The following discussion will assist in the understanding of our financial
position at September 30, 2021 and the results of operations for the nine months
ended September 30, 2021 and 2020. The information below should be read in
conjunction with the information contained in the unaudited Condensed
Consolidated Financial Statements and related notes to the financial statements
included within this Quarterly Report on Form 10-Q for the nine months ended
September 30, 2021 and 2020 and our Annual Report on Form 10-K for the year
ended December 31, 2020.
Corporate Background
The Company's common stock trades publicly under the trading symbol OTCQB: MNTR.
In 2009 the Company began focusing its investing activities in leading-edge
cancer companies. In response to government limitations on reimbursement for
highly technical and expensive cancer treatments and a resulting business
decline in the cancer immunotherapy sector, the Company decided to exit that
space. In the summer of 2013, the Company was asked to consider investing in a
cancer-related project with a medical marijuana focus. On August 29, 2013, the
Company decided to fully divest its cancer assets and focus its next round of
investments in the medical marijuana and cannabis sector. In late 2019, the
Company expanded its target industry focus to potentially include energy, mining
and minerals, technology, consumer products, management services, and
manufacturing sectors with the goal of ensuring increased market opportunities
and investment diversification. In April 2021, the Company announced that it is
adding a cryptocurrency focus for Mentor.
In September 2020, the Company moved its corporate office to Plano, Texas.
Acquisitions and investments
Waste Consolidators, Inc. (WCI)
WCI is a long standing investment of which the Company owns a 51% interest and
is included in the condensed consolidated financial statements for the nine
months ended September 30, 2021 and 2020. In the third quarter of 2020, WCI
began offering services in Houston, Texas. This has led to an increase in
selling, general and administrative salaries as WCI positions itself to operate
in this new location.
Electrum Partners, LLC (Electrum)
Electrum is a Nevada based consulting, investment, and management company. The
Company's equity interest in Electrum is reported in the condensed consolidated
balance sheets as an investment at cost of $194,028 and $194,028 at September
30, 2021 and December 31, 2020, respectively. At September 30, 2021 and December
31, 2020, the Company had approximately 6.69% and 6.69% interest of Electrum's
outstanding equity, respectively.
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On October 30, 2018, the Company entered into a Recovery Purchase Agreement with
Electrum to purchase a portion of Electrum's potential recovery in its legal
action captioned Electrum Partners, LLC, Plaintiff, and Aurora Cannabis Inc.,
Defendant, pending in the Supreme Court of British Columbia ("Litigation"). As
of September 30, 2021 and December 31, 2020, Mentor has provided $181,529 and
$181,529, respectively, in capital for payment of Litigation costs. In exchange,
after repayment to Mentor of all funds invested for payment of Litigation costs,
Mentor will receive 18% of anything of value received by Electrum as a result of
the Litigation ("Recovery"). On October 31, 2018, Mentor entered into a secured
Capital Agreement with Electrum and invested an additional $100,000 in Electrum.
Under the Capital Agreement, on the payment date, Electrum will pay Mentor the
sum of (i) $100,000, (ii) ten percent (10%) of the Recovery, and (iii) 0.083334%
of the Recovery for each full month from October 31, 2018, to the payment date
for each full month that $833 is not paid to Mentor. The payment date for the
Capital Agreement is the earlier of November 1, 2021, or the final resolution of
the Litigation. On January 28, 2019, the Company entered into a second secured
Capital Agreement with Electrum and invested an additional $100,000 in Electrum
with payment terms similar to the October 31, 2018 Capital Agreement. As part of
the January 28, 2019 Capital Agreement, Mentor was granted an option to convert
its 6,198 membership interests in Electrum into a cash payment of $194,027.78
plus an additional 19.4% of the Recovery. See Note 9 to the condensed
consolidated financial statements.
On October 6, 2021, the Company invested additional capital of $9,998 in
Electrum for Litigation costs pursuant to the Recovery Purchase Agreement. The
amount invested by the Company into Electrum for Litigation costs has increased
to $191,527 and the Company is entitled to receive to 19% of anything of value
received by Electrum as a result of the Recovery, following reimbursement to the
Company of Litigation costs, see Note 9 to the condensed consolidated financial
statements. Trial in the Electrum Litigation is currently scheduled to commence
on March 7, 2022.
Mentor IP, LLC (MCIP)
On April 18, 2016, the Company formed Mentor IP, LLC ("MCIP"), a South Dakota
limited liability company and wholly owned subsidiary of Mentor. MCIP was formed
to hold interests related to patent rights obtained on April 4, 2016, when
Mentor Capital, Inc. entered into that certain "Larson - Mentor Capital, Inc.
Patent and License Fee Facility with Agreement Provisions for an - 80% / 20%
Domestic Economic Interest - 50% / 50% Foreign Economic Interest" with R. L.
Larson and Larson Capital, LLC ("MCIP Agreement"). Pursuant to the MCIP
Agreement, MCIP obtained rights to an international patent application for
foreign THC and CBD cannabis vape pens under the provisions of the Patent
Cooperation Treaty of 1970, as amended. R. L. Larson continues its efforts to
obtain exclusive licensing rights in the United States for THC and CBD cannabis
vape pens for various THC and CBD percentage ranges and concentrations. Activity
is currently limited to the annual payment of patent maintenance fees in Canada.
On January 21, 2020, the United States Patent and Trademark Office granted a
Notice of Allowance for the United States patent application, and on May 5,
2020, the United States patent was issued. On June 29, 2020, the Canadian
Intellectual Property Office granted a Notice of Allowance for the Canada
patent, and on September 22, 2020, the Canadian patent was issued. Patent
application national phase maintenance fees were expensed when paid, and
therefore, no capitalized assets related to MCIP are reported on the condensed
consolidated financial statements at September 30, 2021 and December 31, 2020.
NeuCourt, Inc.
NeuCourt, Inc. is a Delaware corporation that is developing a technology that is
expected to be useful to the dispute resolution industry.
On November 22, 2017, the Company invested $25,000 in NeuCourt, Inc.
("NeuCourt") as a convertible note receivable. The note bears interest at 5% per
annum, originally matured November 22, 2019, and was amended to extend the
maturity date to November 22, 2021. No payments are required prior to maturity.
However, at the time the November 22, 2017 note was extended, interest accrued
through November 4, 2019, was remitted to Mentor. As consideration for the
extension of the maturity date for the $25,000 note, a warrant to purchase up to
25,000 shares of NeuCourt common stock at $0.02 per share was issued to Mentor.
On October 31, 2018, the Company invested an additional $50,000 as a convertible
note receivable in NeuCourt, which bears interest at 5%, originally matured
October 31, 2020, and was amended to extend the maturity date to October 31,
2022. As consideration for the extension of the maturity date for the $50,000
note plus accrued interest of $5,132, a warrant to purchase up to 52,500 shares
of NeuCourt common stock at $0.02 per share was issued to Mentor. Principal and
unpaid interest on the Notes may be converted into a blend of shares of a
to-be-created series of Preferred Stock and Common Stock of NeuCourt (i) on the
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.
On December 21, 2018, the Company purchased 500,000 shares of NeuCourt Common
Stock for $10,000. This represents approximately 6.1% of the issued and
outstanding NeuCourt shares at September 30, 2021.
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Mentor Partner I, LLC
On September 19, 2017, the Company formed Mentor Partner I, LLC ("Partner I"), a
California limited liability company as a wholly owned subsidiary of Mentor.
Partner I has subsequently been reorganized under the laws of the State of
Texas. In 2018 and 2019, Mentor contributed $1,010,326 of capital to Partner I
to facilitate the purchase of manufacturing equipment to be leased from Partner
I by G FarmaLabs Limited ("G Farma") under a Master Equipment Lease Agreement
dated January 16, 2018, as amended. Amendments expanded the Lessee under the
agreement to include G FarmaLabs Limited and G FarmaLabs DHS, LLC (collectively
referred to as "G Farma Lease Entities"). The finance leases resulting from this
investment have been fully impaired at September 30, 2021 and December 31, 2020.
Management considers collection on the leases to be unlikely, see Note 18 to the
condensed consolidated financial statements.
Mentor Partner II, LLC
On February 1, 2018, the Company formed Mentor Partner II, LLC ("Partner II"), a
California limited liability company, as a wholly owned subsidiary of Mentor.
Partner II has subsequently reorganized under the laws of the State of Texas. On
February 8, 2018, Mentor contributed $400,000 to Partner II to facilitate the
purchase of manufacturing equipment to be leased from Partner II by Pueblo West
under a Master Equipment Lease Agreement dated February 11, 2018, as amended see
Note 8 to the condensed consolidated financial statements. On March 12, 2019,
Mentor agreed to use Partner II's earnings of $61,368 to facilitate the purchase
of additional manufacturing equipment to Pueblo West under a Second Amendment to
the lease, see Note 8 to the condensed consolidated financial statements.
Payment on the leases are current.
Overview
The Company expanded its target industry focus, beginning in the third quarter
of 2019, from its investment in WCI and investments in the medical marijuana and
social use cannabis sector to include energy, mining and minerals, technology,
consumer products, management services, and manufacturing sectors with the goal
of ensuring increased market opportunities and investment diversification. In
April 2021, the Company announced that it is adding a cryptocurrency focus. Our
general business operations are intended to provide management consultation and
headquarters functions, especially with regard to accounting and audits, for our
larger investment targets and our majority-owned subsidiaries. We monitor our
smaller and less than majority positions for value and investment security.
Management also spends considerable effort reviewing possible acquisition
candidates on an ongoing basis.
Mentor seeks to take significant positions in the companies it invests in to
provide public market liquidity for founders, protection for investors, funding
for the companies, and to incubate private companies that Mentor believes to
have significant potential. When Mentor takes a significant position in its
investees, it provides financial management when needed but leaves operating
control in the hands of the company founders. Retaining control, receiving
greater liquidity, and working with an experienced organization to efficiently
develop disclosures and compliance are three potential key advantages to
founders working with Mentor Capital, Inc.
Because adult social use and medical marijuana opportunities often overlap,
Mentor Capital has participated in the ancillary side of the legal recreational
marijuana market. However, Mentor's preferred focus was medical, and the Company
sought to facilitate the application of cannabis to cancer wasting, Parkinson's
disease, calming seizures, reducing ocular pressures from glaucoma, and blunting
chronic pain.
Business Segments
We generally manage our operations through two operating segments, cannabis and
medical marijuana segment and our long-standing investment in WCI. WCI works
with business park owners, governmental centers, and apartment complexes in
Arizona and Texas to reduce their facilities' operating costs. In late 2019,
Mentor expanded its target industry focus to potentially include energy, mining
and minerals, technology, consumer products, management services, and
manufacturing sectors with the goal of ensuring increased market opportunities
and investment diversification. In April 2021, the Company announced that it is
adding a cryptocurrency focus.
Liquidity and Capital Resources
The Company's future success is dependent upon its ability to make a return on
its investments, to generate positive cash flow, and to obtain sufficient
capital from non-portfolio-related sources. Management believes they have
approximately twelve months of operating resources on hand and can raise
additional funds as may be needed to support their business plan and develop an
operating, cash flow positive company.
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Results of Operations
Three Months Ended September 30, 2021, compared to Three Months Ended September
30, 2020
Revenues
Revenue for the three months ended September 30, 2021 was $1,492,624 compared to
$1,231,530 for the three months ended September 30, 2020 ("the prior year
period"), an increase of $261,094 or 21.2%. This increase is due to a $262,801
increase in WCI service fees.
Gross profit
Gross profit for the three months ended September 30, 2021 was $488,584 compared
to $375,735 for the prior year period. Cost of goods sold relate to WCI and
Partner II. WCI experienced gross profit of $478,609 or 32.3% of revenue for the
three months ended September 30, 2021, compared to $364,004 or 29.8% for the
prior year period, an increase of $114,605 with an increase of 2.5% in gross
profit as a percentage of revenue. Partner II had gross profit of $9,975 for the
three months ended September 30, 2021 as compared to $11,730 in the prior year
period. Partner I did not have revenue for the three months ended September 30,
2021 and 2020.
The increase in WCI gross profit percentage was due largely to revenue
increasing at a higher rate (29.8%) than costs of goods sold (17.3%). Labor and
related costs increased by $105,204 or 19.2% over the prior year period. Other
costs of goods sold increased by $43,050 or 14%. compared to the third quarter
of 2020, which represents a 19.7% decrease.
Selling, general and administrative expenses
Our selling, general and administrative expenses for the three months ended
September 30, 2021 was $402,255 compared to $790,714 for the prior year period,
a decrease of $388,459. We experienced a decrease of ($72,497) in salary and
wages, and a decrease of ($320,841) in management fees, partially offset by an
increase of $8,642 in professional fees, an increase of $7,000 in bad debt
expense, and an increase in office expense of $5,642 for the three months ended
September 30, 2021 as compared to the prior year period.
Other income and expense
Other income and expense, net, totaled $489 for the three months ended September
30, 2021 compared to $25,063 for the prior year period, a decrease of ($24,574).
We experienced increases of $87,393 in WCI non-controlling interest, $671 in
losses on disposal of right of use assets and ($16,714) in interest expense. We
experienced decreases of ($1,427) in gain on investment securities, ($16,269) in
interest income, and ($3,032) in other miscellaneous income and expense
Net results
The net result for the three months ended September 30, 2021 was a net loss
attributable to Mentor of ($3,390) or ($0.000) per Mentor common share compared
to a net loss attributable to Mentor in the prior year period of ($273,955) or
($0.012) per Mentor common share. Management will continue to make an effort to
lower operating expenses and increase revenue and gross margin. The Company will
continue to look for acquisition opportunities to expand its portfolio in
companies that are positive for operating revenue or have the potential to
become positive for operating revenue.
Nine months Ended September 30, 2021, compared to Nine months Ended September
30, 2020
Revenues
Revenue for the nine months ended September 30, 2021 was $4,154,711 compared to
$3,539,860 for the nine months ended September 30, 2020 ("the prior year
period"), an increase of $646,027 or 18.3%. This increase is due to a $651,148
increase in WCI service fees, partially offset by a ($5,121) decrease in finance
lease revenue in the current period as compared to the prior year period.
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Gross profit
Gross profit for the nine months ended September 30, 2021 was $1,303,612
compared to $1,120,659 for the prior year period. Cost of goods sold relate to
WCI and Partner II. WCI experienced gross profit of $1,276,462 or 30.7% of
revenue for the nine months ended September 30, 2021, compared to $1,084,362 or
31.0% for the prior year period, an increase of $27,150 with a decrease of 0.3%
as a percentage of revenue. Partner II had gross profit of $31,176 for the nine
months ended September 30, 2021 as compared to $36,297.
The decrease in WCI gross profit percentage was due to an increase in labor and
related costs of 19.1%, an increase of 18.0% in disposal costs and an increase
of 113.8% in Right of Use Asset amortization over the prior year period. These
increases were partially offset by an increase of (18.6%) in revenue, over the
prior year period.
Selling, general and administrative expenses
Our selling, general and administrative expenses for the nine months ended
September 30, 2021 were $1,689,317 compared to $1,977,237 for the prior year
period, a decrease of $287,920. We experienced a decrease of $163,699 in salary
and wages, and a decrease of $100,841 in professional fees, partially offset by
an increase of $33,227 in office expense, an increase of $133,227 in outside
services, for the nine months ended September 30, 2021 as compared to the prior
year period.
Other income and expense
Other income and expense, net, totaled $12,293 for the nine months ended
September 30, 2021 compared to $71,855 for the prior year period, a decrease of
$59,562. WCI received a $10,000 EIDL Advance in the prior nine-month period. Of
the decrease, $21,202 is due to an increase in interest expense of $43,899 in
the current year period compared to $22,697 in the prior year period. The
decrease was also partially due to a decrease in interest income of $16,501 and
a decrease in other miscellaneous income of $19,923. This was offset by
forgiveness of WCI's $10,000 EIDL Advance during the current nine-month period.
Net results
The net result for the nine months ended September 30, 2021 was a net loss
attributable to Mentor of ($366,934) or ($0.016) per Mentor common share
compared to a net loss attributable to Mentor in the prior year period of
($705,910) or ($0.031) per Mentor common share. Management will continue to make
an effort to lower operating expenses and increase revenue and gross margin. The
Company will continue to look for acquisition opportunities to expand its
portfolio in companies that are positive for operating revenue or have the
potential to become positive for operating revenue.
Liquidity and Capital Resources
Since our reorganization, we have raised capital through warrant holder exercise
of warrants to purchase shares of Common Stock. At September 30, 2021 we had
cash and cash equivalents of $278,068 and working capital of $623,786. These
factors raise substantial doubt about the Company's ability to continue as a
going concern.
Operating cash outflows in the nine months ended September 30, 2021 was
($343,709), including ($381,977) of net loss, less noncash forgiveness of PPP
loan of ($10,000), less non-cash amortization of discount on our investment in
account receivable of ($45,684), less an increase in accrued interest income of
($3,049), plus a loss on an investment in securities of $9,001, and a decrease
in operating assets of ($134,220), partially offset by non-cash depreciation and
amortization of $34,305, non-cash amortization on right of use assets of
$111,307, non-cash bad debt expense of $19,580, loss on right of use asset
disposal of $643, and a $57,789 increase in operating liabilities.
Cash outflows from investing activities in the nine months ended September 30,
2021 were ($59,468) due to purchase and sale of investment securities netting to
$4,442, purchase and sale of property and equipment netting to ($17,173), and
down payments on right of use assets of ($46,737).
Net inflows from financing activities during the nine months ended September 30,
2021 were $175,071 consisting of proceeds from related party loan of $204,006,
proceeds from Paycheck Protection Program loans of $76,593, and refund of
payment on Paycheck Protection Program loans of $551. Cash outflows from
financing activities include payments on long-term debt of ($15,996) and
($90,082) of payments on finance lease liabilities.
We will be required to raise additional funds through financing, additional
collaborative relationships or other arrangements until we are able to raise
revenues to a point of positive cash flow.
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In addition, on February 9, 2015, in accordance with Section 1145 of the United
States Bankruptcy Code and the Company's court-approved Plan of Reorganization,
the Company announced a minimum 30 day partial redemption of up to 1% of the
already outstanding Series D warrants to provide for the court specified
redemption mechanism for warrants not exercised timely by the original holder or
their estates. Company designees that applied during the 30 days paid 10 cents
per warrant to redeem the warrant and then exercised the Series D warrant to
purchase a share at the court specified formula of not more than one-half of the
closing bid price on the day preceding the 30 day exercise period. In the
Company's October 7, 2016 press release, Mentor stated that the 1% redemptions
which were formerly priced on a calendar month schedule would subsequently be
initiated and be priced on a random date 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 may continue to be
recalculated and repeated until such unexercised warrants are exhausted, or the
partial redemption is otherwise temporarily paused, suspended, or truncated by
the Company.
For the nine months ended September 30, 2021, there were no redemptions of
Series D Warrants. There were no redemptions of Series D Warrants in 2020. We
believe that if warrants are redeemed and exercised, partial warrant redemptions
would provide monthly cash in excess of what is required for monthly operations
for an extending period of time while we are exploring other major sources of
funding for further acquisitions.
Disclosure About Off-Balance Sheet Arrangements
We do not have any transactions, agreements, or other contractual arrangements
that constitute off-balance sheet arrangements.
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MENTOR CAPITAL, INC. 
