10-Q 1 form10-q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2022

 

OR

 

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

 

For the transition period from _______________ to __________________

 

Commission file number 000-55323

 

Mentor Capital, Inc.
(Exact name of registrant as specified in its charter)

 

Delaware   77-0395098

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

5964 Campus Court, Plano, Texas 75093
(Address of principal executive offices) (Zip Code)

 

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

 

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

 

         
Title of each class to be so registered   Trading Symbols (s)   Name of each exchange on which each class is to be registered

 

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

 

Common Stock
(Title of class)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒. No ☐.

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒. No ☐.

 

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

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

At July 30, 2022, there were 22,941,357 shares of Mentor Capital, Inc.’s common stock outstanding and 11 shares of Series Q Preferred Stock outstanding.

 

 

 

 
 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

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

 

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

 

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

 

-2-
 

 

MENTOR CAPITAL, INC.

 

TABLE OF CONTENTS

 

    Page
PART I FINANCIAL INFORMATION  
Item 1. Financial Statements: 4
  Condensed Consolidated Balance Sheets (Unaudited) – June 30, 2022 and December 31, 2021 4
  Condensed Consolidated Income Statements (Unaudited) – Three Months and Six Months Ended June 30, 2022 and 2021 6
  Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) – Three Months Ended June 30, 2022 and 2021 7
  Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) – Six Months ended June 30, 2022 and 2021 8
  Condensed Consolidated Statements of Cash Flows (Unaudited) - Six months Ended June 30, 2022 and 2021 9
  Notes to Condensed Financial Statements 11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 32
Item 3. Quantitative and Qualitative Disclosures about Market Risk 37
Item 4. Controls and Procedures 37
     
PART II OTHER INFORMATION  
Item 1. Legal Proceedings 38
Item 1A. Risk Factors 39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 44
Item 3. Defaults Upon Senior Securities 44
Item 4. Mine Safety Disclosures 44
Item 5. Other Information 44
Item 6. Exhibits 45
     
SIGNATURES 46

 

-3-
 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Mentor Capital, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

 

   June 30,   December 31, 
   2022   2021 
ASSETS          
           
Current assets          
Cash and cash equivalents  $597,381   $453,939 
Investment in securities at fair value   188    1,009 
Accounts receivable, net   700,112    706,418 
Other receivable   1,272,298    33,222 
Net finance leases receivable, current portion   80,879    76,727 
Investment in installment receivable, current portion   101,200    - 
Convertible notes receivable, current portion   -    58,491 
Prepaid expenses and other current assets   63,644    14,284 
Employee advances and other receivable   4,700    3,750 
           
Total current assets   2,820,402    1,347,840 
           
Property and equipment          
Property and equipment   327,428    299,526 
Accumulated depreciation and amortization   (178,120)   (144,480)
           
Property and equipment, net   149,308    155,046 
           
Other assets          
Operating lease right-of-use assets   25,528    41,128 
Finance lease right-of-use assets   659,575    645,611 
Investment in account receivable, net of discount and current portion   183,741    301,433 
Net finance leases receivable, net of current portion   185,902    229,923 
Convertible notes receivable, net of current portion   85,075    27,834 
Contractual interest in legal recovery   396,666    396,666 
Deposits   9,575    9,575 
Long term investments   204,703    205,203 
Goodwill   1,426,182    1,426,182 
           
Total other assets   3,176,947    3,283,555 
           
Total assets  $6,146,657   $4,786,441 

 

See accompanying Notes to Financial Statements-4-
 

 

Mentor Capital, Inc.

Condensed Consolidated Balance Sheets (Unaudited, Continued)

 

   June 30,   December 31, 
   2022   2021 
         
LIABILITIES AND SHAREHOLDERS’ EQUITY          
           
Current liabilities          
Accounts payable  $37,555   $41,278 
Accrued expenses   1,034,375    411,860 
Related party payable   269,206    232,244 
Deferred revenue   14,036    16,308 
Economic injury disaster loan, current portion   3,343    - 
Finance lease liability, current portion   180,700    167,515 
Operating lease liability, current portion   20,672    42,058 
Current portion of long-term debt   29,504    23,203 
Total current liabilities   1,589,391    934,466 
           
Long-term liabilities          
Accrued salary, retirement, and incentive fee - related party   1,140,993    1,127,865 
Economic injury disaster loan   157,898    158,324 
Finance lease liability, net of current portion   416,175    415,465 
Operating lease liability, net of current portion   -    4,975 
Long term debt, net of current portion   70,215    66,669 
Total long-term liabilities   1,785,281    1,773,298 
Total liabilities   3,374,672    2,707,764 
           
Commitments and Contingencies   -    - 
           
Shareholders’ equity          
Preferred stock, $0.0001 par value, 5,000,000 shares authorized; 11 and 11 shares issued and outstanding at June 30, 2022 and December 31, 2021 *   -    - 
Common stock, $0.0001 par value, 75,000,000 shares authorized; 22,941,357 and 22,850,947 shares issued and outstanding at June 30, 2022 and December 31, 2021   2,294    2,285 
Additional paid in capital   13,085,992    13,071,655 
Accumulated deficit   (10,659,231)   (10,874,079)
Non-controlling interest   342,930    (121,184)
Total shareholders’ equity   2,771,985    2,078,677 
Total liabilities and shareholders’ equity  $6,146,657   $4,786,441 

 

* Par value is less than $0.01.

 

See accompanying Notes to Financial Statements-5-
 

 

Mentor Capital, Inc.

Condensed Consolidated Income Statements (Unaudited)

 

             
   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2022   2021   2022   2021 
Revenue                    
Service fees  $1,860,146   $1,362,308   $3,700,027   $2,672,062 
                     
Finance lease revenue   8,473    10,330    17,491    21,200 
                     
Total revenue   1,868,619    1,372,638    3,717,518    2,693,262 
                     
Cost of sales   1,284,650    994,002    2,433,666    1,878,235 
                     
Gross profit   

583,969

    378,636    1,283,852    815,027 
                     
Selling, general and administrative expenses   1,247,730    685,926    1,916,237    1,287,062 
                     
Operating income (loss)   (663,761)   (307,290)   (632,385)   (472,035)
                     
Other income and (expense)                    
Employee retention credits   1,350,161    -    1,350,161    - 
Gain (loss) on investments   929    (11,423)   (40,251)   (6,574)
Paycheck Protection Program Loan Forgiven   -    -    -    10,000 
Interest income   13,391    16,245    27,744    32,735 
Interest expense   (19,562)   (15,114)   (37,769)   (27,185)
Gain on asset disposal   30,287    2,074    56,455    1,432 
Other income (expense)   1,897    2,450    1,897    1,398 
                     
Total other income and (expense)   1,377,103    (5,768)   1,358,237    11,806 
                     
Income (loss) before provision for income taxes   713,342    (313,058)   725,852    (460,229)
                     
Provision for income taxes   33,320    50    46,890    5,750 
                     
Net income (loss)   680,022    (313,108)   678,962    (465,979)
                     
Gain (loss) attributable to non-controlling interest   372,515    (96,488    464,114    (102,436)
                     
Net income (loss) attributable to Mentor  $307,507   $(216,620)  $214,848   $(363,543)
                     
Basic and diluted net income (loss) per Mentor common share:                    
Basic and diluted  $0.013   $(0.009)  $0.009   $(0.016)
                     
Weighted average number of shares of Mentor common stock outstanding:                    
Basic   22,941,357    22,850,947    22,941,357    22,850,947 
Diluted   22,941,357    22,850,947    22,941,357    22,850,947 

 

See accompanying Notes to Financial Statements-6-
 

 

Mentor Capital, Inc.

Condensed Consolidated Statement of Shareholders’ Equity (Unaudited)

For the Three Months Ended June 30, 2022 and 2021

 

                                
   Controlling Interest         
   Preferred stock   Common stock                     
   Shares   $0.0001 par*   Shares   $0.0001
par
  

Additional

paid in
capital

  

Accumulated

equity
(deficit)

   Total  

Non-

controlling

equity

(deficit)

   Totals 
                                     
Balance at March 31, 2022   11   $-    22,941,357   $2,294   $13,085,992   $(10,966,738)  $2,121,548   $(29,585)  $2,091,963 
                                              
Net income (loss)   -    -    -    -    -    307,507    307,507    372,515    680,022 
                                              
Balances at June 30, 2022   11   $-    22,941,357   $2,294   $13,085,992   $(10,659,231)  $2,429,055   $342,930   $2,771,985 
                                              
Balances at March 31, 2021   11   $-    22,850,947   $2,285   $13,071,655   $(10,748,154)  $2,325,786   $(143,514)  $2,182,272 
                                              
Net income (loss)   -    -    -    -    -    (216,620)   (216,620)   (96,488)   (313,108)
                                              
Balances at June 30, 2021   11   $-    22,850,947   $2,285   $13,071,655   $(10,964,774)  $2,109,166   $(240,002)  $1,869,164 

 

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

 

See accompanying Notes to Financial Statements-7-
 

 

Mentor Capital, Inc.

Condensed Consolidated Statement of Shareholders’ Equity (Unaudited)

For the Six Months Ended June 30, 2022 and 2021

 

   Controlling Interest         
   Preferred stock   Common stock                     
   Shares   $0.0001 par*)   Shares   $0.0001
par
  

Additional

paid in
capital

  

Accumulated

equity
(deficit)

   Total  

Non-

controlling

equity

(deficit)

   Totals 
                                     
Balance at December 31, 2021   11    -    22,850,947   $2,285   $13,071,655   $(10,874,079)  $2,199,861   $(121,184)  $2,078,677 
                                              
Conversion of warrants to common stock   -    -    90,410    9    14,337    -    14,346    -    14,346 
                                              
Net income (loss)   -    -    -    -    -    214,848    214,848    464,114    678,962 
                                              
Balances at June 30, 2022   11   $-    22,941,357   $2,294   $13,085,992   $(10,659,231)  $2,429,055   $342,930   $2,771,985 
                                              
Balances at December 31, 2020   11   $-    22,850,947   $2,285   $13,071,655   $(10,601,231)  $2,472,709   $(137,566)  $2,335,143 
                                              
Net income (loss)   -    -    -    -    -    (363,543)   (363,543)   (102,436)   (465,979)
                                              
Balances at June 30, 2021   11   $-    22,850,947   $2,285   $13,071,655   $(10,964,774)  $2,109,166   $(240,002)  $1,869,164 

 

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

 

See accompanying Notes to Financial Statements-8-
 

 

Mentor Capital, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

   2022   2021 
   For the Six Months Ended 
   June 30, 
   2022   2021 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net (loss)  $678,962   $(465,979)
Adjustments to reconcile net (loss) to net cash provided by (used by) operating activities:          
Depreciation and amortization   33,640    19,274 
Amortization of right of use asset   87,708    70,818 
PPP loan forgiven   -    (10,000)
(Gain) loss on asset disposal   (26,168)   643 
(Gain) loss on property and equipment disposal   -    (2,076)
Bad debt expense   42,000    12,580 
Amortization of discount on investment in account receivable   (25,838)   (30,457)
Decrease (increase) in accrued investment interest income   1,250    (2,010)
(Gain) loss on investment in securities at fair value   821    6,573 
(Gain) loss on long-term investments   42,430    - 
Decrease (increase) in operating assets          
Finance leases receivable   39,869    37,142 
Accounts receivable - trade   26,306    (36,373)
Other receivables   

(1,301,076

)   

-

 
Prepaid expenses and other current assets   

(23,192

)   (7,682)
Employee advances   

(950

)   350 
Increase (decrease) in operating liabilities          
Accounts payable   (3,723)   21,889 
Accrued expenses   634,344    43,484 
Deferred revenue   (2,272)   (3,254)
Accrued salary, retirement, and benefits - related party   13,128    (20,721)
           
Net cash provided by (used by) operating activities   217,239    (365,799)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of investment securities   -    (38,469)
Sale of investment securities   -    42,914 
Purchases of property and equipment   (5,422)   (16,539)
Proceeds from sale of property and equipment   -    3,383 
Down payments on right of use assets   (13,408)   (46,736)
Proceeds from investment in receivable   400    - 
           
Net cash (used by) investing activities   (18,430)   (55,447)

 

See accompanying Notes to Financial Statements-9-
 

 

Mentor Capital, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited, Continued)

 

   For the Six Months Ended 
   Ended June 30, 
   2022   2021 
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from related party loan  $50,000   $200,000 
Proceeds from Paycheck Protection Program loan   -    76,593 
Warrants converted to common stock   14,346    - 
Refund of Paycheck Protection Program payments   -    551 
Payments on related party payable   (21,950)   - 
Payments on long-term debt   (12,633)   (7,709)
Payments on finance lease liability   (85,130)   (54,530)
           
Net cash provided by (used by) financing activities   (55,367)   214,905 
           
Net change in cash   143,442    (206,341)
           
Beginning cash   453,939    506,174 
           
Ending cash  $597,381   $299,833 
           
SUPPLEMENTARY INFORMATION:          
Cash paid for interest  $1,726  $19,153 
           
Cash paid for income taxes  $4,450   $3,350 
           
NON-CASH INVESTING AND FINANCING TRANSACTIONS:          
Right of use assets acquired through operating lease liability  $-   $55,624 
           
Right of use assets acquired through finance lease liability  $99,025   $337,751 
           
Property and equipment acquired through long-term debt   22,480    - 

 

See accompanying Notes to Financial Statements-10-
 

 

Note 1 - Nature of operations

 

Corporate Structure Overview

 

Mentor Capital, Inc. (“Mentor” or “the Company”), reincorporated under the laws of the State of Delaware in September 2015.

 

The entity was originally founded as an investment partnership in Silicon Valley, California, by the current CEO in 1985 and subsequently incorporated under the laws of the State of California on July 29, 1994. On September 12, 1996, the Company’s offering statement was qualified pursuant to Regulation A of the Securities Act, and the Company began to trade its shares publicly. On August 21, 1998, the Company filed for voluntary reorganization, and on January 11, 2000, the Company emerged from Chapter 11 reorganization. The Company relocated to San Diego, California, and contracted to provide financial assistance and investment in small businesses. On May 22, 2015, a corporation named Mentor Capital, Inc. (“Mentor Delaware”) was incorporated under the laws of the State of Delaware. A shareholder-approved merger between Mentor and Mentor Delaware was approved by the California and Delaware Secretaries of State and became effective September 24, 2015, thereby establishing Mentor as a Delaware corporation. In September 2020, Mentor relocated its corporate office from San Diego, California, to Plano, Texas.

 

The Company’s common stock trades publicly under the trading symbol OTCQB: MNTR.

 

The Company’s broad target industry focus includes energy, medical products, manufacturing, cryptocurrency, consumer products, and management services 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. 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. R. L. Larson and MCIP continue their efforts to license or sell their exclusive patent rights in the United States and Canada for THC and CBD cannabis vape pens for various THC and CBD percentage ranges and concentrations. Patent application and 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 June 30, 2022 and December 31, 2021.

 

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 initially 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 June 30, 2022 and December 31, 2021.

 

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 initially 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.

 

-11-
 

 

Note 1 - Nature of operations (continued)

 

The Company has a membership equity interest in Electrum Partners, LLC (“Electrum”) which is carried at a cost of $194,028 and $194,028 at June 30, 2022 and December 31, 2021, respectively.

 

On October 30, 2018, the Company entered into a secured 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. 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 increasing the monthly payment payable by Electrum to $834. Under the amended 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 the monthly payment is not paid to Mentor in full. The payment date is the earlier of November 1, 2023, or the final resolution of the Litigation.

 

On January 28, 2019, the Company entered into a second secured Capital Agreement with Electrum and invested an additional $100,000 of capital in Electrum with payment terms similar to the October 31, 2018 Capital Agreement. 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 increasing 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 $194,028 plus an additional 19.4% of the Recovery. See Note 9.

 

On December 21, 2018, Mentor paid $10,000 to purchase 500,000 shares of NeuCourt, Inc. common stock, representing approximately 4.41% of NeuCourt’s issued and outstanding common stock as of June 30, 2022. NeuCourt is a Delaware corporation that is developing a technology that is expected to be useful to the dispute resolution industry.

 

Note 2 - Summary of significant accounting policies

 

Condensed consolidated financial statements

 

The unaudited condensed consolidated financial statements of the Company for the six month period ended June 30, 2022 and 2021 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-K. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2021 was derived from the audited financial statements included in the Company’s financial statements as of and for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 24, 2022. These financial statements should be read in conjunction with that report.

 

Basis of presentation

 

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

 

Basis of presentation (continued)

 

As shown in the accompanying financial statements, the Company has a significant accumulated deficit of $10,659,231 as of June 30, 2022. 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.

 

-12-
 

 

Note 2 - Summary of significant accounting policies (continued)

 

Going Concern Uncertainties

 

The Company will be required to recover funds from its affiliated entities and investments that are at the end of their lifecycle or raise additional capital to fund its operations. Mentor 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 6,250,000 Series D warrants outstanding in which the Company can reset the exercise price substantially below the current market price. These condensed consolidated financial statements do not include any adjustments that might result from repricing the outstanding warrants.

 

Management’s plans include monetizing existing mature business projects and increasing revenues through acquisition, investment, and organic growth. Management anticipates funding new activities by raising additional capital through the sale of equity securities and debt.

 

Impact Related to COVID-19 and Global Economic Factors

 

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. The ongoing worldwide economic situation, including the COVID-19 outbreak, economic sanctions, cybersecurity risks, the outbreak of war in Ukraine, 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 constrained due to the closure of the courts in British Columbia, which may cause COVID-19-related scheduling delays, hindering our legal recovery and delaying the receipt of the Company’s interest in the Electrum Partners, LLC legal recovery, respectively. Additionally, due to a reduction in expected collections, the collectability of our investment in accounts receivable was impaired by $116,430 at December 31, 2021, and on February 15, 2022, the terms of the investment were modified, resulting in an additional loss of $41,930, 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. Supply chain disruptions, inflation, high energy prices, and supply-demand imbalances are expected to continue in 2022. 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 has been directly affected by rapid increases to direct costs of fuel, labor, and landfill usage in 2020 and 2021. 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 19, 2020, as amended, August 10, 2021, “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.

 

The Company has taken preventative measures to protect itself from potentially malicious cyber wiper malware attacks in response to the “Shields Up” February 26, 2022, Cybersecurity and Infrastructure Security Agency warning following Russia’s February 24, 2022 invasion of Ukraine.

 

We anticipate that current cash and associated resources will be sufficient to execute our business plan for the next twelve months. The ultimate impact of COVID-19, the outbreak of war in Ukraine, and inflation on our business, results of operations, cybersecurity, financial condition, and cash flows are dependent on future developments, including the duration of COVID-19 and the crisis in Ukraine, government responses, and the related length of this impact on the economy, which are uncertain and cannot be predicted at this time.

 

Use of estimates

 

The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates, assumptions, and judgments that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of our consolidated financial statements, and the reported amount of revenues and expenses during the reporting period.

 

-13-
 

 

Note 2 - Summary of significant accounting policies (continued)

 

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 the 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.

 

There were no accounting pronouncements issued during the six months ended June 30, 2022, that are expected to have a material impact on the Company’s condensed consolidated financial statements.

 

Concentrations of cash

 

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

 

Cash and cash equivalents

 

The Company considers all short-term debt securities purchased with a maturity of three months or less to be cash equivalents. The Company had no short-term debt securities as of June 30, 2022 and December 31, 2021.

 

Accounts receivable

 

Accounts receivable consists 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 the 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 June 30, 2022 and December 31, 2021, the Company has an allowance for doubtful receivables in the amount of $54,676 and $74,676, 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.

 

-14-
 

 

Note 2 - Summary of significant accounting policies (continued)

 

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 $71,850 plus accrued interest of $13,225 and aggregate principal face amount of $75,000 plus accrued interest of $11,140 at June 30, 2022 and December 31, 2021, respectively, as presented in Note 7. On June 13, 2022, the Company sold $2,160.80 in of note principal to a third party. Subsequent to quarter end, on July 15, 2022, the Company and NeuCourt entered into an Exchange Agreement by which Mentor exchanged the principal amount and all accrued unpaid interest on the convertible notes for a Simple Agreement for Future Equity equal to the same, accumulated amount. Subsequent to quarter end, on July 22, 2022, and August 1, 2022, the Company sold an aggregate of $2,274 of the SAFE value to a third party.

 

Investment in account receivable, net of discount

 

The Company’s investment in account receivable are stated at face value, net of unamortized purchase discount. The discount is amortized to interest income over the term of the exchange agreement. In the fourth quarter of 2020, we were notified that due to the effect of COVID-19 on the estimated receivable, we may not receive the 2020 installment payment or the full 2021 installment payment. Due to a reduction in expected collections, the collectability of our investment in accounts receivable was impaired by $116,430 at December 31, 2021, and on February 15, 2022, the terms of the investment were modified, resulting in an additional loss of $41,930, 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 is 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.

 

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 is met: (i) the lease transfers ownership of the asset by the end of the lease term, (ii) the lease contains an option to purchase the asset that is reasonably certain to be exercised, and (iii) the lease term is for a significant 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 an expected lease term of four years. Fleet vehicle leases entered into on or after January 1, 2019, for which the lease is expected to be extended to five years, are classified as finance leases. Our leases have remaining lease terms of one to forty-eight months. Our fleet finance leases contain a residual value guarantee which, based on past lease experience, is unlikely to result in 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 the commencement date to determine the present value of lease payments.

 

Costs associated with operating lease assets are recognized on a straight-line basis, over the term of the lease, within cost of goods sold for vehicles used in direct servicing of WCI customers and in operating expenses for costs associated with all other operating leases. Finance lease assets are amortized within cost of goods sold for vehicles used in direct servicing of WCI customers and within operating expenses for all other finance lease assets, on a straight-line basis over the shorter of the estimated useful lives of the assets or the lease term. 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).

 

-15-
 

 

Note 2 - Summary of significant accounting policies (continued)

 

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.

 

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.

 

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 June 30, 2022 and December 31, 2021.

 

-16-
 

 

Note 2 - Summary of significant accounting policies (continued)

 

Revenue recognition

 

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

 

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

 

Outstanding warrants that had no effect on the computation of the 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 June 30, 2022 and December 31, 2021, respectively. There were 0 and 87,456 potentially dilutive shares outstanding at June 30, 2022 and December 31, 2021, respectively.

 

Conversion of Series Q Preferred Stock into Common Stock would be anti-dilutive for the six months ended June 30, 2022 and 2021 and is not included in calculating the diluted weighted average number of shares outstanding.

 

-17-
 

 

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, totaling $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 on the estimated receivable, we may not receive the 2020 installment payment or the full 2021 installment payment. Based on management’s collection estimates, we recorded an impairment of $116,430 at December 31, 2021.

 

On February 16, 2022, subject to effecting certain agreed upon payment changes, the parties agreed to modify the terms of the installment payments. The Company will retain annual payments of $100,000 for the remaining four years of the agreement and will also receive an additional $100 per month through the end of the agreement term. The modification was accounted for using the same original discount rate, and a loss of $41,930 was recognized in the quarter ended March 31, 2022.

 

The investment in account receivable consists of the following at June 30, 2022 and December 31, 2021:

 

   June 30,
2022
as modified
   December 31,
2021
 
Face value  $404,200   $585,000 
Impairment   -    (116,430)
Total   404,200    468,570 
Unamortized discount   (119,259)   (167,137)
Net balance   284,941    301,433 
Current portion   (101,200)   - 
Long term portion  $183,741   $301,433 

 

For the three months ended June 30, 2022 and 2021, $12,369 and $15,228 of discount amortization is included in interest income, respectively. For the six months ended June 30, 2022 and 2021, $25,838 and $30,456 of discount amortization is included in interest income, respectively.

 

Note 4 – Other receivable

 

Other receivable consisted of the following:

 

   June 30,
2022
   December 31,
2021
 
Employee retention tax credits  $1,066,168   $33,222 
Accrued sales tax receivable from customers   206,130    - 
           
Total Other receivable  $1,272,298   $33,222 

 

In 2022, WCI received an Employee Retention Tax Credit (“ERTC”) in the amount of $1,350,161, in junction with WCI’s professional employer organization’s receipt and application of the same to WCI leased employees. The ERTC was initially established by Section 2301 of Coronavirus Aid, Relief and Economic Security Act of 2020, as amended by Sections 206-207 of the Taxpayer Certainty and Disaster Relief Act and by Division EE of Consolidated Appropriation Act of 2021 and Section 9651 of American Rescue Plan Act of 2021; which is authorized by Section 3134 of the Internal Revenue Code. The Consolidated Appropriation Act of 2021 and American Rescue Plan Act of 2021 amendments to the ERTC program provided eligible employers with a tax credit in an amount equal to 70% of qualified wages (including certain health care expenses) that eligible employers pay their employees after January 1, 2021 through December 31, 2021. The maximum amount of qualified wages taken into account with respect to each employee for each calendar quarter is $10,000 so that the maximum credit that an eligible employer may claim for qualified wages paid to any employee is $7,000 per quarter. The credit is taken against the an employer’s share of social security tax when WCI’s professional employer organization files applicable amended quarterly tax filings on Form 941-X for each applicable quarter. The receipt of the tax credit is expected to improve the WCI’s liquidity due to the effects of the credit. Although WCI’s professional employer organization currently anticipates receiving credits for wages paid in 2020 and 2021, there can be no assurances that WCI or WCI’s professional employer organization will continue to meet the requirements or that changes in the ERTC regulations including changes in guidance provided by the IRS with respect to the implementation and operation of ERTC, will not be adopted that could reduce or eliminate the benefits that WCI and WCI’s professional employer organization may receive or qualify for.

 

The $1,350,161 ERTC is reflected in other income for the three and six months ended June 30, 2022 in the condensed consolidated income statement. WCI received the ERTC based on qualitative information submitted. During the three months ended June 30, 2022, $303,061 was claimed against current payroll tax liabilities as they became due, and the remaining credit of $1,066,168 is included in other receivable in the condensed consolidated balance sheet at June 30, 2022.

 

The December 31, 2021, ERTC balance of $33,222, was received by Mentor as a refund in the first six months of 2022. The balance at December 31, 2022 is $0.

 

Note 5 - Property and equipment

 

Property and equipment are comprised of the following:

 

   June 30,
2022
   December 31,
2021
 
Computers  $31,335   $31,335 
Furniture and fixtures   15,966    15,966 
Machinery and vehicles   280,127    252,225 
Gross Property and equipment   327,428    299,526 
Accumulated depreciation and amortization   (178,120)   (144,480)
           
Net Property and equipment  $149,308   $155,046 

 

Depreciation and amortization expense were $17,750 and $9,854 for the three months ended June 30, 2022 and 2021, respectively. Depreciation and amortization expense were $33,640 and $19,274 for the six months ended June 30, 2022 and 2021, respectively. Depreciation on WCI vehicles used to service customer accounts is included in the cost of goods sold, and all other depreciation is included in selling, general and administrative expenses in the condensed consolidated income statements.

 

-18-
 

 

Note 6 – Lessee Leases

 

Operating leases are comprised of office space and office equipment leases. Fleet leases entered into prior to January 1, 2019, are classified as operating leases. Fleet leases entered into on or after January 1, 2019, under ASC 842 guidelines, are classified as finance leases.

 

Gross right of use assets recorded under finance leases related to WCI vehicle fleet leases were $994,515 and $882,081 as of June 30, 2022 and December 31, 2021, respectively. Accumulated amortization associated with finance leases was $334,940 and $236,470 as of June 30, 2022 and December 31, 2021, respectively.

 

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

 

   2022   2021   2022   2021 
   Three Months Ended June 30,   Six Months Ended June 30, 
   2022   2021   2022   2021 
Operating lease cost included in cost of goods  $ 7,964   $29,837   $13,054    $62,701 
Operating lease cost included in operating costs   7,200    13,496    14,700     24,592 
Total operating lease cost (1)   15,164    43,333    27,754     87,293 
Finance lease cost, included in cost of goods:                    
Amortization of lease assets   47,416    38,952    98,469     51,586 
Interest on lease liabilities   6,929    6,363    14,487     11,830 
Total finance lease cost   54,345    45,315    112,956     63,416 
Short-term lease cost   -    -    -     2,300 
Total lease cost  $69,509   $88,648   $140,710    $153,009 

 

  (1) Right of use asset amortization under operating agreements was $12,488 and $26,558 for the three months ended June 30, 2022 and 2021, respectively. Right of use asset amortization under operating agreements was $25,634 and $67,539 for the six months ended June 30, 2022 and 2021, respectively.

 

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

 

   June 30,
2022
   December 31,
2021
 
Weighted-average remaining lease term – operating leases   0.63 years    0.95 years 
Weighted-average remaining lease term – finance leases   3.68 years    3.83 years 
Weighted-average discount rate – operating leases   4.23%   5.7%
Weighted-average discount rate – finance leases   4.94%   3.8%

 

Finance lease liabilities were as follows:

 

   June 30,
2022
   December 31,
2021
 
Gross finance lease liabilities  $650,569   $634,192 
Less: imputed interest   (53,694)   (51,212)
Present value of finance lease liabilities   596,875    582,980 
Less: current portion   (180,700)   (167,515)
Long-term finance lease liabilities  $416,175   $415,465 

 

Operating lease liabilities were as follows:

 

   June 30,
2022
   December 31,
2021
 
Gross operating lease liabilities  $21,072   $55,865 
Less: imputed interest   (400)   (8,832)
Present value of operating lease liabilities   20,672    47,033 
Less: current portion   (20,672)   (42,058)
Long-term operating lease liabilities  $-   $4,975 

 

-19-
 

 

Note 6 – Lessee Leases (continued)

 

Lease maturities were as follows:

 

Maturity of lease liabilities

 

12 months ending June 30,  Finance leases   Operating leases 
2022  $180,700   $20,672 
2023   158,960    - 
2024   145,598    - 
2025   90,087    - 
2026   21,530    - 
Total   596,875    20,672 
Less: Current maturities   (180,700)   (20,672)
Long-term liability  $416,175   $- 

 

Note 7 – Convertible notes receivable

 

Convertible notes receivable consist of the following:

 

   June 30,
2022
   December 31,
2021
 
         
    28,552    27,834 
November 22, 2017, NeuCourt, Inc. convertible note receivable including accrued interest of $3,552 and $2,834 at June 30, 2022 and December 31, 2021. The note bears interest at 5% per annum, originally matured November 22, 2019, and was extended to mature November 22, 2021, and subsequently to November 22, 2023. Principal and accrued interest are due at maturity. Upon extension, the Company received a cash payment of $2,496 for interest accrued through November 4, 2019. Principal and unpaid interest may be converted into a blend of shares of a to-be-created series of Preferred Stock and Common Stock of NeuCourt (i) on closing of a future financing round of at least $750,000, (ii) on the election of NeuCourt on maturity of the Note, or (iii) on election of Mentor following NeuCourt’s election to prepay the Note. *  $28,552   $27,834 
           
Following sale of $2,160.80 in note principal by the Company to a third party on June 13, 2022, the October 31, 2018, NeuCourt, Inc. convertible note receivable including accrued interest of $6,523 at June 30, 2022 and $8,491 at December 31, 2021. 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 the maturity of the Note, or (iii) on the election of Mentor following NeuCourt’s election to prepay the Note. *   56,523    58,491 
           
Total convertible notes receivable   85,075    86,325 
           
Less current portion   -   (58,491)
           
Long term portion  $85,075   $27,834 

 

* Subsequent to June 30, 2022, quarter-end, the convertible notes were exchanged for a Simple Agreement for Future Equity (SAFE) as described in Note 20. Prior to the exchange, the Conversion Price for each Note was 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 to be issued on conversion was 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 consisted 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.

 

-20-
 

 

Note 8 – Finance leases receivable

 

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. Partner II did not record any sales revenue for the six months ended June 30, 2022 and 2021. At June 30, 2022, all Partner II leased equipment under finance leases receivable is located in Colorado.

 

Performing net finance leases receivable consisted of the following:

 

  

June 30, 2022

   December 31, 2021 
Gross minimum lease payments receivable  $312,418   $367,505 
Accrued interest   1,539    1,783 
Less: unearned interest   (47,176)   (62,638)
Finance leases receivable   266,781    306,650 
Less current portion   (80,879)   (76,727)
Long term portion  $185,902   $229,923 

 

Finance lease revenue recognized on Partner II finance leases for the three months ended June 30, 2022 and 2021 was $8,473 and $10,330, respectively. Interest income recognized on Partner II finance leases for the six months ended June 30, 2022 and 2021 was $17,491and $21,200, respectively.

 

At June 30, 2022, minimum future payments receivable for performing finance leases receivable were as follows:

 

12 months ending June 30,  Lease Receivable   Lease Interest 
2022  $80,879   $24,496 
2023   91,408    14,906 
2024   51,473    6,487 
2025   43,021    1,287 
   $266,781   $47,176 

 

Note 9 - Contractual interests in legal recoveries

 

Interest in Electrum Partners, LLC legal recovery

 

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

 

On October 30, 2018, Mentor entered into a secured 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 June 30, 2022 and December 31, 2021, Mentor has invested an additional $96,666 and $96,666, respectively, in capital for payment of legal retainers and fees in consideration for an additional nine percent (9%) of the Recovery. At June 30, 2022 and December 31, 2021, the Recovery Agreement investment is reported in the condensed consolidated balance sheets at cost of $196,666 and $196,666, 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 June 30, 2022 and December 31, 2021. Trial in the Electrum Litigation is currently scheduled to commence on October 3, 2022.

 

-21-
 

 

Note 9 - Contractual interests in legal recoveries (continued)

 

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. 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 increasing the monthly payment payable by Electrum to $834. 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 the monthly payment is not paid to Mentor in full. The payment date under the amended October 31, 2018 Capital Agreement is the earlier of November 1, 2023, or the final resolution of the Litigation. Payment is secured by all assets of Electrum. This investment is included at cost of $100,000 in Contractual interests in legal recoveries on the condensed consolidated balance sheets at June 30, 2022 and December 31, 2021.

 

On January 28, 2019, Mentor entered into a second secured Capital Agreement with Electrum. 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. Under the amended 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 January 28, 2019 until the payment date if the Recovery occurs prior to the payment date, and (B) the monthly payment for each full month from January 28, 2019 until the payment date. The payment date is the earlier of November 1, 2023, and the final resolution of the Litigation. This investment is included at its $100,000 cost as part of the Contractual interests in legal recoveries on the condensed consolidated balance sheets at June 30, 2022 and December 31, 2021. 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 June 30, 2022 and December 31, 2021 is summarized as follows:

 

  

June 30, 2022

  

December 31, 2021

 
October 30, 2018 Recovery Purchase Agreement  $196,666   $196,666 
October 31, 2018 secured Capital Agreement   100,000    100,000 
January 28, 2019 secured Capital Agreement   100,000    100,000 
Total Invested  $396,666   $396,666 

 

-22-
 

 

Note 10 – Investments and fair value

 

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

 

                
              

Fair Value Measurement

Using

 
   Unadjusted Quoted Market Prices   Quoted Prices for Identical or Similar Assets in Active Markets   Significant Unobservable Inputs   Significant Unobservable Inputs   Significant Unobservable Inputs 
   (Level 1)   (Level 2)   (Level 3)   (Level 3)   (Level 3) 
   Investment in Securities       Contractual interest Legal Recovery   Investment in Common Stock Warrants   Other Equity Investments 
Balance at December 31, 2020  $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 
                          
Total gains or losses                         
Included in earnings (or changes in net assets)   (821)   -    -    (500)   - 
Purchases, issuances, sales, and settlements                         
Purchases   -    -    -    -    - 
Issuances   -    -    -    -    - 
Sales   -    -    -    -    - 
Settlements   -    -    -    -    - 
Balance at June 30, 2022  $188   $-   $396,666   $675   $204,028 

 

-23-
 

 

Note 10 – Investments and fair value (continued)

 

The amortized costs, gross unrealized holding gains and losses, and fair values of the Company’s investment securities classified as equity securities, at fair value, at June 30, 2022 consist of the following:

 

Type  Amortized Costs   Gross Unrealized Gains   Gross Unrealized Losses   Fair Values 
                 
NASDAQ listed company stock  $1,637   $-   $(1,449)  $188 
   $1,637   $-   $(1,449)  $188 

 

The portion of unrealized gains and losses for the period related to equity securities still held at the reporting date is calculated as follows:

 

   2022   2021   2022   2021 
   Three Months Ended June 30,   Six Months Ended June 30, 
   2022   2021   2022   2021 
Net gains and losses recognized during the period on equity securities  $(571)  $4,849   $(821)  $

(6,573

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

(2,508

)
                     
Unrealized gains and losses recognized during the reporting period on equity securities still held at the reporting date  $(571)  $4,849   $(821)  $(4,066)

 

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

 

The exercise price in effect at January 1, 2015 through June 30, 2022 for the Series D warrants is $1.60.

 

-24-
 

 

Note 11 - Common stock warrants (continued)

 

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 regarding 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 June 30, 2022 and December 31, 2021, the weighted average contractual life for all Mentor warrants was 16.0 years and 16.5 years, respectively, and the weighted average outstanding warrant exercise price was $2.14 and $2.11 per share, respectively.

 

During the six months ended June 30, 2022 and 2021, there were 87,456 and 0 Series B and 2,954 and 0 Series D warrants exercised, respectively; there were no warrants issued. The intrinsic value of outstanding warrants at June 30, 2022 and December 31, 2021 was $0 and $0, respectively.

 

The following table summarizes Series B and Series D common stock warrants as of each period:

  

   Series B   Series D   B and D Total  
Outstanding at December 31, 2020   87,456    6,252,954     6,340,410  
Issued   -    -     -  
Exercised   -    -     -  
Outstanding at December 31, 2021   87,456    6,252,954     6,340,410  
Issued   -    -     -  
Exercised   (87,456)   (2,954)    (90,410)  
Outstanding at June 30, 2022   0    6,250,000     6,250,000  

 

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, 2020   689,159 
Issued   - 
Exercised   - 
Outstanding at December 31, 2021   689,159 
Issued   - 
Exercised   - 
Outstanding at June 30, 2022   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 shares at that time) 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 to be scheduled after the prior 1% redemption is completed to prevent potential third-party manipulation of share prices at month-end. The periodic partial redemptions will continue to be periodically recalculated and repeated until such unexercised warrants are exhausted, or the partial redemption is otherwise paused, suspended, or truncated by the Company. For the six months ended June 30, 2022 and 2021, no warrants were redeemed.

 

-25-
 

 

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, Series B, and Series C warrants have been exercised and are no longer outstanding.

 

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 June 30, 2022 and December 31, 2021.

 

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 June 30, 2022 and December 31, 2021, 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.

 

-26-
 

 

Note 13 - Stockholders’ equity (continued)

 

Preferred Stock (continued)

 

The “Conversion Price” of the Series Q Preferred Stock shall be at the product of 105% and the closing price of the Company’s Common Stock on a date designated and published by the Company. The Series Q Preferred Stock is intended to allow for a pure-play investment in cannabis companies that have the potential to go public. The Series Q Preferred Stock will be available only to accredited, institutional, or qualified investors.

 

The Company sold and issued 11 shares of Series Q Preferred Stock on May 30, 2018, at a price of $10,000 per share, for an aggregate purchase price of $110,000 (“Series Q Purchase Price”). The Company invested the Series Q Purchase Price as capital in Partner II to purchase equipment to be leased to Pueblo West. Therefore, the Core Q Holdings at June 30, 2022 and December 31, 2021 include this interest. The Core Q Holdings Asset Value at June 30, 2022 and December 31, 2021 was $19,219 and $18,082 per share, respectively. There is no contingent liability for the Series Q Preferred Stock conversion at June 30, 2022 and December 31, 2021. At June 30, 2022 and December 31, 2021, the Series Q Preferred Stock could have been converted at the Conversion Price of $0.063 and $0.053, respectively, into an aggregate of 3,355,717 and 3,752,930 shares of the Company’s Common Stock, respectively. Because there were net losses for the six-month period ended June 30, 2022 and December 31, 2021, the shares were anti-dilutive and therefore are not included in the weighted average share calculation for that period.

 

Note 14 - Term Loan

 

Term debt as of June 30, 2022 and December 31, 2021 consists of the following:

  

   June 30,
2022
   December 31,
2021
 
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.  $53,421   $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.   25,185    28,162 
           
Bank of America auto loan, interest at 2.84% per annum, monthly principal and interest payments of $497, maturing March 2026, collateralized by vehicle.   21,113    - 
           
Total notes payable   99,719    89,872 
Less: Current maturities   (29,504)   (23,203)
           
Long term debt  $70,215   $66,669 

 

-27-
 

 

Note 15 – Paycheck Protection Program Loans and Economic Injury Disaster Loans

 

Paycheck Protection Program 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 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 for the six months ended June 30, 2022, 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.

 

There were no outstanding balances due on PPP loans at June 30, 2022 or December 31, 2021.

 

Note 15 – Paycheck Protection Program loans and Economic Injury Disaster Loan (continued)

 

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 balances at June 30, 2022 consist of the following:

 

   June 30,
2022
   December 31,
2021
 
July 9, 2020, WCI received an additional Economic Injury Disaster Loan, including accrued interest of $11,341.22 and $8,424 as of June 30, 2022 and December 31, 2021, 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.   161,241    158,324 
           
           
Less: Current maturities   (3,343)   - 
           
Long-term portion of economic injury disaster loan  $157,898   $158,324 

 

Interest expense on the EIDL Loan for the three months ended June 30, 2022 and 2021 was $1,473 and $1,420, respectively.

 

Interest expense on the EIDL Loan for the six months ended June 30, 2022 and 2021 was $2,917 and $2,811, respectively.

 

-28-
 

 

Note 16 - Accrued salary, accrued retirement, and incentive fee - related party

 

The Company had an outstanding liability to its CEO as follows:

 

   June 30, 2022   December 31, 2021 
Accrued salaries and benefits  $897,693   $881,125 
Accrued retirement and other benefits   504,953    508,393 
Offset by shareholder advance   (261,653)   (261,653)
Total outstanding liability  $1,140,993   $1,127,865 

 

As approved by a resolution of the Board of Directors in 1998, the CEO will be paid an incentive fee and a bonus which are payable in installments at the CEO’s option. The incentive fee is 1% of the increase in market capitalization based on the bid price of the Company’s stock beyond the book value at confirmation of the bankruptcy, which was approximately $260,000. The bonus is 0.5% of the increase in market capitalization for each $1 increase in stock price up to a maximum of $8 per share (4%) based on the bid price of the stock beyond the book value at confirmation of the bankruptcy. For the three months ended June 30, 2022 and 2021, the incentive fee expense was $0 and $0, respectively.

 

Note 17 – Related party transactions

 

On December 15, 2020, WCI received a $20,000 short term loan from an officer of WCI, which was reflected as a related party payable at December 31, 2021. On February 15, 2022, the loan plus accrued interest of $1,950 was paid in full.

 

On March 12, 2021, Mentor received a $100,000 loan from its CEO, which bears interest at 7.8% per annum compounded quarterly and is due upon demand. On June 17, 2021 and June 5, 2022, Mentor received additional $100,000 and $50,000 loans from its CEO with the same terms as the original loan. Accrued interest on the related party loans was $19,206 and $12,244 at June 30, 2022 and December 31, 2021, respectively. Interest expense on the related party loans for the three months ended June 30, 2022 and 2021 was $4,455 and $2,240, respectively. Interest expense on the related party loans for the six months ended June 30, 2022 and 2021 was $8,562 and $2,436, respectively.

 

Note 18 – Commitments and contingencies

 

G FarmaLabs Limited, a Nevada corporation (“G Farma”) has not made scheduled payments on the finance lease receivable or the notes receivable summarized below since February 19, 2019. All amounts due from G Farma are fully impaired at June 30, 2022 and December 31, 2021. A complete description of the agreements can be found in the Company’s Annual Report for the period ended December 31, 2021 on Form 10-K as filed with the SEC on March 24, 2022.

 

On March 17, 2017, the Company entered into a Notes Purchase Agreement with G Farma, with operations in Washington that had planned operations in California under two temporary licenses pending completion of its Desert Hot Springs, California, location. Under the Agreement, the Company purchased two secured promissory notes from G Farma in an aggregate principal face amount of $500,000. Subsequent to the initial investment, the Company executed eight addenda. Addendum II through Addendum VIII increased the aggregate principal face amount of the two notes to $1,100,000 and increased the combined monthly payments of the notes to $10,239 per month beginning March 15, 2019 with a balloon payment on the notes of approximately $894,172 due at maturity.

 

On September 6, 2018, the Company entered into an Equity Purchase and Issuance Agreement with G FarmaLabs Limited, G FarmaLabs DHS, LLC, GFBrands, Inc., Finka Distribution, Inc., and G FarmaLabs, WA, LLC under which Mentor was supposed to receive equity interests in the G Farma Equity Entities and their affiliates (together, the “G Farma Equity Entities”) equal to 3.75% of the G Farma Equity Entities’ interests. On March 4, 2019, Addendum VIII increased the G Farma Equity Entities’ equity interest to which Mentor is immediately entitled to 3.843%, and added Goya Ventures, LLC as a G Farma Equity Entity. The G Farma Entities failed to perform their obligations under the Equity Purchase and Issuance Agreement and the equity investment was fully impaired at June 30, 2022 and December 31, 2021.

 

Partner I acquired and delivered manufacturing equipment as selected by the G Farma Entities under sales-type finance leases. The finance leases resulting from this investment have been fully impaired at June 30, 2022 and December 31, 2021.

 

-29-
 

 

Note 18 – Commitments and contingencies (continued)

 

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, summarized above, 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, to recover collateral under a security agreement and to collect from guarantors on the agreements. The Company obtained, in January 2020, a writ of possession to recover leased equipment within G Farma’s possession. On January 31, 2020, all remaining equipment leased to G Farma by Mentor Partner I was repossessed by the Company. In the quarter ended June 30, 2020, the Company sold all of the recovered equipment, with an original cost of $622,670, for net proceeds of $249,481, after deducting shipping and delivery costs. All proceeds from the sale of repossessed equipment have been applied to the G Farma lease receivable balance that is fully reserved at June 30, 2022 and December 31, 2021.

 

On November 4, 2020, the Court granted Mentor Capital, Inc.’s and Mentor Partner I’s motion for summary adjudication as to both causes of action against G FarmaLabs Limited for liability for breach of the two promissory notes 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 is paid in full. Interest on the unpaid balance shall initially accrue at the rate of 4.25%, commencing February 25, 2021, 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 such default 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.

 

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 the Company’s Annual Report for the period ended December 31, 2021 on Form 10-K, Footnotes 7 and 8, as filed with the SEC March 24, 2022, for a discussion of the reserve against the finance lease receivable.

 

For the 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 June 30, 2022 and December 31, 2021. We will continue to pursue collection for lease payments remaining, after applying proceeds from the sale of recovered assets, that are fully impaired at June 30, 2022 and December 31, 2021, from the G Farma Lease Entities and G Farma Lease Guarantors. See the Company’s Annual Report for the period ended December 31, 2021 on Form 10-K, Footnotes 7 and 8, as filed with the SEC March 24, 2022, for a discussion of the reserve against the finance lease receivable.

 

-30-
 

 

Note 19 – 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 generally 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, and the operation of subsidiaries in the cannabis and medical marijuana sector; 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 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.

 

   Cannabis and Medical Marijuana Segment   Facility Operations Related   Corporate and Eliminations   Consolidated 
Three months ended June 30, 2022                
Net revenue  $8,473   $1,860,146   $-   $1,868,619 
Operating income (loss)   8,080    (232,777)   (439,064)   (663,761)
Interest income   -    -    13,391    13,391 
Interest expense   -    10,386    9,176    19,562 
Property additions   -    -    -    - 
Depreciation and amortization   -    17,750    -    17,750 
                     
Three months ended June 30, 2021                    
Net revenue  $10,330   $1,362,308   $-   $1,372,638 
Operating income (loss)   8,324    (181,557)   (134,057)   (307,290)
Interest income   -    -    16,245    16,245 
Interest expense   -    9,831    5,733    15,114 
Property additions   -    7,416    1,264    8,680 
Depreciation and amortization   -