UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2022
☐TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission
file number 000-55323
Mentor Capital, Inc.
(Exact name of registrant as specified in its charter)
(Address of principal executive offices) (Zip Code)
Registrant’s
telephone number, including area code (760) 788-4700
Securities
registered pursuant to Section 12(b) of the Act: N/A
Securities
registered pursuant to section 12(g) of the Act:
Common Stock
(Title of class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
☐ No ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
☐ No ☒
Note
– Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange
Act from their obligations under those Sections.
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes
☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Yes
☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒
Smaller reporting Company ☒ Emerging growth company ☒
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
Yes
☐ No ☒
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.
Yes
☐ No ☒
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
Yes
☐ No ☒
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐ No ☒
At
June 30, 2022, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value
of Common Shares held by non-affiliates of Mentor Capital, Inc. (based upon the closing sale price of such shares on OTCQB) was $917,654.
Shares of Common Stock held by each officer and director and each person who owns more than 10% or more of the outstanding Common Stock
have been excluded because these persons may be deemed to be affiliates. The determination of affiliate status for the purpose of this
calculation is not necessarily a conclusive determination for other purposes.
At
March 27, 2023, there were 22,941,357 shares of Mentor Capital, Inc.’s Common Stock outstanding and 11 shares of Series Q Preferred
Stock outstanding.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
report contains “forward-looking statements,” as defined in the United States Private Securities Litigation Reform Act of
1995 and Section 21E of the Securities and Exchange Act 1934, as amended. All statements contained in this report other than statements
of historical fact, including statements regarding our future results of operations and financial position, our business strategy and
plans, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,”
“will,” “estimate,” “continue,” “anticipate,” “seek,” “look,”
“hope,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements.
We have based these forward-looking statements largely on our current expectations and projections about future events and trends that
we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations
and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions.
For example, statements in this Form 10-K regarding the potential future impact of inflation, interest rate increases, tax increases,
recession, climate regulation, the COVID-19 outbreak, economic sanctions, cybersecurity risks, and the outbreak of war in Ukraine on
the Company’s business and results of operations are forward-looking statements. These risks and uncertainties include, but are
not limited to, those described in “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Critical Accounting Policies – Impact Related to COVID-19 and Global Economic
Factors:” Moreover, due to our past investments in the cannabis-related industry or other industries, we may be subject to heightened
scrutiny and, as a result, our portfolio companies may be subject to additional laws, rules, regulations, and statutes. It is not possible
for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor,
or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may
make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Form 10-K may not occur
and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You
should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking
statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable,
we cannot guarantee future results, levels of activity, performance, or achievements. The Company assumes no obligation to revise or
update any forward-looking statements for any reason, except as required by law.
All
references in this Form 10-K to the “Company,” “Mentor,” “we,” “us,” or “our,”
are to Mentor Capital, Inc.
MENTOR
CAPITAL, INC.
TABLE
OF CONTENTS
Page
PART I
Item 1. Business. 4
Item 1A. Risk Factors. 9
Item IB. Unresolved Staff Comments. 15
Item 2. Properties. 15
Item 3. Legal Proceedings. 15
Item 4. Mines and Safety Disclosures. 16
PART II
Item 6. Reserved 17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 29
Item 8. Financial Statements and Supplementary Data. 30
Item 9A. Controls and Procedures. 30
Item 9B. Other Information. 31
PART III
Item 10. Directors, Executive Officers and Corporate Governance. 32
Item 11. Executive Compensation. 36
Item 14. Principal Accounting Fees and Services. 39
PART IV
Item 15. Exhibits, Financial Statement Schedules. 40
SIGNATURES 41
PART
I
Item
1. Business.
Corporate
History and Background
Mentor
Capital, Inc. (“Mentor” or “the Company”), which reincorporated under the laws of the State of Delaware in September
2015, was founded as an investment partnership in Silicon Valley, California by the current CEO in 1985. The Company was originally incorporated
under the laws of the State of California in 1994 as Main Street Athletic Clubs, Inc. and operated a small chain of athletic clubs, a
trucking company, and food companies, among other things. On September 12, 1996, our Offering Statement was qualified pursuant to Regulation
A under Section 3(b) of the Securities Act of 1933 and on March 12, 1997 we began to trade publicly. In 1997, the Company changed its
name to Main Street AC, Inc. and merged with a group of approximately fifteen oil and gas partnerships which proved to be unsuccessful.
In 1998 we entered a Chapter 11 bankruptcy reorganization in the Northern District of California due to a need to decrease oil and gas
related debt in excess of asset value.
As
we emerged from bankruptcy, the court allowed the original issuance of approximately $145 Million in warrants to the Company’s
claimants and creditors. The warrants were in (4) four classes, have been reset to lower prices, and have been principally exercised
at $0.09, $0.11, $0.65, $1.00, $1.60, and $7.00 per share. The outstanding Series D warrants are exercisable at $1.60 per share, at which
price we may receive as much as $10 Million in warrant proceeds. The amount of proceeds received from exercised warrants may be limited
by the general status of the economy and the price per share of our regular shares of Common Stock. Warrant holders are more likely to
exercise warrants at $1.60 per warrant share if the shares of our Common Stock are priced above $1.60 per share. The longer the Company’s
Common Stock share price is above $1.60, the more likely warrant holders will be willing to exercise their warrants. If the Common Stock
share price is less than $1.60 for a long period of time, the Company may also decide to lower the exercise price of outstanding warrants
to entice warrant holders to exercise their warrants and invest in the Company. The amount of potential funds received by the Company
from such exercises will decrease as the warrant exercise price decreases.
On
February 9, 2015, in accordance with Section 1145 of the United States Bankruptcy Code and the Company’s Third Amended Plan of
Reorganization (“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 of the Company’s Common Stock 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 successive months, the authorized partial warrant redemption
amount was recalculated, and the redemption offer repeated according to the court formula. 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 priced on a random date schedule after the prior 1% redemption was completed to prevent potential third-party manipulation of share
prices at month-end. The periodic partial redemptions could continue to be recalculated and repeated until such unexercised warrants
are exhausted, or the partial redemption is otherwise paused or truncated by the Company. For the years ended December 31, 2022 and 2021,
no warrants were redeemed.
The
Bankruptcy Court approved Plan of Reorganization allows all the warrants and shares that are issued upon exercise of the warrants to
trade freely under an exemption provided by Section 1145 of the United States Bankruptcy Code. We received an SEC “No Comment”
letter and our Plan of Reorganization was confirmed January 11, 2000. The SEC’s letter is not and should not be interpreted as
approval of the Company’s Disclosure Statement or Plan of Reorganization.
Recent
Developments
Currently,
our general business operations are intended to provide management consultation and headquarters functions, especially with regard to
accounting and audits, for our majority-owned subsidiaries, which makes up most of our holdings. We monitor our less than majority positions
for value and investment security. Management also spends considerable effort reviewing possible acquisition candidates on an ongoing
basis.
In
2009, the Company began focusing its investing activities in leading-edge cancer companies. In early 2013, 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. On August 29, 2013, the Company began to divest of its cancer assets and focus future
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 for investment.
Electrum
Partners, LLC
On
November 18, 2022, following the filing of a declaratory relief action, Mentor received $459,990 from Electrum Partners, LLC (“Electrum”)
in consolidated settlement of one equity, one recovery purchase, and two secured capital agreements, which were accounted for as set
forth hereinbelow. Prior to the settlement, the Company had an equity interest in Electrum which was carried at cost of $194,028 at September
30, 2022 and $194,028 at December 31, 2021, respectively. On November 18, 2022, Electrum repaid $63,324 to the Company pursuant to a
certain November 14, 2022 Settlement Agreement and Mutual Release, following the Company’s October 21, 2022 lawsuit against Electrum
and the escrow agent in the County of San Mateo. The Company had 0 and 6,198 Electrum membership interest units and a 0% and 6.69% equity
interest in Electrum at December 31, 2022 and 2021, 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, in the Supreme
Court of British Columbia (“Litigation”). As of September 30, 2022, and December 31, 2021, Mentor had 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 was to receive 19% of anything of value received by Electrum as a result of the Litigation (“Recovery”).
On November 18, 2022, Electrum repaid $196,666 to the Company pursuant to a certain November 14, 2022 Settlement Agreement and Mutual
Release, following the filing of the Company’s October 21, 2022 lawsuit against Electrum and the escrow agent in the County of
San Mateo.
On
October 31, 2018, Mentor entered into a secured Capital Agreement with Electrum and invested an additional $100,000 in Electrum. Under
the Capital Agreement, on the payment date, Electrum will pay Mentor the sum of (i) $100,000, (ii) ten percent (10%) of the Recovery,
and (iii) 0.083334% of the Recovery for each full month from October 31, 2018 to the payment date for each full month that $833 is not
paid to Mentor. The payment date for the Capital Agreement was 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 increasing the monthly payment payable by Electrum to $834. On November 18, 2022, Electrum repaid $100,000 to the Company
pursuant to a certain November 14, 2022 Settlement Agreement and Mutual Release, following the filing of the Company’s October
21, 2022 lawsuit against Electrum and the escrow agent in the County of San Mateo.
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 $194,028 plus an additional 19.4% of the Recovery. Under the Security
Agreement, all liabilities and investments owed to Mentor from Electrum were secured by all of the tangible and intangible assets of
Electrum. On November 18, 2022, Electrum repaid $100,000 to the Company pursuant to a certain November 14, 2022 Settlement Agreement
and Mutual Release, following the filing of the Company’s October 21, 2022 lawsuit against Electrum and the escrow agent in the
County of San Mateo. See Note 10 to the consolidated financial statements.
Mentor
IP, LLC
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 continued its efforts to obtain
exclusive licensing rights in the United States for THC and CBD vape pens for various THC and CBD percentage ranges and concentrations.
Activity in has been limited to payment of patent application 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 there were no
assets related to MCIP patents represented on the consolidated financial statements at December 31, 2022 and 2021.
NeuCourt,
Inc.
On
November 22, 2017, the Company invested $25,000 in NeuCourt, Inc. (“NeuCourt”) as a convertible note receivable. The note
bore interest at 5% per annum, originally matured November 22, 2019, and was amended on November 7, 2019 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 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 could have been 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 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, thereby reducing the aggregate outstanding SAFE Purchase Amount to $83,756. See
Note 7.
Subsequent
to year end, on January 20, 2023, the Company and NeuCourt entered into a SAFE Purchase Agreement by which the Company invested an additional
$10,000 in the form of a NeuCourt Simple Agreement for Future Equity under the same terms as the previous July 15, 2022 SAFE Purchase
Agreement between NeuCourt and the Company. See Note 23.
On
December 21, 2018, the Company purchased 500,000 shares of NeuCourt Common Stock for $10,000. This represents approximately 6.127% of
the issued and outstanding NeuCourt shares at December 31, 2022. NeuCourt is a Delaware corporation that is developing a technology that
is expected to be useful to the dispute resolution industry.
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 that had planned operations in California under two temporary licenses 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. Subsequent to the initial investment, the Company executed eight addenda. Addendum II through Addendum
VIII increased the aggregate principal face amount of the two notes to $1,100,000 and increased the combined monthly payments on the
notes to $10,239 per month beginning March 15, 2019 with a balloon payment on the notes of approximately $894,172 due at maturity. G
Farma had not made scheduled payments on the notes receivable since February 19, 2019 and the notes were fully reserved at December 31,
2022 and 2021. See Note 8 to the consolidated financial statements.
On
March 14, 2019, the Company was notified by G Farma that, on February 22, 2019, the City of Corona Building Department closed access
to G Farma’s corporate location and posted a notice preventing entry to the facility. The notice cited unpermitted modifications
to electrical, mechanical, and plumbing, including all undetermined building modifications, as the reason for the closure.
On
April 24, 2019, the Company was informed that certain G Farma assets at G Farma’s corporate location, including equipment leased
to G Farma by Mentor Partner I, LLC valued at approximately $427,804, were impounded by the City of Corona on or around February 22,
2019. This event significantly impacted G Farma’s financial position and its ability to make payments under the finance leases
receivable and notes receivable due to the Company. See Note 9 to the consolidated financial statements. G Farma has not made scheduled
payments on the finance lease receivable or the notes receivable since February 19, 2019, and Company management feels it is unlikely
we will recover the full amounts due us.
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 of $803,399 and $803,399 is fully impaired at December 31, 2022 and 2021, respectively.
See Note 9 to the consolidated financial statements.
In
2019, we fully impaired G Farma notes receivable of $1,045,051, accrued interest of $28,680, and our investment in the G Farma contractual
interest in legal recovery of $600,002. The Company’s equity investment in G Farma Entities, previously valued at $41,600, was
also impaired and reduced to $0. At December 31, 2022 and 2021, these investments remain fully impaired.
On
May 28, 2019, Mentor Capital, Inc. and Mentor Partner I, LLC filed a complaint against the G Farma Entities and three guarantors to the
G Farma agreements, described herein and in Note 20, in the Superior Court of California in the County of Marin. The Company was primarily
seeking monetary damages for breach of the G Farma agreements, including promissory notes, leases, and other agreements, as well as actions
for an injunction to recover leased property, to recover collateral under a security agreement, and to collect from guarantors on the
agreements, among other things.
On
January 22, 2020, the Court granted the Company’s motion for writ of possession and preliminary injunction prohibiting defendants
from retaining control of or selling leased property. On January 31, 2020, all remaining equipment leased to G Farma by Mentor Partner
I which was not impounded by the Corona Police was repossessed by the Company and moved to storage under the Company’s control.
All repossessed equipment was sold in 2020; see Note 9 to the consolidated financial statements.
On
July 2, 2020, Mentor Capital, Inc. and Mentor Partner I, LLC filed a motion for summary adjudication seeking judgment on four of its
sixteen causes of action related to breach of the Promissory Notes and the related guarantees. On November 4, 2020, the Court granted
Mentor Capital, Inc.’s and Mentor Partner I’s motion for summary adjudication as to all four causes of action: both causes
of action against G FarmaLabs Limited for breach of the two promissory notes totaling $1,166,570.62 and one cause of action against each
of Mr. Gonzalez and Ms. Gonzalez related to their duties as guarantors of G FarmaLabs Limited’s obligations under the promissory
notes.
On
August 27, 2021, the Company and Mentor Partner I entered into a Settlement Agreement and Mutual Release with the G Farma Entities and
guarantors (“G Farma Settlors”) to resolve and settle all outstanding claims (“Settlement Agreement”). The Settlement
Agreement requires the G Farma Settlors to pay the Company an aggregate of $500,000 plus interest, payable monthly as follows: (i) $500
per month for 12 months beginning on September 5, 2021, (ii) $1,000 per month for 12 months beginning September 5, 2022, (iii) $2,000
per month for 12 months beginning September 5, 2023, and (iv) increasing by an additional $1,000 per month on each succeeding September
5th thereafter, until the settlement amount and accrued unpaid interest are paid in full. Interest on the unpaid balance shall initially
accrue at the rate of 4.25% per annum, commencing February 25, 2021, compounded monthly, and shall be adjusted on February 25th of each
year to equal the Prime Rate as published in the Wall Street Journal plus 1%. In the event that the G Farma Settlors fail to make any
monthly payment and have on two occasions not cured such default within 10 days of notice from the Company, the parties have stipulated
that an additional $2,000,000 should be added to the amount payable by the G Farma Settlors.
On
October 12, 2021, the parties filed a Stipulation for Dismissal and Continued Jurisdiction with the Superior Court of California in the
County of Marin. The Court ordered that it retain jurisdiction over the parties under Section 664.6 of the California Code of Civil Procedure
to enforce the Settlement Agreement until the performance in full of its terms is met.
In August 2022, September 2022, and October 2022,
the G Farma Settlors failed to make monthly payments, and failed to cure each default within 10 days’ notice from Company pursuant
to the Settlement Agreement. As a result, $2,000,000 should be added to the amount payable by the G Farma Settlors in accordance with
the terms of the Settlement Agreement. The Company is requesting that the stipulated judgment be entered against the G Farma Settlors
for (1) the remaining amount of the $500,000 settlement amount which has not yet been paid by the G Farma Settlors plus $2,000,000 and
all accrued unpaid interest, (2) the Company’s incurred costs, and (3) attorneys’ fees paid by the Company to obtain the judgment.
The
Company has retained the full reserve on unpaid notes receivable balance due to the long history of uncertain payments from G Farma.
Payments from G Farma will be recognized in Other Income as they are received. Recovery payments of $3,550 and $2,000 are included in
other income in the consolidated financial statements for the year ended December 31, 2022 and 2021, respectively. Payments received
are treated as recovery of bad debt and reported as other income in the consolidated income statements, see Notes 8 and 9. We will continue
to pursue collection from the G Farma Settlors over time.
Mentor
Partner I, LLC
Mentor
Partner I, LLC (“Partner I”) was reorganized under the laws of the State of Texas in February 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 acquisition and investment. On September 25, 2020, a limited liability company named Mentor
Partner I, LLC (“Partner I Texas”) was organized under the laws of the State of Texas. A member-approved merger between Partner
I and Partner I Texas was approved by the California and Texas Secretaries of State, and became effective February 17, 2021, with Partner
I Texas as the surviving entity. 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. Partner I acquired and delivered manufacturing equipment as selected by G Farma Entities under sales-type
finance leases. During the years ended December 31, 2022 and 2021, Mentor withdrew capital of $0 and $52,800, respectively, from Partner
I. Partner I did not have any sales revenue for the years ended December 31, 2022 or 2021. Interest income recognized from Partner I
finance leases for the years ended December 31, 2022 and 2021, was $0 and $0, respectively. The finance leases resulting from this investment
have been fully impaired as of December 31, 2022 and 2021, due to circumstances described in Note 9 to the consolidated financial statements.
Mentor
Partner II, LLC
Mentor
Partner II, LLC (“Partner II”) was reorganized under the laws of the State of Texas in February 2021. The entity was originally
organized as a limited liability 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 investing and acquisition. On September 25, 2020, a limited liability company named Mentor Partner
II, LLC (“Partner II Texas”) was organized under the laws of the State of Texas. A merger between Partner II and Partner
II Texas was approved by the California and Texas Secretaries of State, and became effective February 17, 2021, with Partner II Texas
as the surviving entity. 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 Organics, LLC (“Pueblo”), under a Master Equipment Lease Agreement, dated February
11, 2018. On March 12, 2019, Mentor agreed to use Partner II earnings of $61,368 to facilitate the purchase of additional manufacturing
equipment to Pueblo West under a Second Amendment to the lease. On September 27, 2022, Pueblo West exercised its lease prepayment option
and purchased the manufacturing equipment for $245,369. On September 28, 2022 Partner II transferred full title to the equipment to Pueblo
West. See Note 9 to the condensed consolidated financial statements. During the years ended December 31, 2022 and 2021, Mentor withdrew
capital of $326,893 and $124,281, respectively, from Partner II. During the year ended December 31, 2022 and 2021, Partner II recognized
finance revenue of $37,659 and $40,764, respectively.
TWG,
LLC
On
October 4, 2022, the Company formed TWG, LLC (“TWG”), a Texas limited liability company, as a wholly owned subsidiary of
Mentor for in order to prepare to fulfill certain February 16, 2022 modification agreement performance obligations related to installment
payments the Company receives from a non-affiliated party.
Overview
The
Company continues to shift its target industry focus, to include energy, manufacturing, and management services. The Company goal is
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 target companies 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
that are similar to what is required of public companies are three potential key advantages to company founders working with Mentor Capital,
Inc.
The
Company continually works to identify potential acquisitions and investments. While evaluating whether an acquisition may be in the best
interests of the Company and its shareholders, no transaction will be announced until that transaction is certain.
Competition
We
face formidable competition in every aspect of our business. There are many companies that are interested in investing in target companies,
similar to our focus, energy, manufacturing, management services, many of which are well-funded companies.
Employees
Mentor
and its subsidiaries combined have 91 full-time employees. Mentor relocated its corporate office from Ramona, California, to Plano, Texas
in September 2020 and has 2 full-time employees. The corporate office employees rely heavily on outside CPA, payroll, tax, facilities,
corporate counsel, and other professional support to provide administrative support for WCI, MCIP, Partner I, Partner II, and TWG operations.
WCI
has 66 full-time employees in Phoenix, Arizona, 19 full-time employees in San Antonio and Austin, Texas, 2 full-time employees in Houston,
Texas, and 2 full-time employees in Dallas, Texas.
Available
Information About Registrant
We
have voluntarily registered our securities under Section 12(g) of the Securities Exchange Act of 1934, and such registration became effective
January 19, 2015. Since that date, we have filed quarterly, annual, and current reports with the Securities and Exchange Commission (“SEC”).
The
SEC maintains an Internet site containing reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC at http://www.sec.gov.
Our
periodic reports and other required disclosures are available at our company website located at: www.MentorCapital.com.
Item
1A. Risk Factors.
In
addition to other information in this Annual Report on Form 10-K, the following risk factors should be carefully considered in evaluating
our business since it operates in a highly challenging and complex business environment that involves numerous risks, some of which are
beyond our control. The following discussion highlights a few of these risk factors, any one of which may have a significant adverse
impact on our business, operating results, and financial condition.
As
a result of the risk factors set forth below and elsewhere in this Form 10-K, and the risks discussed in our Rule 15c2-11, previous quarterly
reports on Form 10-Q, and other publicly disclosed submissions, actual results could differ materially from those projected in any forward-looking
statements.
We
face significant risks, and the risks described below may not be the only risks we face. Additional risks that we do not know of or that
we currently consider immaterial may also impair our business operations. If any of the events or circumstances described in the following
risks actually occurs, our business, financial condition or results of operations could be harmed, and the trading price of our Common
Stock could decline.
We
may not be able to continue as a going concern.
Management
has noted certain financial conditions that raise substantial doubts about the Company’s ability to continue as a going concern.
During the years ended December 31, 2022 and 2021, we experienced significant operating losses, liquidity constraints, and negative cash
flows from operations. The Company may seek to recover unused funds from its affiliated entities, sell one or more investments that management
has determined are at the end of their lifecycle or no longer fit within the Company’s desired focus, or raise additional capital
to fund its 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. However, the Company has
6,250,000 Series D warrants outstanding in which the Company can reset the exercise price below the current market price. Similarly,
the Company could, with Board and shareholder approval which might take some time, reverse split the stock to raise the stock price above
the warrant exercise price which may, when completed, place these warrants “in the money”. The warrants are specifically
not affected and do not split with the shares in the event of a reverse split, nor does the exercise price thereof change. These condensed
consolidated financial statements do not include any adjustments that might result from repricing the outstanding warrants.
A
failure to obtain financing could prevent us from executing our business plan or operate as a going concern
We
anticipate that current cash resources and opportunities will be sufficient for us to execute our business plan for one year after the
date these financial statements are issued. It is possible that if future financing is not obtained, we will not be able to operate as
a going concern. We believe that securing substantial additional sources of financing is possible, but there is no assurance of our ability
to secure such financing. A failure to obtain additional financing could prevent us from making necessary expenditures for advancement
and growth to partner with businesses and hire additional personnel. If we raise additional financing by selling equity, or convertible
debt securities, the relative equity ownership of our existing investors could be diluted, or the new investors could obtain terms more
favorable than previous investors. If we raise additional funds through debt financing, we could incur significant borrowing costs and
be subject to adverse consequences in the event of a default.
Management
voluntarily transitioned to a fully reporting company and spends considerable time meeting the associated reporting obligations.
Management
had operated Mentor Capital, Inc. as a non-reporting public company for over 25 years, and seven years ago voluntarily transitioned to
reporting company status subject to financial and other SEC-required disclosures. Prior to such voluntary transition, management had
not been required to prepare and make such required disclosures. As a reporting company, we may be subject to certain reporting requirements
of the Securities Exchange Act of 1934, as amended (“Exchange Act”), the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing
requirements of a national securities exchange, and other applicable securities rules and regulations. The Exchange Act requires, among
other things, that we file annual, quarterly, and current reports with respect to our business and operating activities. Preparing and
filing periodic reports imposes a significant expense, time, and reporting burden upon management. This distraction can divert management
from its operation of the business to the detriment of core operations. Also, inadvertent improper reporting for any reason can result
in trading restrictions and other sanctions that may impair or even suspend trading in the Company’s Common Stock.
Investors
may suffer risk of dilution following exercise of warrants for cash.
As
of December 31, 2022, the Company had 22,941,357 outstanding shares of its Common Stock trading at approximately $0.045. As of the same
date, the Company also had 6,250,000 outstanding Series D warrants exercisable for shares of Common Stock at $1.60 per share. These Series
D warrants do not have a cashless exercise feature. The Company anticipates that the warrants may be increasingly exercised anytime the
per share price of the Company’s Common Stock is greater than $1.60 per share. Exercise of these Series D warrants may result in
immediate and potentially substantial dilution to current holders of the Company’s Common Stock. In addition, the Company has 413,512
outstanding Series H warrants with a per share exercise price of $7.00 held by an investment bank and its affiliates. These $7.00 Series
H warrants include a cashless exercise feature. Current and future shareholders may suffer dilution of their investment and equity ownership
if any of the warrant holders elect to exercise their warrants.
Beginning
on February 9, 2015, in accordance with Section 1145 of the United States Bankruptcy Code and in accordance with the Company’s
court-approved Plan of Reorganization, the Company announced that it would allow for partial redemption of up to 1% per month of the
outstanding Series D warrants to provide for the court specified redemption mechanism for warrants not exercised timely by the original
holder or their estates. On October 7, 2016, the Company announced that the 1% redemptions which were formerly priced on a calendar month
schedule would subsequently be initiated and priced on a random date schedule after the prior 1% redemption is complete to prevent potential
third-party manipulation of share prices during the pricing period at month-end. Company designees that apply during the redemption period
must pay 10 cents per warrant to redeem the warrants and then exercise the Series D warrant to purchase a share of the Company’s
Common Stock at a maximum of one-half of the closing bid price on the day preceding the 1% partial redemption. The 1% partial redemption
may continue to be periodically recalculated and repeated according to the court formula until such unexercised warrants are exhausted,
or the partial redemption is otherwise suspended or truncated by the Company. Existing shareholders may suffer dilution if any warrants
are exercised as a result of the Company’s partial redemption offering. There were no warrant redemptions in 2022 or 2021.
We
have operated in a turbulent market populated by businesses that are highly volatile.
The
U.S. market for cannabis products is highly volatile. While several of our investments were in cannabis-related entities and we believe
that it has been an exciting and growing market, many companies involved in cannabis products and services used to be involved in illegal
activities, some still are, and many of them operate in unconventional ways. Some of these differences which represent challenges to
us include not keeping appropriate financial records, inexperience with business contracts, not having access to customary business banking
or brokerage relationships, not having quality manufacturing relationships, and not having customary distribution arrangements. Any one
of these challenges, if questioned and not managed well, could materially adversely impact our business. To date, some of our investments
in cannabis-related businesses have not turned out well.
Our
business model is to partner with or acquire other companies.
We
do not manufacture or sell products or services. Rather, we aim to find businesses whose products, managers, technology, or other factors
we like and acquire or invest in those businesses. While we are open to investing in a diverse portfolio of entities across multiple
industries, there is no certainty that we will find suitable partners or that we will be able to engage in transactions on advantageous
terms with the partners we identify. There is also no certainty that we will be able to consummate a transaction on favorable terms or
any transaction at all. To date, several of our acquisitions/investments have not turned out well for us.
We
may have to work harder to introduce rigor in our transactions.
Many
of the people and entities with whom we engage may not be used to operating in business transactions in a public environment. Therefore,
in order to discharge our fiduciary and disclosure obligations we may have to work harder to satisfy good business practices. Entities
and persons operating in private industry may be unaccustomed to entering into lengthy written agreements or keeping financial records
according to GAAP or reading or interpreting the tax and sales tax code conservatively. Additionally, entities and persons with whom
we engage may not pay particular attention to the obligations including their obligations associated with employee retention tax credit
and economic injury disaster loan programs with which they have agreed in written contracts. We have experienced or may experience differences
of this manner with several different entities with whom we do business, including several entities which failed to comply with common
law contractual obligations, which led us into litigation and other legal remedies.
We
depend on our key personnel and may have difficulty attracting and retaining the skilled staff and outside professionals we need to execute
our growth plans.
Our
success will be dependent largely upon the personal efforts of our Chief Executive Officer, Chet Billingsley. The loss of Mr. Billingsley
could have a material adverse effect on our business and prospects. Currently, we have two full-time employees, and we substantially
rely on the services provided by outside professionals. To execute our plans, we will have to retain our current employees and work with
outside professionals that we believe will help us achieve our goals. Competition for recruiting and retaining highly skilled employees
with technical, management, marketing, sales, product development, and other specialized training is intense. We may not be successful
in employing and retaining such qualified personnel. Specifically, we may experience increased costs in order to retain skilled employees.
If we are unable to retain experienced employees and the services of outside professionals as needed, we will be unable to execute our
business plan.
Founder
and CEO Chet Billingsley, along with other members of the Company Board of Directors, have considerable control over the company through
their aggregate ownership of 14.38% of the outstanding shares of the Company’s Common Stock on a fully diluted basis.
As
of February 22, 2023, Mr. Billingsley owned approximately 8.16% of the outstanding shares of the Company’s Common Stock on a fully
diluted basis. Together with other members of the Company’s Board of Directors, management of the Company owns approximately 14.38%
of the outstanding shares of the Company’s Common Stock on a fully diluted basis. Mr. Billingsley holds 2,047,274 Series D warrants,
exercisable at $1.60 per share. Robert Meyer, David Carlile, and Lori Stansfield, directors of the Company, hold an aggregate of 631,455
Series D warrants exercisable at $1.60 per share. Due to the large number of shares of Common Stock owned by Mr. Billingsley and the
directors of the Company, management has considerable ability to exercise control over the Company and matters submitted for shareholder
approval, including the election of directors and approval of any merger, consolidation or sale of substantially all of the assets of
the Company. Additionally, due to his position as CEO and Chairman of the Board, Mr. Billingsley has the ability to control the management
and affairs of the Company. The Company’s directors and Mr. Billingsley owe a fiduciary duty to our shareholders and must act in
good faith in a manner each reasonably believes to be in the best interests of our shareholders. As shareholders, Mr. Billingsley and
the other directors are entitled to vote their shares in their own interests, which may not always be in the interests of our shareholders
generally.
There
is a limited market for our Common Stock.
Our
Common Stock is not listed on any exchange and trades on the OTC Markets OTCQB system. As such, the market for our Common Stock is limited
and is not regulated by the rules and regulations of any exchange. Several of our past investments were in cannabis-related businesses
which open us up to further scrutiny by brokers before they will accept our shares. Freely trading shares of even fully reporting OTCBQ
companies receive careful scrutiny by brokers who may require legal opinion letters, proof of consideration, medallion guarantees, or
expensive fee payments before accepting or declining share deposits. Further, the price of our Common Stock and its volume in the market
may be subject to wide fluctuations. Our stock price could decline regardless of our actual operating performance, and stockholders could
lose a substantial part of their investment as a result of industry or market-based fluctuations. Our stock may trade relatively thinly.
If a more active public market for our stock is not sustained, it may be difficult for stockholders to sell shares of our Common Stock.
Because we do not now pay cash dividends on our Common Stock, stockholders may not be able to receive a return on their shares unless
they are able to sell them. The market price of our Common Stock will likely fluctuate in response to a number of factors, including
but not limited to the following:
●
sales, sales cycle, and market acceptance or rejection of our affiliates’ products;
●
our ability to engage with partners who are successful in selling products;
●
economic conditions within our markets;