The following discussion will assist in the understanding of our financial
position at March 31, 2022 and the results of operations for the three months
ended March 31, 2022 and 2021. 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 three months ended
March 31, 2022 and 2021 and our Annual Report on Form 10-K for the year ended
December 31, 2021.
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 which now includes energy, medical
products, manufacturing, cryptocurrency, real estate, and international projects
with the goal of ensuring increased market opportunities and investment
diversification.
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 three
months ended March 31, 2022 and 2021. 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, WCI began services in Dallas. 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 March 31,
2022 and December 31, 2021, respectively. At March 31, 2022 and December 31,
2021, 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 secured 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 March 31, 2022 and December 31, 2021, Mentor has provided
$196,666 and $196,666, 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 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 for the Capital Agreement 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 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
$194,027.78 plus an additional 19.4% of the Recovery. See Note 8 to the
condensed consolidated financial statements.
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 8 to the condensed consolidated financial statements.
Trial in the Electrum Litigation is currently scheduled to commence on October
3, 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 March 31, 2022 and December 31, 2021.
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 initially extended, interest
accrued through November 4, 2019, was remitted to Mentor. As consideration for
the initial 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 second 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 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 6.13% of the issued and
outstanding NeuCourt shares at March 31, 2022.
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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 was subsequently 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 March 31, 2022 and December 31, 2021.
Management considers collection on the leases to be unlikely, see Note 17 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 was 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 7 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 7 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, medical products, manufacturing,
cryptocurrency, real estate, and international projects with the goal of
ensuring increased market opportunities and investment diversification. 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 which now includes energy, medical
products, manufacturing, cryptocurrency, real estate, and international projects
with the goal of ensuring increased market opportunities and investment
diversification.
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 March 31, 2022, compared to Three Months Ended March 31, 2021
Revenues
Revenue for the three months ended March 31, 2022 was $1,848,898 compared to
$1,320,624 for the three months ended March 31, 2021 ("the prior year period"),
an increase of $528,274 or 40.0%. This increase is due primarily to a $530,127
increase in WCI service fees.
Gross profit
Gross profit for the three months ended March 31, 2022 was $699,883 compared to
$436,392 for the prior year period. Cost of goods sold relate to WCI and Partner
II. WCI experienced gross profit of $690,866 or 37.5% of revenue for the three
months ended March 31, 2021, compared to $425,521 or 32.5% for the prior year
period, an increase of $265,345 with an increase of 2.5% in gross profit as a
percentage of revenue. Partner II had gross profit of $9,017 for the three
months ended March 31, 2022 as compared to $10,871 in the prior year period.
Partner I did not have revenue for the three months ended March 31, 2022 and
2021.
The increase in WCI gross profit percentage was due largely to revenue
increasing at a higher rate (40.5%) than costs of goods sold (30.3%). Labor and
related costs increased by $177,942, or 31.6% over the prior year period.
Selling, general and administrative expenses
Our selling, general and administrative expenses for the three months ended
March 31, 2022 was $668,507 compared to $601,135 for the prior year period, an
increase of $67,312. We experienced an increase of $50,000 in management fees,
an increase of $15,995 in professional fees, and an increase of $19,777 in other
selling, general and administrative fees, partially offset by a decrease in
outside services of ($24,460) for the three months ended March 31, 2022 as
compared to the prior year period.
Other income and expense
Other income and expense, net, totaled ($18,866) for the three months ended
March 31, 2022 compared to $17,572 for the prior year period, a decrease of
($36,438). We experienced a decrease of ($5,599) in net gain or (loss) from
investments in securities, a ($41,930) loss from the modification of our
investment in receivable, a decrease of ($10,000) from a Paycheck Protection
Program loan forgiven in the prior period, a ($2,136) decrease in interest
income and a ($6,137) increase in interest expense, partially offset by a
$26,811 increase in gain on ROU asset disposal and a $2,553 increase in other
income (expense).
Net results
The net result for the three months ended March 31, 2022 was a net loss
attributable to Mentor of ($92,659) or ($0.004) per Mentor common share compared
to a net loss attributable to Mentor in the prior year period of ($146,923) or
($0.006) 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.
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Liquidity and Capital Resources
Since our reorganization, we have raised capital through warrant holder exercise
of warrants to purchase shares of Common Stock. At March 31, 2022 we had cash
and cash equivalents of $490,648 and working capital of $575,333.
Operating cash outflows in the three months ended March 31, 2022 was $101,548,
including ($1,060) of net loss, $15,890 non-cash depreciation and amortization,
$36,656 non-cash amortization on right of use assets, $41,930 non-cash loss on
modification of investment in installment receivable, a $51,648 increase in
operating liabilities, and gains on investments of $750, partially offset by
($26,168) non-cash gain on ROU asset disposal, ($13,470) non-cash amortization
of discount on our investment in account receivable, less an increase in accrued
interest income of ($878), and an increase in operating assets of ($3,750).
Cash outflows from investing activities in the three months ended March 31, 2022
were ($9,602) due to purchase of property and equipment of ($5,422), down
payments on right of use assets of ($4,280), offset by $100 proceeds from
investment in receivable.
Net outflows from financing activities during the three months ended March 31,
2022 were ($55,237) consisting of payment on related party payable of ($21,950),
payments on long-term debt of ($5,294), and payments on finance lease
liabilities of ($42,339), partially offset by proceeds from warrants exercised
to purchase shares of common stock of $14,346.
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.
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 three months ended March 31, 2022, there were no redemptions of Series D
Warrants. There were no redemptions of Series D Warrants in 2021. 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. 
