The following discussion of our financial condition and results of operations
for the years ended December 31, 2021, and 2020 should be read in conjunction
with the financial statements and the notes to those statements that are
included elsewhere in this Annual Report on Form 10-K.
Corporate Background
Beginning September 2008, after the name change back to Mentor Capital, Inc.,
the Company's common stock traded publicly under the trading symbol OTC Markets:
MNTR and after February 9, 2015, as OTCQB: MNTR and after August 6, 2018, under
the trading symbol OTCQX: MNTR and after May 1, 2020, 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 which now includes energy, medical
products, manufacturing, cryptocurrency, real estate, and international projects
with the goal of ensuring increased market opportunities. 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 consolidated financial statements for the years ended
December 31, 2021 and 2020. In the last half of 2020, WCI began expanding its
services in Texas from San Antonio and Austin to include Houston, and in
November 2021 began services in Dallas. This has led to an increase in selling,
general and administrative expenses as WCI positions itself to operate in this
new location.
17
Electrum Partners, LLC (Electrum)
Electrum is a Nevada based cannabis consulting, investment, and management
company. The Company has a membership equity interest in Electrum which is
carried at cost of $194,028 and $194,028 at December 31, 2021 and 2020,
respectively. The Company's investment represents a 6.69% and 6.69% interest of
Electrum's outstanding equity at December 31, 2021 and 2020, respectively.
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
described further in note 9 to the consolidated financial statements, as of
December 31, 2021 and 2020, Mentor has provided $196,666 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 19% 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 of capital in Electrum. Under the
Capital Agreement, on the payment date, Electrum will pay to 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. Due to the coronavirus and the resulting delay in the trial date of
the Litigation, on November 1, 2021 the parties amended the October 31, 2018
Capital Agreement for the purpose of extending the payment to the earlier of
November 1, 2023, or the final resolution of the Litigation and increased the
monthly payment payable by Electrum to $834.
On January 28, 2019, the Company entered into a second secured Capital Agreement
with Electrum and invested an additional $100,000 of capital in Electrum with
payment terms similar to the October 31, 2018 Capital Agreement. Due to the
coronavirus and the resulting delay in the trial date of the Litigation, on
November 1, 2021 the parties amended the October 31, 2018 Capital Agreement for
the purpose of extending the payment to the earlier of November 1, 2023, or the
final resolution of the Litigation and increased the monthly payment payable by
Electrum to $834. 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. Under the
Security Agreement, all liabilities and investments owed to Mentor from Electrum
are secured by all of the tangible and intangible assets of Electrum. See note 9
to the consolidated financial statements.
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
in 2021 and 2020 was limited to payment of patent application maintenance fees
in Canada. Patent application national phase maintenance fees have been expensed
when paid and there were no assets related to the MCIP patents on the
consolidated financial statements at December 31, 2021 and 2020. On January 21,
2020, the United States Patent and Trademark Office granted a Notice of
Allowance for the United States patent application and on May 5, 2020 the United
States patent was issued. On March 23, 2020 MCIP applied for expedited
prosecution with the Canadian Intellectual Property Office under the Patent
Cooperation Treaty Patent Prosecution Highway Program based on the claims
allowed in the corresponding United States patent application. On June 29, 2020,
the Canadian Intellectual Property Office granted a Notice of Allowance for the
Canada patent application and on September 22, 2020, the Canadian patent was
issued.
NeuCourt, Inc.
NeuCourt 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 November 5, 2021, the parties amended the note to extend the November 22,
2021 maturity date to November 22, 2023. A warrant to purchase 27,630 shares of
NeuCourt common stock at $0.02 per share was issued to Mentor in exchange for
the extension of the maturity date. 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 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.
On December 21, 2018, the Company purchased 500,000 shares of NeuCourt Common
Stock for $10,000, approximately 6.13% of the issued and outstanding NeuCourt
shares at December 31, 2021.
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G FarmaLabs Limited
On March 17, 2017, the Company entered into a Notes Purchase Agreement with G
FarmaLabs Limited, a Nevada corporation ("G Farma"), with operations in
Washington and planned operations in California under two temporary licenses
which were 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. Since the initial
investment, the Company made several additional investments in G Farma. Addenda
II through VIII increased the aggregate investment amount to $1,110,000. G Farma
has not made scheduled payments on the notes receivable since February 19, 2019.
See note 7 to the consolidated financial statements.
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. We have fully impaired the
equity investment with these entities, formerly valued at $41,600. See note 7 to
the consolidated financial statements.
On February 22, 2019, the City of Corona Building Department closed access to G
Farma's corporate location; the Company was not informed by G Farma of this
incident until March 14, 2019. On April 24, 2019, the Company was notified that
certain G Farma assets at its corporate location, including approximately
$427,804 of equipment leased by G Farma Entities from Mentor Partner I, LLC,
under a Master Equipment Lease Agreement, was impounded by the Corona Police,
see further description under Mentor Partner I, LLC, below, and footnotes 7 and
8 to the consolidated financial statements.
This event severely impacted G Farma's ability to pay amounts due the Company in
the future and led the Company, in the quarter ended March 31, 2019, to fully
impair G Farma notes receivable of $1,045,051, and fully impair the Company's
3.843% equity interest in G Farma Equity Entities, formerly valued at $41,600.
See note 7 to the consolidated financial statements.
The Company and Mentor Partner I initiated an action against the G Farma Lease
Entities and several persons who have guaranteed the obligations of the G Farma
Entities (the "G Farma Lease Guarantors") in the Superior Court of California in
the County of Marin in which it sought, among other things, damages caused by G
Farma's and its guarantors' breaches of the various agreements.
On August 27, 2021, the Company and Mentor Partner I entered into a Settlement
Agreement and Mutual Release with the G Farma Entities to resolve and settle all
outstanding claims as discussed in note 20 to the consolidated financial
statements. We will continue to pursue collection of the settlement amounts from
the G Farma Lease Entities and G Farma Lease Guarantors.
Mentor Partner I, LLC
Mentor Partner I, LLC ("Partner I") was reorganized as a limited liability
company under the laws of the State of Texas as of February 17, 2021. The entity
was originally organized as a limited liability company under the laws of the
State of California on September 19, 2017. Partner I was formed as a wholly
owned subsidiary of Mentor for the purpose of cannabis-focused acquisition and
investment. In 2018, Mentor contributed $996,000 of capital to Partner I to
facilitate the purchase of manufacturing equipment to be leased from Partner I
by G FarmaLabs Limited ("G Farma") under a Master Equipment Lease Agreement
dated January 16, 2018, as amended. During the years ended December 31, 2021 and
2020, Mentor withdrew capital of $52,800 and $300,000, respectively, from
Partner I. Partner I acquired and delivered manufacturing equipment as selected
by G Farma Entities under sales-type finance leases. Partner I did not have any
equipment sales revenue for the years ended December 31, 2021 or 2020.
On February 22, 2019, the City of Corona Building Department closed access to G
Farma's corporate location; the Company was not informed by G Farma of this
incident until March 14, 2019. On April 24, 2019, the Company was informed that
certain G Farma assets at its corporate location, including equipment valued at
approximately $427,804 leased to the G Farma Lease Entities under the Master
Equipment Lease Agreement, was impounded by the Corona Police. This event
severely impacted G Farma's ability to pay amounts due the Company in the
future.
19
In 2020, the Company repossessed leased equipment under G Farma's control with a
cost of $622,670 and sold it to the highest offerors for net proceeds of
$348,734, after shipping and delivery costs. Net sales proceeds were applied
against the finance lease receivable. The remaining finance lease receivable
balance is fully impaired at December 31, 2021 and 2020. See note 8 to the
consolidated financial statements.
Mentor Partner II, LLC
Mentor Partner II, LLC ("Partner II") was reorganized as a limited liability
company under the laws of the State of Texas on February 17, 2021. The entity
was originally organized as a limited liability company under the laws of the
State of California on February 1, 2018. Partner II was formed as a wholly owned
subsidiary of Mentor for the purpose of cannabis-focused investing and
acquisition. On February 8, 2018, Mentor contributed $400,000 to Partner II to
facilitate the purchase of manufacturing equipment to be leased from Partner II
by Pueblo West 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 leased
to Pueblo West under a Second Amendment to the lease, see note 8 to the
consolidated financial statements. During the years ended December 31, 2021 and
2020, Mentor withdrew capital of $124,281 and $150,000, respectively, from
Partner II.
Mentor Partner III, LLC
On February 20, 2018, the Company formed Mentor Partner III, LLC ("Partner
III"), a California limited liability company, as a wholly owned subsidiary of
Mentor for acquisition and investing purposes. Partner III had no activity
subsequent to formation and was dissolved on December 16, 2020.
Mentor Partner IV, LLC
On February 28, 2018, the Company formed Mentor Partner IV, LLC ("Partner IV"),
a California limited liability company, as a wholly owned subsidiary of Mentor
for acquisition and investing purposes. Partner IV had no activity subsequent to
formation and was dissolved on December 16, 2020.
Liquidity and Capital Resources
The Company's future success is dependent upon its ability to make a return on
our investments to generate positive cash flow and to obtain sufficient capital
from non-portfolio-related sources. The Company currently has enough cash to
effectuate its business plans for the next 12 months. Management believes they
can raise the appropriate funds needed to support their business plan and
develop an operating, cash flow positive company.
Critical Accounting Policies
Basis of presentation
The accompanying consolidated financial statements and related notes include the
activity of majority-owned subsidiaries of 51% or more. The consolidated
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America ("GAAP"). Significant
intercompany balances and transactions have been eliminated in consolidation.
Certain prior year amounts have been reclassified to conform with current year
presentation.
As shown in the accompanying financial statements, the Company has a significant
accumulated deficit of $10,748,154 as of December 31, 2021. The Company
continues to experience negative cash flows from operations.
20
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.
The Company will be required to raise additional capital to fund its operations
and will continue to attempt to raise capital resources from both related and
unrelated parties until such time as the Company is able to generate revenues
sufficient to maintain itself as a viable entity. These factors have raised
substantial doubt about the Company's ability to continue as a going concern.
These financial statements are presented on the basis that we will continue as a
going concern. The going concern concept contemplates the realization of assets
and satisfaction of liabilities in the normal course of business. The financial
statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern. There can be no assurances that the
Company will be able to raise additional capital or achieve profitability.
However, the Company has approximately 6.2 million warrants outstanding in which
the Company can reset the exercise price substantially below the current market
price. These consolidated financial statements do not include any adjustments
that might result from repricing the outstanding warrants.
Management's plans include increasing revenues through acquisition, investment,
and organic growth. Management anticipates funding these activities by raising
additional capital through the sale of equity securities and obtaining debt
financing.
Segment reporting
The Company has determined that there are currently two reportable segments: 1)
the cannabis and medical marijuana segment and 2) the Company's legacy
investment in WCI, which works with business park owners, governmental centers,
and apartment complexes to reduce their facility related operating costs.
Use of estimates
The preparation of our consolidated financial statements in conformity with GAAP
requires management to make estimates, assumptions, and judgments that affect
the reported amounts of assets and liabilities, and the disclosure of contingent
assets and liabilities at the date of our consolidated financial statements, and
the reported amount of revenues and expenses during the reporting period.
Significant estimates relied upon in preparing these consolidated financial
statements include revenue recognition, accounts and notes receivable reserves,
expected future cash flows used to evaluate the recoverability of long-lived
assets, estimated fair values of long-lived assets used to record impairment
charges related to investments, goodwill, amortization periods, accrued
expenses, and recoverability of the Company's net deferred tax assets and any
related valuation allowance.
Although the Company regularly assesses these estimates, actual results could
differ materially from these estimates. Changes in estimates are recorded in the
period in which they become known. The Company bases its estimates on historical
experience and various other assumptions that it believes to be reasonable under
the circumstances. Actual results may differ from management's estimates if past
experience or other assumptions do not turn out to be substantially accurate.
Recent Accounting Standards
From time to time, the FASB or other standards setting bodies issue new
accounting pronouncements. Updates to the FASB Accounting Standard Codifications
("ASCs") are communicated through issuance of an Accounting Standards Update
("ASU"). Unless otherwise discussed, we believe that the impact of recently
issued guidance, whether adopted or to be adopted in the future, is not expected
to have a material impact on our consolidated financial statements upon
adoption.
Simplifying the Accounting for Income Taxes - As of January 1, 2021, we adopted
ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which is designed
to simplify the accounting for income taxes by removing certain exceptions to
the general principles in Topic 740. ASU No. 2019-12 The adoption of this ASU
did not have a material impact on the Company's consolidated financial
statements.
21
Concentrations of cash
The Company maintains its cash and cash equivalents in bank deposit accounts
which at times may exceed federally insured limits. The Company has not
experienced any losses in such accounts nor does the Company believe it is
exposed to any significant credit risk on cash and cash equivalents.
Cash and cash equivalents
The Company considers all short-term debt securities purchased with a maturity
of three months or less to be cash equivalents. The Company had no short-term
debt securities as of December 31, 2021 and 2020.
Accounts receivable
Accounts receivable consist of trade accounts arising in the normal course of
business and are classified as current assets and carried at original invoice
amounts less an estimate for doubtful receivables based on historical losses as
a percent of revenue in conjunction with a review of outstanding balances on a
quarterly basis. The estimate of allowance for doubtful accounts is based on the
Company's bad debt experience, market conditions, and aging of accounts
receivable, among other factors. If the financial condition of the Company's
customers deteriorates, resulting in the customer's inability to pay the
Company's receivables as they come due, additional allowances for doubtful
accounts will be required. At December 31, 2021 and 2020, the Company has an
allowance for doubtful receivables in the amount of $74,676 and $59,461,
respectively.
Investments in securities, at fair value
Investment in securities consists of debt and equity securities reported at fair
value. Under ASU 2016-01, "Financial Instruments - Overall: Recognition and
Measurement of Financial Assets and Financial Liabilities," the Company elected
to report changes in the fair value of equity investment in realized investment
gains (losses), net.
Long term investments
The Company's investments in entities where it is a minority owner and does not
have the ability to exercise significant influence are recorded at fair value if
readily determinable. If the fair market value is not readily determinable, the
investment is recorded under the cost method. Under this method, the Company's
share of the earnings or losses of such investee company is not included in the
Company's financial statements. The Company reviews the carrying value of its
long-term investments for impairment each reporting period.
22
Finance leases receivable
The Company, through its subsidiaries, is the lessor of manufacturing equipment
subject to leases under master leasing agreements. The leases contain an element
of dealer profit and lessee bargain purchase options at prices substantially
below the subject assets' estimated residual values at the exercise date for the
options. Consequently, the Company classified the leases as sales-type leases
(the "finance leases") for financial accounting purposes. For such finance
leases, the Company reports the discounted present value of (i) future minimum
lease payments (including the bargain purchase option, if any) and (ii) any
residual value not subject to a bargain purchase option as a finance lease
receivable on its balance sheet and accrues interest on the balance of the
finance lease receivable based on the interest rate inherent in the applicable
lease over the term of the lease. For each finance lease, the Company recognized
revenue in an amount equal to the net investment in the lease and cost of sales
equal to the net book value of the equipment at the inception of the applicable
lease.
A finance receivable is considered impaired, based on current information and
events, if it is probable that we will be unable to collect all amounts due
according to contractual terms. Impaired finance receivables include finance
receivables that have been restructured and are troubled debt restructures. See
Note 9.
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. As
part of the monitoring process we may physically inspect the collateral or a
borrower's facility and meet with a borrower's management to better understand
such borrower's financial performance and its future plans on an as-needed
basis.
Property and equipment
Property and equipment is recorded at cost less accumulated depreciation.
Depreciation is computed on the declining balance method over the estimated
useful lives of various classes of property. The estimated lives of the property
and equipment are generally as follows: computer equipment, three to five years;
furniture and equipment, seven years; and vehicles and trailers, four to five
years. Depreciation on vehicles used by WCI to service its customers is included
in cost of goods sold in the consolidated income statements. All other
depreciation is included in selling, general and administrative costs in the
consolidated income statements.
Expenditures for major renewals and improvements are capitalized, while minor
replacements, maintenance, and repairs, which do not extend the asset lives, are
charged to operations as incurred. Upon sale or disposition, the cost and
related accumulated depreciation are removed from the accounts and any gain or
loss is included in operations. The Company continually monitors events and
changes in circumstances that could indicate that the carrying balances of its
property and equipment may not be recoverable in accordance with the provisions
of ASC 360, "Property, Plant, and Equipment." When such events or changes in
circumstances are present, the Company assesses the recoverability of long-lived
assets by determining whether the carrying value of such assets will be
recovered through undiscounted expected future cash flows. If the total of the
future cash flows is less than the carrying amount of those assets, the Company
recognizes an impairment loss based on the excess of the carrying amount over
the fair value of the assets. See Note 6, "Property, Equipment and Leasehold
Improvements, Net" for further information.
The Company reviews intangible assets subject to amortization quarterly to
determine if any adverse conditions exist or a change in circumstances has
occurred that would indicate impairment or a change in the remaining useful
life. Conditions that may indicate impairment include, but are not limited to, a
significant adverse change in legal factors or business climate that could
affect the value of an asset, a product recall, or an adverse action or
assessment by a regulator. If an impairment indicator exists, we test the
intangible asset for recoverability. For purposes of the recoverability test, we
group our amortizable intangible assets with other assets and liabilities at the
lowest level of identifiable cash flows if the intangible asset does not
generate cash flows independent of other assets and liabilities. If the carrying
value of the intangible asset (asset group) exceeds the undiscounted cash flows
expected to result from the use and eventual disposition of the intangible asset
(asset group), the Company will write the carrying value down to the fair value
in the period identified.
Lessee Leases
We determine whether an arrangement is a lease at inception. Lessee leases are
classified as either finance leases or operating leases. A lease is classified
as a finance lease if any one of the following criteria are met: the lease
transfers ownership of the asset by the end of the lease term, the lease
contains an option to purchase the asset that is reasonably certain to be
exercised, the lease term is for a major part of the remaining useful life of
the asset or the present value of the lease payments equals or exceeds
substantially all of the fair value of the asset. A lease is classified as an
operating lease if it does not meet any one of these criteria. Our operating
leases are comprised of office space leases, and office equipment. Fleet vehicle
leases entered into prior to January 1, 2019, under ASC 840 guidelines, are
classified as operating leases. Fleet vehicle leases entered into beginning
January 1, 2019, under ASC 842 guidelines, are classified as finance leases. Our
leases have remaining lease terms of 1 month to 48 months. Our fleet finance
leases contain a residual value guarantee which, based on past lease experience,
is unlikely to result in a liability at the end of the lease. As most of our
leases do not provide an implicit rate, we use our incremental borrowing rate
based on the information available at the commencement date in determining the
present value of lease payments.
23
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).
Long-lived assets impairment assessment
In accordance with the FASB Accounting Standards Codification ("ASC") 350,
"Intangibles - Goodwill and Other," we regularly review the carrying value of
intangible and other long-lived assets for the existence of facts or
circumstances, both internally and externally, that suggest impairment. The
carrying value and ultimate realization of these assets are dependent upon our
estimates of future earnings and benefits that we expect to generate from their
use. If our expectations of future results and cash flows are significantly
diminished, intangible assets and other long-lived assets may be impaired, and
the resulting charge to operations may be material. When we determine that the
carrying value of intangibles or other long-lived assets may not be recoverable
based upon the existence of one or more indicators of impairment, we use the
projected undiscounted cash flow method to determine whether an impairment
exists and then measure the impairment using discounted cash flows.
Goodwill
Goodwill of $1,324,142 was derived from consolidating WCI effective January 1,
2014, and $102,040 of goodwill was derived from the 1999 acquisition of a 50%
interest in WCI. In accordance with ASC 350, "Intangibles-Goodwill and Other,"
goodwill and other intangible assets with indefinite lives are no longer subject
to amortization but are tested for impairment annually or whenever events or
changes in circumstances indicate that the asset might be impaired.
The Company reviews the goodwill allocated to each of our reporting units for
possible impairment annually as of December 31 and whenever events or changes in
circumstances indicate carrying amount may not be recoverable. In the impairment
test, the Company measures the recoverability of goodwill by comparing a
reporting unit's carrying amount, including goodwill, to the estimated fair
value of the reporting unit. If the carrying amount of a reporting unit is in
excess of its fair value, the Company recognizes an impairment charge equal to
the amount in excess. To estimate the fair value, management uses valuation
techniques which included the discounted value of estimated future cash flows.
The evaluation of impairment requires the Company to make assumptions about
future cash flows over the life of the asset being evaluated. These assumptions
require significant judgment and are subject to change as future events and
circumstances change. Actual results may differ from assumed and estimated
amounts. Management determined that no impairment write-downs were required as
of December 31, 2021 and 2020.
Revenue recognition
The Company recognizes revenue in accordance with ASC 606, "Revenue from
Contracts with Customers," and FASB ASC Topic 842, "Leases." Revenue is
recognized net of allowances for returns and any taxes collected from customers,
which are subsequently remitted to government authorities.
WCI works with business park owners, governmental centers, and apartment
complexes to reduce facilities related costs. WCI performs monthly services
pursuant to agreements with customers. Customer monthly service fees are based
on WCI's assessment of the amount and frequency of monthly services requested by
a customer. WCI may also provide additional services, such as apartment cleanout
services, large item removals, or similar services, on an as needed basis at an
agreed upon rate as requested by customers. All services are invoiced and
recognized as revenue in the month the agreed on services are performed.
For each finance lease, the Company recognized as a gain the amount equal to (i)
the net investment in the finance lease less (ii) the net book value of the
equipment at the inception of the applicable lease. At lease inception we
capitalize the total minimum finance lease payments receivable from the lessee,
the estimated unguaranteed residual value of the equipment at lease termination,
if any, and the initial direct costs related to the lease, less unearned income.
Unearned income is recognized as finance income over the term of the lease using
the effective interest rate method.
The Company, through its subsidiaries, is the lessor of manufacturing equipment
subject to leases under master leasing agreements. The leases contain an element
of dealer profit and lessee bargain purchase options at prices substantially
below the subject assets' estimated residual values at the exercise date for the
options. Consequently, the Company classified the leases as sales-type leases
(the "finance leases") for financial accounting purposes. For such finance
leases, the Company reports the discounted present value of (i) future minimum
lease payments (including the bargain purchase option, if any) and (ii) any
residual value not subject to a bargain purchase option as a finance lease
receivable on its balance sheet and accrues interest on the balance of the
finance lease receivable based on the interest rate inherent in the applicable
lease over the term of the lease. For each finance lease, the Company recognized
revenue in an amount equal to the net investment in the lease and cost of sales
equal to the net book value of the equipment at the inception of the applicable
lease.
Basic and diluted income (loss) per common share
We compute net loss per share in accordance with ASC 260, "Earnings Per Share."
Under the provisions of ASC 260, basic net loss per share includes no dilution
and is computed by dividing the net loss available to common stockholders for
the period by the weighted average number of shares of Common Stock outstanding
during the period. Diluted net loss per share takes into consideration shares of
Common Stock outstanding (computed under basic net loss per share) and
potentially dilutive securities that are not anti-dilutive.
Outstanding warrants that had no effect on the computation of dilutive weighted
average number of shares outstanding as their effect would be anti-dilutive were
approximately 7,000,000 and 7,000,000 as of December 31, 2021 and 2020,
respectively. There were 87,456 and 87,456 potentially dilutive shares
outstanding at December 31, 2021 and 2020, respectively.
Assumed conversion of Series Q Preferred Stock into Common Stock would be
anti-dilutive as of December 31, 2021 and 2020 and is not included in
calculating the diluted weighted average number of shares outstanding.
24
Income taxes
The Company accounts for income taxes in accordance with accounting guidance now
codified as FASB ASC 740, "Income Taxes," which requires that the Company
recognize deferred tax liabilities and assets based on the differences between
the financial statement carrying amounts and the tax bases of assets and
liabilities, using enacted tax rates in effect in the years the differences are
expected to reverse. Deferred income tax benefit (expense) results from the
change in net deferred tax assets or deferred tax liabilities. A valuation
allowance is recorded when it is more likely than not that some or all deferred
tax assets will not be realized.
The Company applies the provisions of ASC 740, "Accounting for Uncertainty in
Income Taxes." The ASC prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. The ASC provides
guidance on de-recognition, classification, interest, and penalties, accounting
in interim periods, disclosure, and transition. The Company utilizes a two-step
approach to recognizing and measuring uncertain tax positions (tax
contingencies). The first step evaluates the tax position for recognition by
determining if the weight of available evidence indicates it is more likely than
not that we will sustain the position on audit, including resolution of related
appeals or litigation processes. The second step measures the tax benefit as the
largest amount of more than 50% likely of being realized upon ultimate
settlement. The Company did not identify any material uncertain tax positions on
returns that have been filed or that will be filed. The Company did not
recognize any interest or penalties for unrecognized tax provisions during the
years ended December 31, 2021 and 2020, nor were any interest or penalties
accrued as of December 31, 2021 and 2020. To the extent the Company may accrue
interest and penalties, it elects to recognize accrued interest and penalties
related to unrecognized tax provisions as a component of income tax expense.
Fair value measurements
The Company adopted ASC 820, "Fair Value Measurement," which defines fair value
as the exchange price that would be received to sell an asset or paid to
transfer a liability (an exit price) in the principal, or most advantageous
market for the asset or liability in an orderly transaction between market
participants on the measurement date. The valuation techniques maximize the use
of observable inputs and minimize the use of unobservable inputs.
The Fair Value Measurements and Disclosure Topic establish a fair value
hierarchy, which prioritizes the valuation inputs into three broad levels. These
three general valuation techniques that may be used to measure fair value are as
follows: Market approach (Level 1) - which uses prices and other relevant
information generated by market transactions involving identical or comparable
assets or liabilities. Prices may be indicated by pricing guides, sale
transactions, market trades, or other sources. Cost approach (Level 2) - which
is based on the amount that currently would be required to replace the service
capacity of an asset (replacement cost); and the Income approach (Level 3) -
which uses valuation techniques to convert future amounts to a single present
amount based on current market expectations about the future amounts (including
present value techniques, and option-pricing models). Net present value is an
income approach where a stream of expected cash flows is discounted at an
appropriate market interest rate.
The carrying amounts of cash, accounts receivable, prepaid expenses and other
current assets, accounts payable, customer deposits and other accrued
liabilities approximate their fair value due to the short-term nature of these
instruments.
The fair value of available-for-sale investment securities is based on quoted
market prices in active markets.
The fair value of the investment in account receivable is based on the net
present value of calculated interest and principal payments. The carrying value
approximates fair value as interest rates charged are comparable to market rates
for similar investments.
The fair value of notes receivable is based on the net present value of
calculated interest and principal payments. The carrying value approximates fair
value as interest rates charged are comparable to market rates for similar
notes.
The fair value of long-term notes payable is based on the net present value of
calculated interest and principal payments. The carrying value of long-term debt
approximates fair value due to the fact that the interest rate on the debt is
based on market rates.
25
Results of Operations for the year ended December 31, 2021 compared to the year
ended December 31, 2020:
Revenues
We had revenue of $6,010,438 and gross profit of $1,871,653 (31.1% gross profit)
for the year ended December 31, 2021, versus revenue of $4,825,956 and gross
profit of $1,526,641 (31.6% gross profit) for the year ended December 31, 2020,
an increase in revenue of $1,184,482 and an increase in gross profit of
$345,012. WCI service fee revenue in 2021 increased by $1,191,426 with an
increase in gross profit of $383,315. We formed Partner I and Partner II for the
purpose of specific equipment sales-type financing leases. Finance lease revenue
was $40,764 in 2021 compared to $47,707 in 2020.
Selling, general and administrative expenses
Our selling, general and administrative expenses for the year ended December 31,
2021 was $2,275,989 compared to $2,600,745 for the year ended December 31, 2020,
a decrease of ($324,756). The decrease was due to a decrease in bad debt expense
of ($31,403), a decrease in management fees of ($85,954), a decrease in salary
and related costs of ($193,665), a decrease in board of director fees of
($16,750), and a decrease in other selling, general and administrative expenses
of ($57,386), partially offset by an increase in office expenses of $33,446, and
an increase in depreciation expense included in selling, general and
administrative expenses of $26,956, in the current year as compared to the prior
year.
Other income and expense
Other income and expense, net, totalled $157,650 for the year ended December 31,
2021, compared to $406,613 for the year ended December 31, 2020, a decrease of
($248,963). Of the decrease, ($31,000) was due to a prior year gain on sale of
GlauCanna rights of $31,000 compared to $0 in the current year. In addition the
decrease was partially due to a decrease in interest income of ($22,342), an
increase in interest expense of ($27,097), a decrease in Paycheck Protection
Program Loan Forgiveness of ($365,226) and a decrease in EIDL grant income of
($10,000), partially offset by an increase in Gain (loss) on investment
securities of $15,978, an increase in Recovery (impairment) on investment in
accounts receivable of $161,866, due to a current year recovery of $22,718
compared to prior year impairment of ($139,148), and an increase in other income
of $28,839, in the current year as compared to the prior year.
Net results
The net result for the year ended December 31, 2021 was a net loss attributable
to Mentor of ($272,848) or ($0.012) per Mentor common share compared to a loss
attributable to Mentor of ($726,025) or ($0.032) per Mentor common share for the
year ended December 31, 2020. 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, ideally
with companies that are positive for operating revenue or have the potential to
become positive for operating revenue.
Changes in cash flows
At December 31, 2021, we had cash of $453,939 and working capital of $413,374.
Operating cash outflows during 2021 were ($215,671), inflows from investing
activities were $105,263, and inflows from financing activities were $58,173. We
are evaluating various options to raise additional funds, including loans. See
discussion of cash flow changes under the next section, Liquidity and Capital
Resources.
Liquidity and Capital Resources
Since our reorganization, we have raised capital through warrant holder exercise
of warrants to purchase shares of Common Stock. At December 31, 2021, we had
cash of $453,939 and working capital of $413,374. Operating cash outflows in the
year ended December 31, 2021 were ($215,671), including ($256,466) of net loss,
less non-cash forgiveness of PPP loans of ($86,593), less gain on equipment
disposal of ($86), less amortization of discount on our investment in account
receivable of ($65,657), less increase in accrued interest receivable of
($4,287), less gain on investment in securities of ($842), less gain on
long-term investments of ($175), less valuation gain on investment in
instalments receivable of ($22,718), less increase in operating assets of
($180,778), which is partially offset by non-cash depreciation and amortization
of $51,710, non-cash amortization of right of use assets of $147,092, bad debt
expense of $19,580, and an increase in operating liabilities of $183,549.
Net cash inflows in 2021 from investing activities were $105,263 including
proceeds from investment securities sold of $73,130, proceeds from sale of
property and equipment of $91,881 and proceeds from investment in accounts
receivable of $117,000, partially offset by purchase of investment securities of
($38,471), purchase of contractual interest in legal Recovery of Electrum
($15,137), purchases of property and equipment of ($62,665), and down payments
on right of use assets of ($60,475).
26
Net inflows from financing activities in 2021 were $58,173, including proceeds
from paycheck protection program loans of $76,593, proceeds from related party
notes of $200,000, offset by payments on long-term debt of ($90,640), and
payments on finance lease liability of ($127,780).
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. During the years ended December 31,
2021 and 2020, we experienced significant operating losses, liquidity
constraints, and negative cash flows from operations. If we are unable to make a
return on our investments to generate positive cash flow and cannot obtain
sufficient capital from non-portfolio-related sources to fund operations and pay
liabilities in a timely manner, we may have to cease our operations. Securing
additional sources of financing to enable us to continue investing in our target
markets will be difficult, and there is no assurance of our ability to secure
such financing. A failure to obtain additional financing and generate positive
cash flow from operations could prevent us from making expenditures that are
needed to pay current obligations, allow us to hire additional personnel, and
continue to seek out and invest in new companies. This leaves doubt as to our
ability to continue as a going concern.
We believe our existing available resources and opportunities will be sufficient
to satisfy our funding requirements for twelve months.
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%
(approximately 90,000) of the already outstanding Series D warrants to provide
for the court specified redemption mechanism for warrants not exercised timely
by the original holder or their estates. Company designees that applied during
the 30 days paid 10 cents per warrant to redeem the warrant and then exercised
the Series D warrant to purchase a share at the court specified formula of not
more than one-half of the closing bid price on the day preceding the 30-day
exercise period. In the Company's October 7, 2016 press release, Mentor stated
that the 1% redemptions which were formerly priced on a calendar month schedule
would subsequently be initiated and be priced on a random date schedule after
the prior 1% redemption is completed to prevent potential third-party
manipulation of share prices at month-end. The periodic partial redemptions may
continue, at the Company's discretion, to be recalculated and repeated until
such unexercised warrants are exhausted, or the partial redemption is otherwise
truncated by the Company.
There were no warrant redemptions in 2021 or 2020. We believe that such warrant
redemptions and exercises remain a potential funding source.
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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