Note 3 – Discontinued operation

Acquisition

Waste Consolidators, Inc. (“WCI”) was a legacy investment that originated when the Company purchased 50% of the outstanding shares of WCI on October 1, 2003, in a stock for stock exchange that was originally valued at $1,000,000 and was later reduced to a cost basis of $79,200 on October 28, 2007, pursuant to a purchase price related addendum between WCI and the Company. Effective January 1, 2014, the Company purchased an additional 1% of the outstanding shares of WCI for $25,000, which resulted in the Company owning a 51% controlling interest in WCI and an amendment to our change in valuation of WCI due to our controlling interest. As a result, WCI was included in the consolidated financial statements since January 1, 2014, and the Company recognized a fair value of $1,250,000 of non-cash gain on the adjustment to the fair value of the investment in WCI. This resulted in a total of $1,275,000 investment in WCI in its audited financials for the year ended December 31, 2014. Additionally, the Company recognized a ($47,216) effect of consolidating our interest in WCI that was previously accounted for at cost prior to December 31, 2014.

Prior to acquiring a controlling interest in WCI on January 1, 2014, Mentor accounted for the investment in WCI using the equity method based on the ownership interest and the Company’s limited ability to exercise significant influence from December 31, 2003 to December 31, 2013. Accordingly, the investment was initially recorded at cost with adjustments to the carrying amount of the investment to recognize our share of the earnings or losses of the investee each reporting period. In accordance with ASC 810-10, “Consolidation – Overall,” Mentor remeasured its previously held equity interest in WCI at the acquisition-date fair value, which was reported at December 31, 2014 as follows:

Schedule of Equity Interest at the Acquisition Date Fair Value 

Mentor Capital, Inc.

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

Purchase price allocation at 51% of WCI assets and liabilities:

Schedule of Purchase Price Allocation 

Goodwill of $1,324,143 was derived from consolidating WCI effective January 1, 2014. The remaining $102,040 of goodwill is related to our first acquisition of a 50% interest in WCI. The Company accounted for its goodwill in accordance with ASC 350, “Intangibles – Goodwill and Other,” which required the Company to test goodwill for impairment annually or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, rather than amortize. Goodwill impairment tests consisted of a comparison of each reporting unit’s fair value with its carrying value. Impairment exists when the carrying amount of goodwill exceeds the implied fair value for each reporting unit. To estimate the fair value, management used valuation techniques, which included the discounted value of estimated future cash flows. The evaluation of impairment requires the Company to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions required significant judgment and were subject to change if future events and circumstances changed. Management determined that no impairment write-downs were required as of December 31, 2021 and 2022.

Disposal

On October 4, 2023, the Company sold the entirety of its interest in WCI by entering into a Stock Purchase Agreement whereby the shareholders of WCI sold all of the outstanding shares of stock to Ally Waste Services, LLC. Prior to the sale, the Company did not have any assurances that a sale of WCI was likely to occur. The Company’s policy is to not announce anything that is uncertain or unlikely to occur. Following the sale, the Company reported the results to the public in an October 5, 2023 press release and Current Report on Form 8-K filed with the Securities and Exchange Commission on October 10, 2023. In connection with the sale, the Company received net, after WCI debt payoff, $5,000,000 in cash and a one-year unsecured, subordinated, promissory note in the initial principal face amount of $1,000,000. The note accrues interest at 6% per annum. At December 31, 2023 we recognized a $4,805,389 gain on our sale of WCI as follows:

Schedule of gain on sale of WCI 

Mentor Capital, Inc.

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

Effective October 4, 2023, on the date of the sale of WCI, we met the criteria outlined in ASC Topic 205-20 “Discontinued Operations,” for our $1,426,182 goodwill to be reduced to $0 and the results of operations and assets and liabilities for our facilities operations segment were excluded from our continuing operations and presented as a discontinued operation in our consolidated financial statements. As a result, goodwill in an aggregate amount of $1,426,182 was reduced to $0.

Consolidation and Deconsolidation

Consolidation

As a result of the acquisition of our 51% ownership interest in WCI on January 1, 2014, in accordance with ASC 810-10, “Consolidation – Overall,” we included WCI in our consolidated financial statements and eliminated all significant intercompany balances and transactions. Net income (loss) attributable to our 49% non-controlling interest in WCI was excluded from net income (loss) attributable to Mentor Capital, Inc. in prior annual reports on Form 10-K for and between the years ended December 31, 2014 to December 31, 2022.

Deconsolidation

In accordance with ASC Topic 810-10-40, “Consolidation — Overall – Derecognition - Deconsolidation of a Subsidiary or Derecognition of a Group of Assets,” a parent company must deconsolidate a subsidiary as of the date the parent ceases to have a controlling interest in that subsidiary and recognize a gain or loss in net income at that time. As a result, we deconsolidated WCI from our consolidated financial statements on October 4, 2023 and recognized a gain on the disposal of discontinued operations totaling $4,805,389. The $4,805,389 gain on disposal of discontinued operation represented the amount of our purchase price allocation at 51% WCI assets and liabilities, net investment in 51% of WCI earnings, and net investment in WCI distributions offset by the sale price as of the disposal date of October 4, 2023. We have eliminated WCI from our consolidated financials on October 4, 2023. Accordingly, WCI is excluded from the Company’s continuing operations as of December 31, 2023, and the prior period of comparison in this Form 10-K, and WCI’s financial results are presented as a discontinued operation in the Company’s consolidated financial statements.

Discontinued Operation Financial Statement Presentation and Disclosures

Financial Statement Presentation

Due to the sale of our entire ownership interest in WCI on October 4, 2023, our facilities operation segment was eliminated. Following our sale of WCI, the Company received no new income from WCI and had no further involvement or continuing influence over its operations. Consequently, we determined that the results from operations and assets and liabilities associated with our facilities operation segment were to be excluded from our continuing operations and presented as a discontinued operation in our consolidated financial statements in accordance with ASC Topic 205-20-45, “Discontinued Operations.” As a result, we classified the results from operations of our facilities accessories segment separately in captions titled “discontinued operations” on our consolidated income statements for the current and prior year periods. Additionally, assets and liabilities associated with our facilities operations segment as of December 31, 2022, were reclassified from certain amounts reported in prior periods to present separately in captions titled “current assets of discontinued operations,” “property and equipment of discontinued operations,” “accumulated depreciation of discontinued operations,” “other assets of discontinued operations” and “current liabilities of discontinued operations,” and “long term liabilities of discontinued operations,” to conform to current year financial statement presentation.

Mentor Capital, Inc.

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

Consolidated Balance Sheets

The following is a summary of the assets and liabilities that were sold effective October 4, 2023, and a reconciliation of the assets and liabilities disclosed in the notes to financial statements that are presented as a discontinued operation on the consolidated balance sheet as of December 31, 2022:

 Schedule of balance sheet

Mentor Capital, Inc.

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

Net income (loss) from discontinued operations before tax

The following is a reconciliation of the major classes of financial statement line items constituting net income (loss) from discontinued operations before tax from WCI, our discontinued operation, that is disclosed in the notes to the financial statements and presented in the consolidated statements of net (loss) income for fiscal years December 31, 2023 and 2022:

 Schedule of disposal groups, including discontinued operations

Cash Flow Disclosures

Prior to the October 4, 2023 sale date, on September 30, 2023 and on December 31, 2022, our discontinued operation had net cash used in operating activities totaling $333,207 and $506,499, accounts receivable of $728,657 and $633,178, other receivable of $20,374 and $230,322, prepaid expenses of $82,984 and $51,308, property and equipment of $392,838 and $309,777, operating lease assets of $323,875 and $370,164, finance lease assets of $1,560,757 and $895,323, accrued expenses of $523,178 and $639,373, finance lease liability of $1,488,883 and $807,910, an operating lease liability of $323,875 and $370,164, an EIDL loan liability of $58,031 and $161,060, and long term debt of $0 and $83,876, respectively.

At December 31, 2023 we reported a $4,805,389 gain on disposal of our discontinued operation, which is reported above in this Note 3, in our consolidated income statements, and our consolidated statement of cash flows.

Lease Commitment Disclosures

Our discontinued operation had entered into non-cancellable operating and finance leases for office and warehouse space, computers, furniture, fixtures, machinery, and vehicles. The following summarizes our discontinued operations’ lease liability maturities for operating and finance leases on the date of sale:

 Schedule of lease liability

Term Debt Disclosures

Our discontinued operation had no term debt on the date of the sale

Mentor Capital, Inc.

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

Economic Injury Disaster Loan Disclosures

On July 9, 2020, our discontinued operation received an additional Economic Injury Disaster Loan in the amount of $149,900 through the SBA. The loan was secured by all tangible and intangible personal property of our discontinued operation, bore interest at 3.75% per annum, required monthly installment payments of $731 beginning July 2021, and matured July 2050. In March 2021, the SBA extended the deferment period for payments, which extended the initial payment until July 2022. The loan was collateralized by all tangible and intangible assets of our discontinued operation. Coincident with the sale, the Economic Injury Disaster Loan plus interest was paid in full.

Other Receivable Disclosures

Other receivable consisted of the following:

 Schedule of other receivable

In 2022, our discontinued operation received an Employee Retention Tax Credit (“ERTC”) in the amount of $1,350,161, in conjunction with our discontinued operation’s professional employer organization’s receipt and application of the same to our discontinued operation’s leased employees. The ERTC was initially established by Section 2301 of the Coronavirus Aid, Relief and Economic Security Act of 2020, as amended by Sections 206-207 of the Taxpayer Certainty and Disaster Relief Act and by Division EE of Consolidated Appropriation Act of 2021 and Section 9651 of American Rescue Plan Act of 2021; which is authorized by Section 3134 of the Internal Revenue Code. The Consolidated Appropriations Act of 2021 and American Rescue Plan Act of 2021 amendments to the ERTC program provided eligible employers with a tax credit in an amount equal to 70% of qualified wages (including certain health care expenses) that eligible employers pay their employees after January 1, 2021 through December 31, 2021, as amended by the Infrastructure Investment and Jobs Act of 2021, which retroactively ended the ERTC program as of September 30, 2021 for all businesses with the exception of recovery startups. The maximum amount of qualified wages taken into account with respect to each employee for each calendar quarter is $10,000, so the maximum credit that an eligible employer may claim for qualified wages paid to any employee is $7,000 per quarter. The credit is taken against an employer’s share of social security tax reported by our discontinued operation’s professional employer organization on Form 941-X for each applicable quarter. The receipt of the tax credit was expected to improve our discontinued operation’s liquidity due to the effects of the credit. Although our discontinued operation’s professional employer organization received credits for wages paid in 2020 and the first three quarters of 2021, there were no assurances that our discontinued operation or our discontinued operation’s professional employer organization would continue to meet the requirements or that changes in the ERTC regulations including changes in guidance provided by the IRS with respect to the implementation and operation of the ERTC, will not be adopted that could reduce or eliminate the benefits that our discontinued operation and our discontinued operation’s professional employer organization may qualify for.

ERTC income of $0 and $1,350,161 was reflected in our discontinued operation’s other income for the nine months ended September 30, 2023, and the year ended December 31, 2022. Our discontinued operation received the ERTC based on qualitative information submitted. During the nine months ended September 30, 2023, and the year ended December 31, 2022, $0 and $1,350,161 were claimed against current payroll tax liabilities as they became due.

Mentor Capital, Inc.

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

Property, Plan, and Equipment Disclosures

Property and equipment for our discontinued operation were comprised of the following on October 4, 2023, and December 31, 2022:

 Schedule of property, plant and equipment

Depreciation and amortization expenses were $49,260 and $47,974 for the years ended December 31, 2023 and 2022, respectively. Of these amounts, depreciation on our discontinued operation’s vehicles used to service customer accounts included in the cost of goods sold and was $16,325 and $21,204 at October 4, 2023 and December 31, 2022, respectively. All other depreciation was associated with our discontinued operation’s selling, general, and administrative expenses.

Lessee Leases Disclosures

Our discontinued operation’s operating leases were comprised of office space and office equipment leases. Fleet and vehicle leases were entered into prior to January 1, 2019, and under ASC 840 guidelines, they had 4-year terms and were classified as operating leases. Fleet leases entered into beginning January 1, 2019, under ASC 842 guidelines, were expected to be extended to 5-year terms and are classified as finance leases.

Gross right of use assets recorded under finance leases related to our discontinued operation’s vehicle fleet leases were $2,272,984 and $1,289,714 as of October 4, 2023 and December 31, 2022, respectively. Accumulated amortization associated with our discontinued operation’s finance leases was $712,227 and $394,391 as of October 4, 2023 and 2022, respectively.

Our discontinued operation’s lease costs no longer recognized in our consolidated income statements were as follows:

 Schedule of lease costs recognized in consolidated statements of operations

Mentor Capital, Inc.

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

Right of use asset amortization under our discontinued operations operating agreements were $46,289 and $223,151 at October 4, 2023 and December 31, 2022.

Lease amounts of our discontinued operations at October 4, 2023 were as follows:

 Schedule of lease amounts of discontinued operations

Finance lease liabilities were as follows:

 Schedule of finance lease liabilities

Operating lease liabilities were as follows:

Schedule of operating lease liabilities

Lease maturities of our discontinued operation were follows:

Maturity of lease liabilities

 Schedule of lease maturities

Mentor Capital, Inc.

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

Facilities Operations Segment Disclosures

We sold our entire ownership interest in WCI on October 4, 2023. Following the sale, the Company received no new income from WCI and had no further involvement or continuing influence over its operations. Consequently, our facilities operations segment was eliminated at the time of sale. Additionally, the results of operations associated with our facilities operations segment were excluded from our continuing operations and presented as a discontinued operation in our consolidated financial statements. WCI worked with business park owners, governmental centers, and apartment complexes to reduce their facility-related operating costs. The WCI segment is now reported as a discontinued operation. Following is our discontinued operations segment information before income taxes as of October 4, 2023 and December 31, 2022:

 Schedule of segment information 

 Schedule of reconciliation of revenue from segments to consolidated