The following discussion will assist in the understanding of our financial
position at September 30, 2022 and the results of operations for the nine months
ended September 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 nine months ended
September 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. The Company has since
expanded its target industry focus which now includes energy, manufacturing, 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 nine
months ended September 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 September
30, 2022 and December 31, 2021, respectively. At September 30, 2022 and December
31, 2021, the Company had approximately 6.69% and 6.69% interest of Electrum's
outstanding equity, respectively.
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, in the Supreme Court of British Columbia
("Litigation"). As of September 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").
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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.
On or about September 14, 2022, Electrum and Aurora Cannabis, Inc. settled the
Litigation claims and Electrum received CAD $800,000, or approximately USD
$584,000, in settlement funds from Aurora Cannabis, Inc. ("Settlement Funds"),
which have been placed in escrow. Pursuant to an escrow agreement entered into
by and between Electrum, Mentor, and the escrow agent, Mentor was to be paid
amounts due and owing to it under the Capital Agreements and Recovery Purchase
Agreements from the Settlement Funds before any remaining amounts are to be
distributed to Electrum. To date, such payment has not been received. On or
about September 20, 2022, the escrow agent resigned and Electrum has refused to
agree to a successor escrow agent in accordance with the terms of the escrow
agreement.
Subsequent to quarter end, on October 21, 2022, the Company filed suit against
the escrow agent, Electrum, and Does 1 through 10, seeking declaratory relief
from the California Superior Court in the County of San Mateo that the escrow
agent shall either distribute the Settlement Funds or transfer the Settlement
Funds to the successor escrow agent, all in accordance with the escrow
agreement. See Note 20 to the condensed 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 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 September 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.
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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.
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 ("SAFE") equal to
the same, accumulated amount. The SAFE will be reported at cost.
On July 22, 2022, the Company sold $989 of the SAFE Purchase Amount to a third
party. On August 1, 2022, the Company sold an additional $1,285 of the SAFE
Purchase Amount to a third party.
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 September 30, 2022.
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 September 30, 2022 and December 31, 2021.
Management considers collection on the leases to be unlikely, see Note 18 to the
condensed consolidated financial statements.
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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. On
September 27, 2022, Pueblo West exercised its lease prepayment option and
purchased the manufacturing equipment for $245,369.35. On September 28, 2022
Partner II transferred full title to the equipment to Pueblo West. See Note 8 to
the condensed consolidated financial statements.
Overview
The Company expanded its target industry focus from its investment in WCI and
investments in the medical marijuana and social use cannabis sector to include
energy, manufacturing, 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 legacy
cannabis segment that we are seeking to divest 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.
Mentor has expanded its target industry focus which now includes energy,
manufacturing, 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 September 30, 2022, compared to Three Months Ended September
30, 2021
Revenues
Revenue for the three months ended September 30, 2022 was $1,930299 compared to
$1,492,624 for the three months ended September 30, 2021 ("the prior year
period"), an increase of $437,675 or 29.3%. This increase is due to a $427,482
increase in WCI service fees and a $10,193 increase in Partner II finance lease
revenue.
Gross profit
Gross profit for the three months ended September 30, 2022 was $439,587 compared
to $488,584 for the prior year period. Cost of goods sold relate to WCI. WCI
experienced gross profit of $466,981 or 24.5% of revenue for the three months
ended September 30, 2022, compared to $478,609 or 32.3% for the prior year
period, a decrease of ($11,628) with a decrease of (7.83%) in gross profit as a
percentage of revenue. Partner II had gross profit of $20,168 for the three
months ended September 30, 2022 as compared to $9,975 in the prior year period.
Partner I did not have revenue for the three months ended September 30, 2022 and
2021.
The decrease in WCI gross profit percentage was due to an increase in gas costs
of 2.5%, an increase in salary and related costs of 2.6%, an increase in
disposal costs of 2.0% and an increase in other cost of goods sold of 0.7% as a
percentage of revenue in the current year period.
The increase in Partner II gross profit over the prior year period was due to
the recognition of deferred revenue upon Pueblo West's exercise of lease
prepayment option and purchase of the manufacturing equipment leased from
Partner II.
Selling, general and administrative expenses
Our selling, general and administrative expenses for the three months ended
September 30, 2022 was $861,628 compared to $402,257 for the prior year period,
an increase of $459,371. We experienced an increase of $420,000 in management
fees, an increase of $17,351 in professional fees, an increase of $11,022 in
phone costs, and increase in other selling, general and administrative expenses
of $10,998, for the three months ended September 30, 2022 as compared to the
prior year period.
Other income and expense
Other income and expense, net, totaled $49,322 for the three months ended
September 30, 2022 compared to $489 for the prior year period, an increase of
$48,834. The increase is primarily from other income of $56,128, an increase on
gain (loss) on investments of $3,017, and an increase in gain (loss) on
equipment disposals of $671, partially offset by a decrease in interest income
of ($2,427), and an increase in interest expense of ($3,569) .
Net results
The net result for the three months ended September 30, 2022 was net loss
attributable to Mentor of (238,824) or ($0.010) per Mentor common share compared
to a net loss attributable to Mentor in the prior year period of ($3,390) or
($0.000) 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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Nine months Ended September 30, 2022, compared to Nine months Ended September
30, 2021
Revenues
Revenue for the nine months ended September 30, 2022 was $5,647,817 compared to
$4,185,887 for the nine months ended September 30, 2021 ("the prior year
period"), an increase of $1,461,930 or 34.9%. This increase is due to a
$1,455,447 increase in WCI service fees, and a $6,483 increase in finance lease
revenue in the current period as compared to the prior year period.
Gross profit
Gross profit for the nine months ended September 30, 2022 was $1,723,437
compared to $1,303,612 for the prior year period. Cost of goods sold relates to
WCI. WCI experienced gross profit of $1,746,212 or 31.1% of revenue for the nine
months ended September 30, 2022, compared to $1,276,462 or 30.7% for the prior
year period, an increase of $469,750 with an increase of 0.4% as a percentage of
revenue. Partner II had gross profit of $37,659 for the nine months ended
September 30, 2022 as compared to $31,176 for the prior year period, an increase
of $6,482.
Although WCI implemented a price increase to customers in January 2022, the
costs of sales increased as well, resulting in a small decrease to WCI gross
profit percentage of (0.4%). The decrease in WCI cost of sales was due to a
decrease in salary and related costs of (1.7%), and a decrease in disposal costs
of (1.1%), partially offset by an increase in gas costs of 2.2% and an increase
in other cost of sales of 0.2% as a percentage of WCI revenue in the prior year
period.
Selling, general and administrative expenses
Our selling, general and administrative expenses for the nine months ended
September 30, 2022 were $2,777,865 compared to $1,689,317 for the prior year
period, an increase of $1,088,546. We recorded a $73,000 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
$722,500 in management fees, an increase in professional fees of $364,400, and
an increase in other selling, general and administrative costs of $4,571,
partially offset by a decrease of ($15,529) in salaries and related costs, and a
decrease of ($40,396) in outside services, for the nine months ended September
30, 2022 as compared to the prior year period.
Other income and expense
Other income and expense, net, totaled $1,407,561 for the nine months ended
September 30, 2022 compared to $12,293 for the prior year period, an increase of
$1,395,268. Of the increase, $1,350,161 is due to an employee retention tax
credit, $55,694 is due to increased gain on equipment disposals, and $53,597 is
due to an increase in other income, partially offset by a ($31,660) decrease in
gain (loss) on investments, a ($8,371) decrease in interest income, a ($14,153)
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 nine months ended September 30, 2022 was net loss
attributable to Mentor of ($23,976) or ($0.001) per Mentor common share compared
to a net loss attributable to Mentor in the prior year period of ($366,934) 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 September 30, 2022 we had
cash and cash equivalents of $1,437,318 and working capital of $994,411.
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Operating cash inflows in the nine months ended September 30, 2022 was
$1,160,594, including $305,443 of net income, increased by non-cash depreciation
and amortization of $51,847, non-cash amortization on right of use assets of
$147,419, non-cash bad debt expense of $53,000, a decrease in accrued interest
of $86,325, losses on investments of $751, a decrease in operating assets of
$10,148, and an increase in operating liabilities of $619,909, partially offset
by a gain on disposal of assets of ($26,168), non-cash amortization of discount
on investment in account receivable of ($38,754), gain on long-term investments
of ($41,326), and an increase in deposits of ($8,000).
Cash outflows from investing activities in the nine months ended September 30,
2022 were ($66,708) due to purchase of property and equipment of ($24,733) and
down payments on right of use assets of ($42,675), partially offset by proceeds
from investment in receivable of 700.
Net outflows from financing activities during the nine months ended September
30, 2022 were ($110,507) consisting of payment on related party payable of
($21,950), payments on long-term debt of ($21,085) and payments on finance lease
liability of ($131,818), 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.
In addition, on February 9, 2015, in accordance with Section 1145 of the United
States Bankruptcy Code and the Company's court-approved Plan of Reorganization,
the Company announced a minimum 30 day partial redemption of up to 1% of the
already outstanding Series D warrants to provide for the court specified
redemption mechanism for warrants not exercised timely by the original holder or
their estates. Company designees that applied during the 30 days paid 10 cents
per warrant to redeem the warrant and then exercised the Series D warrant to
purchase a share at the court specified formula of not more than one-half of the
closing bid price on the day preceding the 30 day exercise period. In the
Company's October 7, 2016 press release, Mentor stated that the 1% redemptions
which were formerly priced on a calendar month schedule would subsequently be
initiated and be priced on a random date to be scheduled after the prior 1%
redemption is completed to prevent potential third party manipulation of share
prices at month-end. The periodic partial redemptions may continue to be
recalculated and repeated until such unexercised warrants are exhausted, or the
partial redemption is otherwise temporarily paused, suspended, or truncated by
the Company.
For the nine months ended September 30, 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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