456 and 87,456 potentially dilutive
shares outstanding at December 31, 2021 and 2020, respectively.
Assumed
conversion of Series Q Preferred Stock into Common Stock would be anti-dilutive as of December 31, 2021 and 2020 and is not included
in calculating the diluted weighted average number of shares outstanding.
Income
taxes
The
Company accounts for income taxes in accordance with accounting guidance now codified as FASB ASC 740, “Income Taxes,”
which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement
carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected
to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation
allowance is recorded when it is more likely than not that some or all deferred tax assets will not be realized.
The
Company applies the provisions of ASC 740, “Accounting for Uncertainty in Income Taxes.” The ASC prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. The ASC provides guidance on de-recognition, classification, interest, and penalties, accounting in interim periods,
disclosure, and transition. The Company utilizes a two-step approach to recognizing and measuring uncertain tax positions (tax contingencies).
The first step evaluates the tax position for recognition by determining if the weight of available evidence indicates it is more likely
than not that we will sustain the position on audit, including resolution of related appeals or litigation processes. The second step
measures the tax benefit as the largest amount of more than 50% likely of being realized upon ultimate settlement. The Company did not
identify any material uncertain tax positions on returns that have been filed or that will be filed. The Company did not recognize any
interest or penalties for unrecognized tax provisions during the years ended December 31, 2021 and 2020, nor were any interest or penalties
accrued as of December 31, 2021 and 2020. To the extent the Company may accrue interest and penalties, it elects to recognize accrued
interest and penalties related to unrecognized tax provisions as a component of income tax expense.
Mentor
Capital, Inc.
Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
Fair
value measurements
The
Company adopted ASC 820, “Fair Value Measurement,” which defines fair value as the exchange price that would be received
to sell an asset or paid to transfer a liability (an exit price) in the principal, or most advantageous market for the asset or liability
in an orderly transaction between market participants on the measurement date. The valuation techniques maximize the use of observable
inputs and minimize the use of unobservable inputs.
The
Fair Value Measurements and Disclosure Topic establish a fair value hierarchy, which prioritizes the valuation inputs into three broad
levels. These three general valuation techniques that may be used to measure fair value are as follows: Market approach (Level 1) –
which uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
Prices may be indicated by pricing guides, sale transactions, market trades, or other sources. Cost approach (Level 2) – which
is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost); and the Income
approach (Level 3) – which uses valuation techniques to convert future amounts to a single present amount based on current market
expectations about the future amounts (including present value techniques, and option-pricing models). Net present value is an income
approach where a stream of expected cash flows is discounted at an appropriate market interest rate.
The
carrying amounts of cash, accounts receivable, prepaid expenses and other current assets, accounts payable, customer deposits and other
accrued liabilities approximate their fair value due to the short-term nature of these instruments.
The
fair value of available-for-sale investment securities is based on quoted market prices in active markets.
The
fair value of the investment in account receivable is based on the net present value of calculated interest and principal payments. The
carrying value approximates fair value as interest rates charged are comparable to market rates for similar investments.
The
fair value of notes receivable is based on the net present value of calculated interest and principal payments. The carrying value approximates
fair value as interest rates charged are comparable to market rates for similar notes.
The
fair value of long-term notes payable is based on the net present value of calculated interest and principal payments. The carrying value
of long-term debt approximates fair value due to the fact that the interest rate on the debt is based on market rates.
Note
3 – 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, totalling $1,287,000
in exchange for 757,059
shares of Mentor Common Stock obtained through
the 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. In the fourth quarter of 2020, we were notified that due to the effect of COVID-19, we might not receive the 2020 installment
or the full 2021 installment. Based on management’s collection estimates, we recorded an investment loss of ($139,148) on the investment
in account receivable at December 31, 2021. In 2021, the Company reevaluated estimated collections and recorded an investment gain of
$22,718. The gain of $22,718 and loss of ($139,148) are reflected in other income on the consolidated income statement for the years
ended December 31, 2021 and 2020, respectively
Mentor
Capital, Inc.
Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
The
April 10, 2015 account receivable is supported by an exchange agreement and consisted of the following at December 31,
2021 and 2020:
Schedule of receivables with imputed interest
| |
2021 | | |
2020 | |
Face value | |
$ | 585,000 | | |
$ | 702,000 | |
Impairment | |
| (116,430 | ) | |
| (139,148 | ) |
Unamortized discount | |
| (167,137 | ) | |
| (232,794 | ) |
Net balance | |
| 301,433 | | |
| 330,058 | |
Current portion | |
| - | | |
| (26,162 | ) |
Long term portion | |
$ | 301,433 | | |
$ | 303,896 | |
For
the years ended December 31, 2021 and 2020, $65,657 and $87,694 of discount amortization is included in interest income.
Note
4 - Property and equipment
Property
and equipment is comprised of the following at December 31, 2021 and 2020:
Schedule of property, plant and equipment
| |
2021 | | |
2020 | |
Computers | |
$ | 31,335 | | |
$ | 38,545 | |
Furniture and fixtures | |
| 15,966 | | |
| 23,428 | |
Machinery and vehicles | |
| 252,225 | | |
| 205,187 | |
Gross
Property and equipment | |
| 299,526 | | |
| 267,160 | |
Accumulated depreciation and amortization | |
| (144,480 | ) | |
| (129,974 | ) |
| |
| | | |
| | |
Net Property and equipment | |
$ | 155,046 | | |
$ | 137,186 | |
Depreciation
and amortization expense was $51,710 and $27,656 for the years ended December 31, 2021 and 2020, respectively. Of these amounts, depreciation
on WCI vehicles used to service customer accounts is included in cost of goods sold and was $17,650 and $15,009 for the years ended December
31, 2021 and 2020, respectively. All other depreciation is included in selling, general and administrative expenses in the consolidated
income statements.
Note
5 – Lessee Leases
Our
operating leases are comprised of office space and office equipment leases. Fleet and vehicle leases entered into prior to January 1,
2019, under ASC 840 guidelines, have 4 year terms and are classified as operating leases. Fleet leases entered into beginning January
1, 2019, under ASC 842 guidelines, are expected to be extended to 5 year terms and are classified as finance leases.
Gross
right of use assets recorded under finance leases related to WCI vehicle fleet leases were $882,081 and $406,242 as of December 31, 2021
and 2020, respectively. Accumulated amortization associated with finance leases was $236,470 and $110,164 as of December 31, 2021 and
2020, respectively.
Mentor
Capital, Inc.
Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
Lease
costs recognized in our consolidated income statements is summarized as follows:
Schedule of lease costs recognized in consolidated statements of operations
| |
Year Ended December 31, 2021 | | |
Year Ended December 31, 2020 | |
Operating lease cost included in cost of goods | |
$ | 100,222 | | |
$ | 155,456 | |
Operating lease cost included in operating costs | |
| 47,287 | | |
| 57,363 | |
Total operating lease cost (1) | |
| 147,509 | | |
| 212,819 | |
Finance lease cost, included in cost of goods: | |
| | | |
| | |
Amortization of lease assets | |
| 151,200 | | |
| 73,524 | |
Interest on lease liabilities | |
| 24,719 | | |
| 18,184 | |
Total finance lease cost | |
| 175,919 | | |
| 91,708 | |
Short-term lease cost | |
| - | | |
| 23,920 | |
Total lease cost | |
$ | 323,428 | | |
$ | 328,447 | |
Right
of use asset amortization under operating agreements was $146,068 and $194,957 for the years ended December 31, 2021 and 2020.
Other
information about lease amounts recognized in our consolidated financial statements is summarized as follows:
Schedule of other information about lease amounts recognized in Condensed Consolidated Financial Statements
| |
December 31, 2021 | | |
December 31, 2020 | |
Weighted-average remaining lease term – operating leases | |
| 0.95 years | | |
| 0.93 years | |
Weighted-average remaining lease term – finance leases | |
| 3.83 years | | |
| 3.41 years | |
Weighted-average discount rate – operating leases | |
| 5.7 | % | |
| 10.1 | % |
Weighted-average discount rate – finance leases | |
| 3.8 | % | |
| 8.3 | % |
Finance
lease liabilities were as follows:
Schedule of Finance lease liabilities
| |
December 31, 2021 | | |
December 31, 2020 | |
Gross finance lease liabilities | |
$ | 634,192 | | |
$ | 310,685 | |
Less: imputed interest | |
| (51,212 | ) | |
| (40,183 | ) |
Present value of finance lease liabilities | |
| 582,980 | | |
| 270,502 | |
Less: current portion | |
| (167,515 | ) | |
| (79,526 | ) |
Long-term finance lease liabilities | |
$ | 415,465 | | |
$ | 190,976 | |
Operating
lease liabilities were as follows:
Schedule of operating lease liabilities
| |
December 31, 2021 | | |
December 31, 2020 | |
Gross operating lease liabilities | |
$ | 55,865 | | |
$ | 146,171 | |
Less: imputed interest | |
| (8,832 | ) | |
| (6,863 | ) |
Present value of operating lease liabilities | |
| 47,033 | | |
| 139,308 | |
Less: current portion | |
| (42,058 | ) | |
| (123,158 | ) |
Long-term operating lease liabilities | |
$ | 4,975 | | |
$ | 16,150 | |
Lease
maturities are disclosed in Note 14.
Mentor
Capital, Inc.
Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
Note
6 – Convertible notes receivable
Convertible
notes receivable consists of the following at December 31, 2021 and 2020:
Schedule of convertible notes receivable
| |
2021 | | |
2020 | |
November 22, 2017, NeuCourt, Inc. convertible note receivable including accrued interest
of $2,834
and $1,454
at December 31, 2021 and 2020. The note bears interest at 5%
per annum, originally matured November
22, 2019, and was extended to mature initially to November 22, 2021, and subsequently to November
22, 2023. Principal and accrued interest are due at maturity. Upon extension in November 2021, the Company received
$2,496
of accrued interest. 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. * | |
$ | 27,834 | | |
$ | 26,454 | |
| |
| | | |
| | |
October 31, 2018, NeuCourt, Inc. convertible note receivable including accrued interest of $8,491 and $5,584 at December 31, 2021 and 2020. The note bears interest at 5% per annum and matures 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. * | |
| 58,491 | | |
| 55,584 | |
| |
| | | |
| | |
Total convertible notes receivable | |
| 86,325 | | |
| 82,038 | |
| |
| | | |
| | |
Less current portion | |
| (58,491 | ) | |
| (26,454 | ) |
| |
| | | |
| | |
Long term portion | |
$ | 27,834 | | |
$ | 55,584 | |
* | 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 103,915 Conversion
Shares and the October 31, 2018 Note would convert into 218,369 Conversion Shares. 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. |
Note
7 - 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. 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.
Mentor
Capital, Inc.
Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
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 8, due the Company.
G
Farma has not made scheduled payments on the notes receivable or the G Farma finance lease receivable, described in Note 8, 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. The notes receivable balances of $1,043,531 and $1,045,051
at December 31, 2021 and 2020, respectively, are fully reserved and reflected in the consolidated balance sheet as $0 and $0 at December
31, 2021 and 2020, respectively.
On
November 4, 2020, the Court granted Mentor Capital, Inc.’s and Mentor Partner I’s motion for summary adjudication as to all
four causes of action: both causes of action against G FarmaLabs Limited for breach of the two promissory notes totalling $1,166,570
and one cause of action against each of Mr. Gonzalez
and Ms. Gonzalez related to their duties as guarantors of G FarmaLabs Limited’s obligations under the promissory notes. See legal
proceedings described in Note 19.
On
August 27, 2021, the Company and Mentor Partner I
entered into a Settlement Agreement and Mutual Release with the G Farma Entities to resolve and settle all outstanding claims (“Settlement
Agreement”). The
Settlement Agreement requires the G Farma Entities to pay the Company an aggregate of $500,000
plus
interest, payable monthly as follows: (i) $500 per month for 12 months beginning on September 5, 2021, (ii) $1,000 per month for 12 months
beginning September 5, 2022, (iii) $2,000 per month for 12 months beginning September 5, 2023, and (iv) increasing by an additional $1,000
per month on each succeeding September 5th thereafter, until the settlement amount and accrued unpaid interest are paid in full. Interest
on the unpaid balance shall initially accrue at the rate of 4.25% per annum, commencing February 25, 2021, compounded monthly, and shall
be adjusted on February 25th of each year to equal the Prime Rate as published in the Wall Street Journal plus 1%.
In the event that the G Farma Entities fail to make any monthly payment and have not cured two such defaults within 10 days of notice
from the Company, the parties have stipulated that an additional $2,000,000
will be immediately added to the amount payable
by the G Farma Entities.
On
October 12, 2021, the parties filed a Stipulation for Dismissal and Continued Jurisdiction with the Superior Court of California in the
County of Marin. The Court ordered that it retain jurisdiction over the parties under Section 664.6 of the California Code of Civil Procedure
to enforce the Settlement Agreement until performance in full of its terms.
The
Company has retained the full reserve on unpaid notes receivable balance due to the long history of uncertain payments from G Farma.
Payments from G Farma will be recognized in Other Income as they are received. See Footnotes 1 and 8. Recovery payments of $1,500 are
included in other income in the consolidated financial statements for the year ended December 31, 2021. No payments were received from
G Farma in the year ended December 31, 2020.
Note
8 – 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 or lease revenue for the years ended December 31, 2021 or 2020.
As
discussed in Notes 1 and 7, 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 valued at approximately $427,804 leased to the G Farma Lease Entities under
the Master Equipment Lease Agreement, 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. In 2019
an impairment of $783,880 was recorded. Additional bad debt expense of $0 and $19,519, recognized for the years ended December 31, 2021
and 2020, respectively, is included in selling, general and administrative expenses in the consolidated income statement.
Mentor
Capital, Inc.
Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
In
2020, the Company repossessed leased equipment under G Farma’s control with a cost of $622,569
and sold it to the highest offerors for net
proceeds of $348,734,
after shipping and delivery costs. Net sales proceeds were applied against the finance lease receivable.
On
August 27, 2021, the Company and Mentor Partner I entered into a Settlement Agreement and Mutual Release with the G Farma Entities
to resolve and settle all outstanding claims as further discussed in Notes 1,7 and 19. Net finance leases receivable from G Farma remain
fully impaired at December 31, 2021 and 2020. Payment received under this settlement will first be applied against the notes receivable
described in Note 7 and if any additional amounts are recovered, will then be applied against the finance leases receivable.
Net
finance leases receivable, non-performing, consists of the following at December 31, 2021 and 2020:
Schedule of net finance leases receivable, non-performing
| |
2021 | | |
2020 | |
Gross minimum lease payments receivable | |
$ | 1,203,404 | | |
$ | 1,203,404 | |
Less: unearned interest | |
| (400,005 | ) | |
| (400,005 | ) |
Less: reserve for bad debt | |
| (803,399 | ) | |
| (803,399 | ) |
Finance leases receivable | |
$ | - | | |
$ | - | |
Mentor
Partner II
Partner
II entered into a Master Equipment Lease Agreement with Pueblo West, dated February 11, 2018, 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. At December
31, 2021, all Partner II leased equipment under finance leases receivable is located in Colorado.
Performing
net finance leases receivable consists of the following at December 31, 2021 and 2020:
Schedule
of net finance leases receivable, performing
| |
2021 | | |
2020 | |
Gross minimum lease payments receivable | |
$ | 367,505 | | |
$ | 477,680 | |
Accrued interest | |
| 1,783 | | |
| 2,141 | |
Less: unearned interest | |
| (62,638 | ) | |
| (103,870 | ) |
Finance leases receivable | |
| 306,650 | | |
| 375,951 | |
Less current portion | |
| (76,727 | ) | |
| (69,053 | ) |
Long term portion | |
$ | 229,923 | | |
$ | 306,898 | |
Finance
lease revenue recognized on Partner I finance leases for the years ended December 31, 2021 and 2020, was $0 and $0, respectively.
Finance
lease revenue recognized on Partner II finance leases for the years ended December 31, 2021 and 2020 was $40,764 and $47,707, respectively.
Mentor
Capital, Inc.
Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
At
December 31, 2021, minimum future payments receivable for performing finance leases receivable were as follows:
Schedule of minimum future payments receivable for performing finance leases receivable
12 months ending December 31, | |
Lease Receivable | | |
Interest | |
2022 | |
$ | 76,727 | | |
| 28,901 | |
2023 | |
| 87,039 | | |
| 20,391 | |
2024 | |
| 94,731 | | |
| 10,989 | |
2025 | |
| 42,976 | | |
| 2,131 | |
2026 | |
| 5,177 | | |
| 226 | |
Thereafter | |
| - | | |
| - | |
| |
$ | 306,650 | | |
$ | 62,638 | |
Note 9 - Contractual interests in 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 December 31, 2021 and 2020, Mentor invested an additional $96,666
and $81,529,
respectively, of capital in Electrum for payment of legal retainers and fees in consideration for an additional nine percent
(9%) and eight percent (8%), respectively, of the Recovery.
At December 31, 2021 and 2020, the Recovery Agreement investment is reported in the consolidated balance sheets at our cost of $196,666
and $181,529,
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 December 31, 2021 and 2020.
Mentor
Capital, Inc.
Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
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. Payment is secured by all assets of Electrum. The payment date under the October 31, 2018 Capital Agreement
was the earlier of November 1, 2021, or the final resolution of the Litigation.
Due to the coronavirus and the resulting delay in the trial date of the Litigation, on November 1, 2021 the parties amended the October
31, 2018 Capital Agreement for the purpose of extending the payment to the earlier of November 1, 2023, or the final resolution of the
Litigation and increased the monthly payment payable by Electrum to $834. This investment
is included at cost of $100,000
in Contractual interests in legal recoveries
on the consolidated balance sheets at December 31, 2021 and 2020.
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 was the earlier of November 1, 2021, and the final resolution of the Litigation. On November 1, 2021, the parties amended
the January 28, 2019 Capital Agreement to extend the payment date to the earlier of November 1, 2023, or the final resolution of the
Litigation and increased the monthly payment payable by Electrum to $834. This investment
is included at its $100,000
cost
as part of the Contractual interests in legal recoveries on the consolidated balance sheets at December 31, 2021 and 2020. 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.
Recovery
on this claim has been delayed due to COVID-19. The Company’s interest in the Electrum Partners, LLC legal recovery, carried at
cost, at December 31, 2021 and 2020 is summarized as follows:
Schedule of interest in legal recovery carried at cost
| |
2021 | | |
2020 | |
October 30, 2018 Recovery Purchase Agreement | |
$ | 196,666 | | |
$ | 181,529 | |
October 31, 2018 secured Capital Agreement | |
| 100,000 | | |
| 100,000 | |
January 28, 2019 secured Capital Agreement | |
| 100,000 | | |
| 100,000 | |
Total Invested | |
$ | 396,666 | | |
$ | 381,529 | |
Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
Note
10 – Investments and fair value
The
hierarchy of Level 1, Level 2 and Level 3 Assets are listed as follows:
Schedule of hierarchy of level 1, level 2 and level 3 assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2019 |
|
$ |
- |
|
|
|
- |
|
|
|
346,195 |
|
|
|
5,669 |
|
|
|
204,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains or losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
(or changes in net assets) |
|
|
(10,292 |
) |
|
|
- |
|
|
|
- |
|
|
|
(4,669 |
) |
|
|
- |
|
Purchases, issuances, sales,
and settlements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases |
|
|
83,536 |
|
|
|
- |
|
|
|
50,717 |
|
|
|
- |
|
|
|
- |
|
Issuances |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Sales |
|
|
(38,418 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Settlements |
|
|
- |
|
|
|
- |
|
|
|
(15,383 |
) |
|
|
- |
|
|
|
- |
|
Balance at December 31, 2020 |
|
|
34,826 |
|
|
$ |
- |
|
|
$ |
381,529 |
|
|
$ |
1,000 |
|
|
$ |
204,028 |
|
Beginning balance |
|
|
34,826 |
|
|
$ |
- |
|
|
$ |
381,529 |
|
|
$ |
1,000 |
|
|
$ |
204,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains or losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
(or changes in net assets) |
|
|
842 |
|
|
|
- |
|
|
|
- |
|
|
|
175 |
|
|
|
- |
|
Purchases, issuances, sales,
and settlements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases |
|
|
38,470 |
|
|
|
- |
|
|
|
15,137 |
|
|
|
- |
|
|
|
- |
|
Issuances |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Sales |
|
|
(73,129 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Settlements |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Balance at December 31, 2021 |
|
$ |
1,009 |
|
|
$ |
- |
|
|
$ |
396,666 |
|
|
$ |
1,175 |
|
|
$ |
204,028 |
|
Ending balance |
|
|
1,009 |
|
|
|
- |
|
|
|
396,666 |
|
|
|
1,175 |
|
|
|
204,028 |
|
The
amortized costs, gross unrealized holding gains and losses, and fair values of the Company’s investment securities classified as
equity securities, at fair value, at December 31, 2021 consists of the following:
Schedule of amortized costs, gross unrealized holding gains and losses, and fair values of investment securities
Type | |
Amortized Costs | | |
Gross Unrealized Gains | | |
Gross Unrealized Losses | | |
Fair Values | |
NASDAQ listed company stock | |
$ | 1,637 | | |
$ | - | | |
$ | (628 | ) | |
$ | 1,009 | |
Mentor
Capital, Inc.
Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
The
portion of unrealized gains and losses for the period related to equity securities still held at the reporting date is calculated as
follows:
Schedule of portion of unrealized gains and losses related to equity securities
| |
| | |
| |
| |
Year Ended December 31, | |
| |
2021 | | |
2020 | |
Net gains and losses recognized during the period on equity securities | |
$ | 842 | | |
$ | (10,291 | ) |
| |
| | | |
| | |
Less: Net gains (losses) recognized during the period on equity securities sold during the period | |
| 1,470 | | |
| 303 | |
| |
| | | |
| | |
Unrealized gains and losses recognized during the reporting period on equity securities still held at the reporting date | |
$ | (628 | ) | |
$ | (10,594 | ) |
Note
11 – 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, as of December 31, 2021, 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 as discussed further in Note 12. 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 December 31,
2020 for Series B warrants were $0.11 and Series D warrants were $1.60.
As of December
31, 2021, 87,456 Series B warrants were outstanding and held by Mr. Billingsley. On January 11, 2022, Mr. Billingsley exercised his 87,456
Series B warrants in exchange for 87,456 shares of the Company’s Common Stock.
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 December 31, 2021 and 2020, the weighted average contractual life for all Mentor warrants was 16.5 years and 17.5 years, respectively,
and the weighted average outstanding warrant exercise price was $2.11 and $2.11 per share, respectively.
During
the years ended December 31, 2021 and 2020, no warrants were exercised and no warrants were issued. The intrinsic value of outstanding
warrants at December 31, 2021 and 2020 was $0 and $0, respectively.
The
following table summarizes Series B and Series D common stock warrants as of each period:
Schedule of common stock warrants
| |
Series B | | |
Series D | | |
B and D Total | |
Outstanding at December 31, 2019 | |
| 87,456 | | |
| 6,252,954 | | |
| 6,340,410 | |
Issued | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | |
Outstanding at December 31, 2020 | |
| 87,456 | | |
| 6,252,954 | | |
| 6,340,410 | |
Issued | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | |
Outstanding at December 31, 2021 | |
| 87,456 | | |
| 6,252,954 | | |
| 6,340,410 | |
Mentor
Capital, Inc.
Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
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, 2019 | |
| 689,159 | |
Issued | |
| - | |
Exercised | |
| - | |
Outstanding at December 31, 2020
| |
| 689,159 | |
Outstanding balance | |
| 689,159 | |
Issued | |
| - | |
Exercised | |
| - | |
Outstanding at December 31, 2021 | |
| 689,159 | |
Outstanding balance | |
| 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 could 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 years ended December 31, 2021 and 2020, no warrants were redeemed.
Note
12 – 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. At December 31, 2021,
there were 87,456
Series B warrants outstanding which were held
by Chet Billingsley, the Company’s Chief Executive Officer. On January 11, 2022, Mr. Billingsley exercised his 87,456
Series B warrants in exchange for 87,456
shares of the Company’s Common Stock.
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 December 31, 2021 and 2020.
Mentor
Capital, Inc.
Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
Note
13 – Stockholders’ equity
Common
Stock
The
Company was incorporated in California in 1994 and was redomiciled as a Delaware corporation, effective September 24, 2015. There are
75,000,000 authorized shares of Common Stock at $0.0001 par value. The holders of Common Stock are entitled to one vote per share on
all matters submitted to a vote of the stockholders.
On
August 8, 2014, the Company announced that it was initiating the repurchase of 300,000 shares of its Common Stock (approximately 2% of
the Company’s common shares outstanding at that time). As of December 31, 2021 and 2020, 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 to 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.
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 December 31, 2021 and 2020 include this interest.
The Core Q Holdings Asset Value at December 31, 2021 and 2020 was $18,082 and $16,207 per share, respectively. There is no contingent
liability for the Series Q Preferred Stock conversion at December 31, 2021 and 2020. At December 31, 2021 and 2020, the Series Q Preferred
Stock could have been converted at the Conversion Price of $0.053 and $0.085, respectively, into an aggregate of 3,752,930 and 2,097,358
shares of the Company’s Common Stock, respectively. Because there were net losses for the years ended December 31, 2021 and 2020,
these shares were anti-dilutive and therefore are not included in the weighted average share calculation for these periods.
Mentor
Capital, Inc.
Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
Note
14 – 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:
Schedule of lease maturities
Maturity of lease liabilities | |
| | |
| |
Year ending December 31, | |
Finance leases | | |
Operating leases | |
2022 | |
$ | 191,565 | | |
$ | 43,365 | |
2023 | |
| 163,086 | | |
| 12,500 | |
2024 | |
| 144,591 | | |
| - | |
2025 | |
| 106,263 | | |
| - | |
2026 | |
| 28,687 | | |
| - | |
Total | |
| 634,192 | | |
| 55,865 | |
| |
| | | |
| | |
Less: Present value discount | |
| (51,212 | ) | |
| (8,832 | ) |
Total lease liabilities | |
$ | 582,980 | | |
$ | 47,033 | |
Note
15 – Term Loan
Term
debt as of December 31, 2021 and 2020 consists of the following:
Schedule of term debt
| |
2021 | | |
2020 | |
Bank of America auto loan, interest at 2.37% per annum, monthly principal and interest payments of $1,448, collateralized by vehicle. Vehicle was sold and the loan paid off in 2021. | |
$ | - | | |
$ | 81,812 | |
| |
| | | |
| | |
Bank of America auto loan, interest at 2.49% per annum, monthly principal and interest payments of $1,505, maturing July 2025, collateralized by vehicle. | |
| 61,710 | | |
| - | |
| |
| | | |
| | |
Bank of America auto loan, interest at 2.24% per annum, monthly principal and interest payments of $654, maturing October 2025, collateralized by vehicle. | |
| 28,162 | | |
| - | |
| |
| | | |
| | |
Total notes payable | |
| 89,872 | | |
| 81,812 | |
Less: Current maturities | |
| (23,203 | ) | |
| (15,566 | ) |
| |
| | | |
| | |
Long term debt | |
$ | 66,669 | | |
$ | 66,246 | |
Note
16 – Paycheck Protection Plan loans and Economic Injury Disaster Loans
Paycheck
protection plan loans
In
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 the Republic Bank of Arizona (collectively, the “PPP Loans”). The
PPP Loans were forgiven in November 2020, except for $10,000
of WCI’s loan that was not eligible for
forgiveness at the time due to receipt of a $10,000
Economic Injury Disaster Loan Advance (“EIDL
Advance”). However, on December 27, 2020, Section 1110(e)(6) of the CARES Act was repealed by Section 333 of the Economic Aid Act.
As a result, the SBA automatically remitted a reconciliation payment to WCI’s PPP lender, the Republic Bank of Arizona, for the
previously deducted EIDL Advance amount, plus interest through the remittance date. On March 16, 2021, The Republic Bank of Arizona notified
WCI of receipt of the reconciliation payment and full forgiveness of the EIDL Advance. The $10,000
forgiveness is reflected as other income in
the year ended December 31, 2021, in the condensed consolidated income statements.
On
February 17, 2021, Mentor received a second PPP Loan in the amount of $76,593
(“Second PPP Loan”) pursuant to Division
N, Title III, of the Consolidated Appropriations Act, 2021 (the “Economic Aid Act”) as further set forth at Section 311 et.
seq. of the Economic Aid Act. The Second PPP Loan was forgiven effective October 26, 2021.
Mentor
Capital, Inc.
Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
The
Company records PPP Loans as a liability in accordance with FASB ASC 470, “Debt” and records accrued interest through the
effective date of forgiveness on the PPP Loans. Total gain on extinguishment of the PPP Loans and accrued interest is reported in other
income and expense in the consolidated income statement.
PPP
loan balances at December 31, 2021 and 2020 consist of the following:
Schedule
of pay check protection plan loan balances
| |
December 31, 2021 | | |
December 31, 2020 | |
May 5, 2020, loan from Republic Bank of Arizona to Waste Consolidators, Inc., revised December 1, 2020. The note bore interest at 1% per annum, with with monthly principal and interest payments of $560 beginning December 15, 2020. Loan was forgiven by SBA on March 16, 2021. | |
$ | - | | |
$ | 9,449 | |
| |
| | | |
| | |
Total | |
| - | | |
| 9,449 | |
| |
| | | |
| | |
Less: Current maturities | |
| - | | |
| (6,658 | ) |
| |
| | | |
| | |
Long-term portion of paycheck protection plan loans | |
$ | - | | |
$ | 2,791 | |
Economic
injury disaster loan
On
July 9, 2020, WCI received an additional Economic Injury Disaster Loan in the amount of $149,900 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 2021, and matures July 2050. In March 2021, the SBA extended the deferment period for payments which extended the
initial payment until July 2022. The loan is collateralized by all tangible and intangible assets of WCI.
EIDL
loan balance at December 31, 2021 and 2020 consist of the following:
Schedule of EIDL loan balances
| |
December 31, 2021 | | |
December 31, 2020 | |
July 9, 2020, WCI received an additional Economic Injury Disaster Loan, including accrued interest of $8,424 and $2,702 as of December 31, 2021 and 2022, respectively. 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 2022, and matures July 2050. | |
$ | 158,324 | | |
$ | 152,602 | |
Long term debt | |
$ | 158,324 | | |
$ | 152,602 | |
| |
| | | |
| | |
Less: Current maturities * | |
| - | | |
| - | |
| |
| | | |
| | |
Long-term portion of economic injury disaster loan | |
$ | 158,324 | | |
| 152,602 | |
* | All payments in
2021 will offset accrued interest incurred in the deferral period and therefore the current maturity of principal is $0 at December 31,
2021. |
Interest
expense on the EIDL Loan for the year ended December 31, 2021 and 2020 was $5,722 and $2,702, respectively.
Mentor
Capital, Inc.
Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
Note
17 – Accrued salary, accrued retirement, and incentive fee – related party
The
Company had an outstanding liability to its Chief Executive Officer (“CEO”) as follows at December 31, 2021 and 2020:
Schedule of outstanding liability
| |
2021 | | |
2020 | |
Accrued salaries and benefits | |
$ | 881,125 | | |
$ | 848,796 | |
Accrued retirement and other benefits | |
| 508,393 | | |
| 550,191 | |
Offset by shareholder advance | |
| (261,653 | ) | |
| (261,653 | ) |
Total
outstanding liability | |
$ | 1,127,865 | | |
$ | 1,137,334 | |
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 years ended December 31, 2021 and 2020, the incentive fee expense was $0 and
$0, respectively.
Note
18 – Related party transactions
The
Company had outstanding liabilities for related party loans, which are due on demand, as follows at December 31, 2021 and 2020:
Schedule
of outstanding liabilities for related party transaction
| |
2021 | | |
2020 | |
Loan from WCI officer, including interest of $1,600 and $0 at December 31, 2021 and 2020, respectively. The note bears interest at 8% per annum and is due on demand. | |
$ | 21,600 | | |
$ | 20,000 | |
| |
| | | |
| | |
Loans from Mentor CEO, including interest of $10,644 at December 31, 2021. The notes bear interest at 7.6% per annum compounded quarterly and are due within thirty days of demand. | |
| 210,644 | | |
| - | |
| |
$ | 232,244 | | |
$ | 20,000 | |
Note
19 – 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, 7, and 8, in the California Superior Court in and for the County of Marin. The Company primarily sought 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. Due to
uncertainty of collection, the Company has recorded reserves against the finance leases receivable described in Note 8 and has fully
impaired all other notes receivables and investments in G Farma described in Notes 7 and 8.
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.
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 the sale of repossessed equipment were applied to the G Farma lease receivable balance.
On
July 2, 2020, Mentor Capital, Inc. and Mentor Partner I, LLC filed a motion for summary adjudication seeking judgment on four of its
sixteen causes of action related to breach of the Promissory Notes and the related guarantees.
On
November 4, 2020, the Court granted Mentor Capital, Inc.’s and Mentor Partner I’s motion for summary adjudication as to all
four causes of action: both causes of action against G FarmaLabs Limited for breach of the two promissory notes totaling $1,166,570 and
one cause of action against each of Mr. Gonzalez and Ms. Gonzalez related to their duties as guarantors of G FarmaLabs Limited’s
obligations under the promissory notes.
Mentor
Capital, Inc.
Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
On
August 27, 2021, the Company and Mentor Partner I
entered into a Settlement Agreement and Mutual Release with the G Farma Entities to resolve and settle all outstanding claims (“Settlement
Agreement”). The
Settlement Agreement requires the G Farma Entities to pay the Company an aggregate of $500,000
plus
interest, payable monthly as follows: (i) $500 per month for 12 months beginning on September 5, 2021, (ii) $1,000 per month for 12 months
beginning September 5, 2022, (iii) $2,000 per month for 12 months beginning September 5, 2023, and (iv) increasing by an additional $1,000
per month on each succeeding September 5th thereafter, until the settlement amount and accrued unpaid interest are paid in full. Interest
on the unpaid balance shall initially accrue at the rate of 4.25% per annum, commencing February 25, 2021, compounded monthly, and shall
be adjusted on February 25th of each year to equal the Prime Rate as published in the Wall Street Journal plus 1%.
In the event that the G Farma Entities fail to make any monthly payment and have not cured two such defaults within 10 days of notice
from the Company, the parties have stipulated that an additional $2,000,000
will be immediately added to the amount payable
by the G Farma Entities.
On
October 12, 2021, the parties filed a Stipulation for Dismissal and Continued Jurisdiction with the Superior Court of California in the
County of Marin. The Court ordered that it retain jurisdiction over the parties under Section 664.6 of the California Code of Civil Procedure
to enforce the Settlement Agreement until performance in full of its terms.
The
Company has retained the reserve on collections of the unpaid lease receivable balance due to the long history of uncertain payments
from G Farma. See Footnotes 7 and 8 for a discussion of the reserve against the finance lease receivable.
For
G Farma notes receivable we will continue to pursue collection of the settlement payments from G Farma, its affiliates, and the guarantors
of the various G Farma note purchase agreements that are fully impaired at December 31, 2021 and 2020, see Note 7. We will continue to
pursue collection for lease payments remaining, after applying proceeds from the sale of recovered assets, that are fully impaired at
December 31, 2021 and 2020, from the G Farma Lease Entities and G Farma Lease Guarantors, see Note 8.
Note
20 – 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 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 had small investments in securities
listed on the NYSE and NASDAQ, 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 that its legal services would likely be more useful to users outside of the cannabis space. 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.
Schedule of segment information
| |
Cannabis and Medical Marijuana Segment | | |
Facilities Operations Related | | |
Corporate, Other, and Eliminations | | |
Consolidated | |
2021 | |
| | | |
| | | |
| | | |
| | |
Net sales | |
$ | 40,764 | | |
$ | 5,969,674 | | |
$ | - | | |
$ | 6,010,438 | |
Operating income (loss) | |
| 26,849 | | |
| 95,336 | | |
| (526,521 | ) | |
| (404,336 | ) |
Interest income | |
| - | | |
| 3 | | |
| 70,226 | | |
| 70,229 | |
Interest expense | |
| - | | |
| 38,330 | | |
| 24,062 | | |
| 62,392 | |
Total assets | |
| 900,484 | | |
| 2,240,047 | | |
| 1,645,910 | | |
| 4,786,441 | |
Property additions | |
| - | | |
| 160,102 | | |
| 1,264 | | |
| 161,366 | |
Fixed asset depreciation and amortization | |
| - | | |
| 45,936 | | |
| 5,744 | | |
| 51,710 | |
| |
| | | |
| | | |
| | | |
| | |
2020 | |
| | | |
| | | |
| | | |
| | |
Net sales | |
$ | 47,707 | | |
$ | 4,778,249 | | |
$ | - | | |
$ | 4,825,956 | |
Operating income (loss) | |
| (13,258 | ) | |
| (231,162 | ) | |
| (829,684 | ) | |
| (1,074,104 | ) |
Interest income | |
| - | | |
| - | | |
| 92,571 | | |
| 92,571 | |
Interest expense | |
| - | | |
| 34,711 | | |
| 584 | | |
| 35,295 | |
Total assets | |
| 1,042,553 | | |
| 1,874,519 | | |
| 1,524,023 | | |
| 4,441,095 | |
Property additions | |
| - | | |
| 126,396 | | |
| 7,593 | | |
| 133,989 | |
Fixed asset depreciation and amortization | |
| - | | |
| 20,553 | | |
| 7,103 | | |
| 27,656 | |
Mentor
Capital, Inc.
Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
The
following table reconciles operating segments and corporate-unallocated operating income (loss) to consolidated income before income
taxes for the years ended December 31, 2021 and 2020, as presented in the consolidated income statements:
Reconciliation of revenue from segments to consolidated
| |
2021 | | |
2020 | |
Operating loss | |
$ | (404,336 | ) | |
$ | (1,074,104 | ) |
Realized gain (loss) on investments in securities | |
| 1,017 | | |
| (14,961 | ) |
Gain on sale of GlauCanna rights | |
| - | | |
| 31,000 | |
Impairment of investments | |
| 22,718 | | |
| (139,148 | ) |
Interest income | |
| 70,229 | | |
| 92,571 | |
Interest expense | |
| (62,392 | ) | |
| (35,295 | ) |
Gain (loss) on equipment disposals | |
| 86 | | |
| 67 | |
PPP loan forgiven | |
| 87,122 | | |
| 452,348 | |
EIDL Grant | |
| - | | |
| 10,000 | |
Other income | |
| 38,870 | | |
| 10,031 | |
Note
21 – Income tax
The
provision (benefit) for income taxes for the years ended December 31, 2021 and 2020 consist of the following:
Schedule of components of income tax expense (benefit)
| |
2021 | | |
2020 | |
Current: | |
| | | |
| | |
Federal | |
$ | - | | |
$ | (1,500 | ) |
State | |
| 9,780 | | |
| 11,550 | |
Total current | |
| 9,780 | | |
| 10,050 | |
Deferred: | |
| | | |
| | |
Federal | |
| (500,400 | ) | |
| (292,000 | ) |
State | |
| (150,000 | ) | |
| (105,100 | ) |
Change in valuation | |
| 650,400 | | |
| 397,100 | |
Total provision (benefit) | |
$ | 9,780 | | |
$ | 10,050 | |
The
Company has net deferred tax assets resulting from a timing difference in recognition of depreciation and reserves for uncollectible
accounts receivable and from net operating loss carryforwards.
At
December 31, 2021, the Company had approximately $8,700,000 of federal net operating loss carryforwards of which approximately
$4,200,000 can be carried forward indefinitely and the remaining balance will expire in between 2027 and 2036. The Company has
a California net operating loss carryforward of approximately $6,504,000
that begins expiring in 2024. Mentor relocated
to Texas in September 2020 and the Company’s ability to utilize the California net operating loss carryforwards is dependent on
future generation of California taxable income. The Company has an Arizona net operating loss carry forward of approximately $48,000
that begins expiring in 2031.
Mentor
Capital, Inc.
Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
The
income tax provision (benefit) differs from the amount computed by applying the U.S. federal statutory tax rate of 21% in 2021 and 2020
to net income (loss) before income taxes for the years ended December 31, 2021 and 2020 as a result of the following:
Schedule of income tax rate reconciliation
| |
2021 | | |
2020 | |
US federal income tax rate | |
| 21 | % | |
| 21 | % |
| |
| | | |
| | |
Computed expected tax provision (benefit) | |
| (51,804 | ) | |
| (140,173 | ) |
Permanent differences and other | |
| 702,204 | | |
| 537,273 | |
Change in valuation | |
| (650,400 | ) | |
| (397,100 | ) |
Federal income tax provision | |
$ | - | | |
$ | - | |
The
significant components of deferred income tax assets as of December 31, 2021 and 2020 after applying enacted corporate income tax rates
are as follows:
Schedule
of deferred tax assets
| |
2021 | | |
2020 | |
Net Operating Losses carried forward | |
$ | 2,409,400 | | |
$ | 2,249,900 | |
Capital Losses carried forward | |
| 577,000
| | |
| | |
Deferred officer bonus and other | |
| 2,300 | | |
| 88,400 | |
Valuation allowance | |
| (2,988,700 | ) | |
| (2,338,300 | ) |
Deferred tax assets | |
$ | - | | |
$ | - | |
The
Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. All tax years from 2017
to 2020 are subject to examination
Note
22 – Subsequent events
On
January 11, 2022, Mr. Billingsley exercised 87,456
Series B warrants and 2,954
Series D warrants at $0.11
per share and $1.60
per share, respectively. This increased Mr. Billingsley’s
share ownership by 90,410
common shares, increased the Company’s
outstanding shares to 22,941,357,
and decreased the Company’s Series B and Series D outstanding warrants to 0
and 6,250,000,
respectively.