The following discussion will assist in the understanding of our financial
position at June 30, 2022 and the results of operations for the six months ended
June 30, 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 six months ended June 30, 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. Since late 2019, the
Company has expanded its target industry focus which now includes energy,
medical products, manufacturing, cryptocurrency, consumer products, and
management services with the goal of ensuring increased market opportunities.
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 six
months ended June 30, 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 June 30,
2022 and December 31, 2021, respectively. At June 30, 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 June 30, 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 increase 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 9 to the
condensed consolidated financial statements.
The Company is entitled to receive 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 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 a 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 and MCIP continue their
efforts to license or sell their exclusive patent rights in the United States
and Canada for THC and CBD cannabis vape pens for various THC and CBD percentage
ranges and concentrations. 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 June 30, 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 on 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 June 13, 2022, the Company
sold $2,160.80 in note principal to a third party, thereby reducing the
principal face value of the note to $47,839.
Subsequent to quarter end, on July 15, 2022, the Company and NeuCourt entered
into an Exchange Agreement by which Mentor exchanged the principal amount and
all accrued unpaid interest on the convertible notes for a Simple Agreement for
Future Equity equal to the same, accumulated amount.
Subsequent to quarter end, on July 22, 2022, NeuCourt purchased $989 of the SAFE
Purchase Amount from the Company. On August 1, 2022, the Company sold an
additional $1,285 of the SAFE to a third party.
On December 21, 2018, the Company purchased 500,000 shares of NeuCourt Common
Stock for $10,000. This represents approximately 4.41% of the issued and
outstanding NeuCourt shares at June 30, 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 June 30, 2022 and December 31, 2021.
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 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 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 is 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, consumer products and management services with the goal of
ensuring increased market opportunities. 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 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, our cannabis
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. Since late 2019, Mentor has expanded
its target industry focus which now includes energy, medical products,
manufacturing, cryptocurrency, consumer products, and management services, with
the goal of ensuring increased market opportunities.
Liquidity and Capital Resources
The Company's future success depends upon its ability to make a return on its
investments, generate positive cash flow, and 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 June 30, 2022, compared to Three Months Ended June 30, 2021
Revenues
Revenue for the three months ended June 30, 2022 was $1,868,619 compared to
$1,372,638 for the three months ended June 30, 2021 ("the prior year period"),
an increase of $495,981 or 36.1%. This increase is due primarily to a $497,837
increase in WCI service fees.
Gross profit
Gross profit for the three months ended June 30, 2022 was $583,969 compared to
$378,636 for the prior year period. Cost of goods sold relate to WCI. WCI
experienced gross profit of $581,930 or 31.3% of revenue for the three months
ended June 30, 2022, compared to $368,306 or 31.8% for the prior year period, an
increase of $213,624 with a decrease of (0.5%) in gross profit as a percentage
of revenue. Partner II had gross profit of $8,473 for the three months ended
June 30, 2022 as compared to $10,330 in the prior year period. Partner I did not
have revenue for the three months ended June 30, 2022 and 2021.
The decrease in WCI gross profit percentage was due to an increase in gas costs
of 2.4%, partially offset by a decrease of (1.9%) in other cost of goods sold as
a percentage of revenue in the current year period.
Selling, general and administrative expenses
Our selling, general and administrative expenses for the three months ended June
30, 2022 was $1,247,730 compared to $685,926 for the prior year period, an
increase of $561,804. We experienced an increase of $252,500 in management fees,
an increase of $331,054 in professional fees, an increase in a reserve for bad
debt expense of $62,000 related to sales taxes receivable from customers, and
increase in other selling, general and administrative expenses of $103,994,
partially offset by a decrease in salaries of ($27,459), a decrease in reserve
for bad debt associated with trade accounts receivables of ($20,000), and a
decrease in outside services of ($16,163) for the three months ended June 30,
2022 as compared to the prior year period.
Other income and expense
Other income and expense, net, totaled $1,377,103 for the three months ended
June 30, 2022 compared to ($5,768) for the prior year period, an increase of
$1,382,871. The increase is primarily from an employee retention tax credit of
$1,350,161 reported by WCI. In addition, there was an increase of $12,352 on
gain (loss) on investments, and an increase of $28,213 on gain on equipment
disposals, partially offset by a reduction of ($2,854) in interest income, an
increase of ($4,448) in interest expense, and a decrease of ($553) in other
income (expense).
Net results
The net result for the three months ended June 30, 2022 was net income
attributable to Mentor of $307,507 or $0.013 per Mentor common share compared to
a net loss attributable to Mentor in the prior year period of ($216,620) or
($0.009) 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.
Six months Ended June 30, 2022, compared to Six months Ended June 30, 2021
Revenues
Revenue for the six months ended June 30, 2022 was $3,717,518 compared to
$2,693,262 for the six months ended June 30, 2021 ("the prior year period"), an
increase of $1,024,256 or 38.0%. This increase is due to a $1,027,965 increase
in WCI service fees, partially offset by a ($3,709) 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 six months ended June 30, 2022 was $1,283,852 compared to
$815,027 for the prior year period. Cost of goods sold relates to WCI. WCI
experienced gross profit of $1,279,231 or 34.6% of revenue for the six months
ended June 30, 2022, compared to $797,853 or 29.9% for the prior year period, an
increase of $481,378 with an increase of 4.7% as a percentage of revenue.
Partner II had gross profit of $17,491for the six months ended June 30, 2022 as
compared to $21,200.
The increase in WCI gross profit percentage was due to implementing a customer
price increase. Because of this, revenue rose more than costs as a percentage of
revenue. Salaries and related costs decreased by (3.99%), and disposal costs
decreased by (2.74%), offset by an increase in gas costs of 2.01% as a
percentage of WCI revenue in the prior year period.
Selling, general and administrative expenses
Our selling, general and administrative expenses for the six months ended June
30, 2022 were $1,916,237 compared to $1,287,062 for the prior year period, an
increase of $629,175. We recorded a $62,000 allowance on customer sales taxes
receivable, which was partially offset by a decrease of ($20,000) in our
allowance for customer trade receivables. We also experienced an increase of
$302,500 in management fees, and an increase in professional fees of $347,049,
partially offset by a decrease of ($24,004) in salaries and related costs, a
decrease of ($17,374) in auto lease expense, and a ($20,996) decrease in other
selling, general and administrative costs for the six months ended June 30, 2022
as compared to the prior year period.
Other income and expense
Other income and expense, net, totaled $1,358,237 for the six months ended June
30, 2022 compared to $108,490 for the prior year period, an increase of
$1,346,431. Of the increase, $1,350,161 is due to an employee retention tax
credit, $55,023 is due to increased gain on equipment disposals, and $499 is due
to an increase in other income, partially offset by a ($33,677) decrease in gain
(loss) on investments, a ($4,991) decrease in interest income, a ($10,584)
increase in interest expense, and a decrease of ($10,000) related to prior year
PPP Loan forgiveness that was not experienced in the current year period.
Net results
The net result for the six months ended June 30, 2022 was net income
attributable to Mentor of $214,848 or $0.009 per Mentor common share compared to
a net loss attributable to Mentor in the prior year period of ($363,544) or
($0.016) 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 June 30, 2022 we had cash and
cash equivalents of $597,381 and working capital of $1,231,011.
Operating cash inflows in the six months ended June 30, 2022 was $217,239,
including $678,962 of net income, increased by non-cash depreciation and
amortization of $33,640, non-cash amortization on right of use assets of
$87,708, non-cash bad debt expense of $42,000, a decrease in accrued interest of
$1,250, unrealized losses on investments of $43,251, and an increase in
operating liabilities of $641,477, partially offset by a gain on disposal of
assets of ($26,168), non-cash amortization of discount on investment in account
receivable of ($25,838) and an increase in operating assets of ($1,259,043).
Cash outflows from investing activities in the six months ended June 30, 2022
were ($18,430) due to purchase of property and equipment of ($5,422) and down
payments on right of use assets of ($13,408), partially offset by proceeds from
investment in receivable of $400.
Net outflows from financing activities during the six months ended June 30, 2022
were ($55,367) consisting of payment on related party payable of ($21,950),
payments on long-term debt of ($12,633) and payments on finance lease liability
of ($85,130), partially offset by proceeds from related party loan of $50,000,
and proceeds of $14,346 from warrants converted to common stock.
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 six months ended June 30, 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. 
