This Item 1A “Risk Factors”item is not required for smaller reporting companies.

None.

The Company operates its Corporate,Real Estate, Internet, and Real Estate Operations remotely – Other operations remotely–that is, without dedicated office space. The principal office of our HVAC Operations is a mix of office and industrial warehouse space leased by HVAC Value Fund, LLC. The approximately 3,750 square feet of leased space is located in Peoria, Arizona. The principal office for our Asset Management Operations is office space leased by the Company located in New York, New York. The principal office of our Home Services Operations, prior to being discontinued, was a mix of office and industrial warehouse space previously leased by Specialty Contracting Group, LLC located in Scottsdale, Arizona.

As of December 31, 2017,2019, through EDI Real Estate, LLC, the Company owns various real estate properties including teneight residential properties one commercial property, and interests in several undeveloped lots. Subsequent to December 31, 2017,2019, two lots of vacant land and one propertyproperties held for saleresale have been sold.

Subsequent to

On December 31, 2017, Sitestar created a wholly owned subsidiary named Mt Melrose, LLC, which currently is engaged in an acquisition24, 2019, the Company completed the sale of a portfolio of residential and other income-producing real estate in Lexington, Kentucky pursuant to a certain Master Real Estate Asset Purchase Agreement entered into on December 10, 2017 with a like-named seller, Mt. Melrose, LLC, a Kentucky limited liability company owned by Jeff Moore, also a Sitestar director. As set forth in a Form 8-K filed on January 17, 2018, on January 10, 2018, Mt Melrose, LLC, consistent with the terms of the Purchase Agreement, completed a first acquisition from Seller of 44 residential and other income-producing real propertiesits commercial warehouse space located in Lexington, Kentucky pursuant to the Purchase Agreement.  This first tranche of real properties was acquired for total consideration of $3,814,500, which was payable as follows:

The Company owns a 12,000-square-foot office building located at 29 West Main Street, Martinsville, Virginia. This property was acquired in 1998 by Neocom Microspecialists, Inc., a company we later acquired. This facility was closed in 2010. It is currently vacant and being marketed for sale.sold at its carrying value of $850,000.

7

Enterprise Diversified, Inc. (f/k/a Sitestar Corporation) v. Frank Erhartic, Jr.

On April 12, 2016, Sitestarthe Company filed a civil action complaint against Frank Erhartic, Jr. (the “Former Erhartic CEO”), the Company’s former CEO and director (prior to December 14, 2015) and currently an owner of record or beneficially of more than five percent5% of the Company’s Common Stock, alleging, among other things, that the Former Erhartic CEO engaged in, and caused the Company to engage in to its detriment, a series of unauthorized and wrongful related party transactions, including causing the Company to borrow certain amounts from the Former Erhartic CEO’s mother unnecessarily and at a commercially unreasonable rate of interest, converting certain funds of the Company for personal rent payments to the Former Erhartic CEO, commingling in land trusts certain real properties owned by the Company and real properties owned by the Former Erhartic CEO, causing the Company to pay certain amounts to the Former Erhartic CEO for lease payments under an unauthorized lease as to a storage facility owned by the Former Erhartic CEO, causing the Company to pay rent on its corporate headquarters owned by the Former Erhartic CEO’s ex-wife in amounts commercially unreasonable and excessive, and to make real estate tax payments thereon for the personal benefit of the Former Erhartic CEO, converting to the Former Erhartic CEO and/or absconding with five motor vehicles owned by the Company, causing the Company to pay real property and personal property taxes on numerous properties owned personally by the Former Erhartic CEO, causing the Company to pay personal credit card debt of the Former Erhartic CEO, causing the Company to significantly overpay the Former Erhartic CEO’s health and dental insurance for the benefit of the Former Erhartic CEO, and causing the Company to pay the Former Erhartic CEO’s personal automobile insurance. The Company is seeking, among other relief available, monetary damages in excess of $350,000. This litigation matter is currently pending in the Circuit Court for the City of Lynchburg (Lynchburg, Virginia).

Other: Mt Melrose-related Proceedings

Various disputes have arisen and are continuing between the Company and Woodmont Lexington, LLC (“Woodmont”), the entity to whom the Company sold, on June 27, 2019, 65% of the Company’s membership interest in Mt Melrose, LLC (“Mt Melrose”). 

In undertaking a sale of its membership interests in Mt Melrose, the Company had sought to partner with an operator who, in exchange for being granted a substantial equity interest at a significant discount to the amounts the Company had invested in Mt Melrose, would assume full responsibility for the management and operation of Mt Melrose and its real estate portfolio and endeavor in good faith to generate favorable returns inuring to the long-term best interests of the Company and its shareholders.

Shortly following the closing of the Mt Melrose transaction, however, the relationship between the Company and Woodmont soured. Woodmont, by its representative, Tice Brown, unexpectedly proceeded to make numerous claims and demands upon the Company, which the Company determined to be unfounded and frivolous, if not disingenuous to the parties’ understandings. During the year ended December 31, 2019, Woodmont also has submitted three formal claims for indemnification under the parties’ purchase agreement, each of which were considered by the Company and then rejected and disputed in short order as unfounded. An additional claim has been submitted, considered, and disputed subsequent to December 31, 2019.

In addition, Woodmont, acting as the sole manager of Mt Melrose, purported to unilaterally amend and restate as of August 29, 2019 the Mt Melrose limited liability company agreement among the parties, purporting to change the terms of the distribution waterfall the parties had expressly agreed to and purporting to reallocate the parties’ respective interests in Mt Melrose – unilaterally reducing the Company’s percentage membership interest from 35% to 20.8% while increasing Woodmont’s percentage membership interest from 65% to 79.2%. The Company has rejected and disputed these purported changes and Woodmont’s conduct.                    

In connection with the primary disputes between the Company and Woodmont and following the Company’s Delaware Action (as defined below), on December 5, 2019, Woodmont also filed a verified complaint in the Fayette County, Kentucky Circuit Court against the Company and a third party who was then-under contract with the Company for such party’s purchase of the Company’s warehouse and associated real property located in Lexington, Kentucky – seeWoodmont Lexington, LLC, et al. v. Enterprise Diversified, et al., Fayette Circuit Court, Civil Action No. 19-CI-04304 (the “Kentucky Action”). The Court in the Kentucky Action enjoined the Company and the warehouse purchaser from removing or cleaning out the various items of building materials and salvage owned by Mt Melrose that had been placed in the warehouse premises, and required the Company and the warehouse purchaser to provide rent-free access so that Woodmont and Mt Melrose could realize “full value” on their liquidation of the stored personal property until February 1, 2020. The Company believes that Woodmont’s attempt to hold up the sale of an $850,000 warehouse and property because it wanted to store spare toilets, doors, floor tiles and other residential building materials there, rent free, for more than six months, was disingenuous and intentionally injurious to the Company. On December 27, 2019, the Company filed verified counter-claims in the Kentucky Action against Woodmont, alleging, among other things, Woodmont’s tortious interference with the Company’s business and Woodmont’s unjust enrichment. The Company is seeking, among other relief available against Woodmont, declaratory relief; trial by jury on all issues; money damages, including all special and consequential damages, in amounts to be determined at trial; and the Company’s costs and expenses, including attorneys’ fees; together with pre- and post-judgement interest.The parties to the Kentucky Action have recently engaged in settlement negotiations, although they have not been successful. This action remains pending in the Fayette County, Kentucky Circuit Court.             

All the while, since the closing of the Mt Melrose transaction, Woodmont, by its representative, Tice Brown, has made repeated “low ball” offers to buy out the Company’s remaining interest in Mt Melrose, insisting that the Company relinquish its Mt Melrose interest in order to avoid further claims and demands and in order to avoid threatened public disparagement (including by way of statements made on various social media by Woodmont’s representative, Tice Brown). All such offers have been rejected or not responded to by the Company, as being unfavorable, undesirable, and not in the long-term best interests of the Company and its shareholders.

On January 7, 2020, Woodmont, acting as the sole manager of Mt Melrose, also caused Mt Melrose to distribute a $600,000 cash dividend directly to Woodmont. Woodmont expressly excluded the Company from receiving any portion of this distribution. The Company has rejected and disputed the propriety of this distribution and Woodmont’s conduct.

The Company believes that Woodmont, directly and by its representative, Tice Brown, has engaged, and continues to engage, in intentionally injurious and harassing conduct concerning Mt Melrose that runs counter to the long-term best interests of the Company and its shareholders. Accordingly, as previously reported in the Company’s Current Report on Form 8-K filed with the SEC on November 20, 2019, the Company filed a verified complaint in the Court of Chancery of the State of Delaware on November 20, 2019, commencing a civil action against Woodmont – seeCivil Action No. 2019-0928-JTL (the “Delaware Action”). The Delaware Action was filed by the Company in response to the repeated claims and demands and injurious conduct by Woodmont and its representative, Tice Brown. On March 9, 2020, the Company filed further an amended verified complaint against Woodmont in the Delaware Action, expanding its claims against Woodmont. The Company is seeking, among other relief available against Woodmont, injunctive, declaratory and equitable relief, and relief for, among other things, Woodmont’s breaches of contract and unjust enrichment, along with attorneys’ fees and expenses. This action remains pending in the Delaware Court of Chancery.

Management intends to vigorously prosecute the Company’s claims, and defend the Company’s rights, against Woodmont and its representative, Tice Brown, in all of these Mt Melrose-related proceedings.

Not applicable.

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PART II

Sitestar’s

Enterprise Diversified’s Common Stock is listed on the OTC QB Markets (“OTCQB”) under the symbol “SYTE”.“SYTE.”

The following tables set forth the high and low closing bid quotations reported on the OTCQB for each calendar quarter for 2016 and 2017. Such quotations reflect inter-dealer prices, without retail markup, markdown, or commissions and may not necessarily represent actual transactions.

Record Holders

As of March 30, 2018,27, 2020, we had approximately 133 119 shareholders of record. This number does not reflect the number of individuals or institutional investors holding stock in nominee name through banks, brokerage firms, and others.

Equity Compensation Plans

We do not have any plans under

On November 7, 2019, Enterprise Diversified’s Governance, Compensation, and Nomination Committee of the Board of Directors approved the creation of an equity incentive program for board members as well as eligible senior management. The Committee determined that it was advisable, and in the best interests of the Company and its stockholders, to provide guidelines for the issuance of equity incentive awards, such as restricted stock and restricted stock units, to attract, retain, and motivate eligible persons whose present and potential contributions are important to the long-term success of the Company and its subsidiaries and to align their interests with those of the Company’s stockholders. Consistent with this and the Company’s intention to retain its cash, it was also determined that such a program would provide for a more-formal process by which options, warrants or other rightsamounts of director’s fees and annual management bonuses accrued from time to subscribe for or acquiretime could be paid, at the direction of the Committee, in shares of our common stockCommon Stock in lieu of cash. The provisions of the program were memorialized as the Enterprise Diversified, Inc. 2020 Equity Incentive Plan (the “2020 EIP”), which was approved and adopted by the Board effective as of January 31, 2020. The 2020 EIP may be granted and there are no outstanding options, warrantsamended or other rights to subscribe forterminated at any time by the Board or acquire sharesthe Committee. A copy of our common stock.the 2020 EIP accompanies this Report as Exhibit 99.1.

Dividends

To date, we have not paid any cash dividends on our capital stock. We intend to retain our cash and, therefore, do not anticipate paying any cash dividends in the foreseeable future.

Not applicable.

9

This section is intended to provide readers of our financial statements information regarding our financial condition, results of operations, and items from management’s view.that management views as important. The following discussion and analysis should be read in conjunction with the Company’s accompanying consolidated financial statements and related footnotesaccompanying notes as of and for the years ended December 31, 2017,2019 and December 31, 2016, included in this Annual Report on Form 10-K.2018. The discussion of results, causes, and trends should not be construed to imply any conclusion that such results or trends will necessarily continue in the future. Additionally, it should be noted that a uniform comparative analysis cannot be performed for all segments, as a segment’s limited financial history or recent restructuring results in less comparable financial performance.

Summary of Financial Performance

Common stockholders’ equity increaseddecreased from $9,160,029$15,915,651 at December 31, 2016,2018, to $15,890,655$10,633,958 at December 31, 2017. The change was mostly attributable to $4,625,000 of additional common stock issued through a private placement.2019. This change was also driven by $782,313attributable to $4,998,487 of comprehensive income in the internet segment, $106,701 in comprehensivenet loss in the HVAC segment, $100,693 in comprehensive loss from the real estate segment, $2,164,221$1,510,475 of loss resulting from discontinued operations under the home services segment, and $791,916 of net loss in comprehensiveother segments, and was partially offset by $1,399,615 of net income fromin the asset management segment and $633,514$522,626 of other comprehensive loss net income in the corporateinternet segment. The other income attributable to the corporate segment was primarily the result of realized capital gains from investments in marketable securities. Corporate expenses for the year ended December 31, 2019, included in the net loss from other operations, totaled $660,333.$1,101,098. Total comprehensive net loss (all attributable to Enterprise Diversified, Inc. stockholders) for the year ended December 31, 2019 equaled $5,381,691, which includes $3,054 of accumulated other comprehensive loss attributable to the internet segment.

Historical Variable Interests

As of the quarterly periods ended March 31, 2018, June 30, 2018, and September 30, 2018, the Company had determined that Old Mt. Melrose was a “variable interest entity” because the seller’s equity interests in Old Mt. Melrose were not effective in determining whether the seller or New Mt Melrose had a controlling financial interest, and that New Mt Melrose’s rights under a certain Cash Flow Agreement that had been entered into on January 10, 2018 with Old Mt. Melrose (the “Cash Flow Agreement”) were deemed to be variable interests in Old Mt. Melrose. During those periods, the Company had determined that New Mt Melrose was the primary beneficiary of Old Mt. Melrose since substantially all of Old Mt. Melrose’s activities had been conducted on behalf of New Mt Melrose and because New Mt Melrose may have been required to provide financial support to Old Mt. Melrose under the Cash Flow Agreement. As its primary beneficiary, New Mt Melrose previously consolidated Old Mt. Melrose’s financial results beginning on January 10, 2018. The fair values of the assets and liabilities of Old Mt. Melrose had been consolidated accordingly on the unaudited consolidated balance sheets for the quarterly periods ended March 31, 2018, June 30, 2018, and September 30, 2018. As noted on the unaudited consolidated statements of stockholders’ equity during those quarters, the ending noncontrolling interest allocated to the variable interest entity represented the remaining equity held by Old Mt. Melrose for properties that had not yet been acquired under the Purchase Agreement. The ending noncontrolling interest amount also included any income or loss generated by the remaining properties that were to be acquired under the Purchase Agreement for the period then ended.

As of November 1, 2018, pursuant to the termination of the Master Real Estate Asset Purchase Agreement and Cash Flow Agreement noted above, New Mt Melrose was no longer the primary beneficiary of Old Mt. Melrose. Additionally, as of November 1, 2018, New Mt Melrose no longer had a controlling financial interest in Old Mt. Melrose. Consequently, as of November 1, 2018, the Company no longer consolidated the fair values of the assets and liabilities of Old Mt. Melrose, and the balance of noncontrolling interest as of December 31, 2019 and 2018, is accordingly reflected as zero on the accompanying consolidated balance sheets and statements of stockholders’ equity.

Balance Sheet Analysis

This section provides an overview of changes in our assets, liabilities, and equity and should be read together with our accompanying consolidated financial statements, including the accompanying notes to the financial statements. The table below provides a balance sheet summary for the periods presented and is designed to provide an overview of the balance sheet changes from quarter to quarter.

Financial Condition, Liquidity, and Capital Resources

Sitestar carries

During 2019, Enterprise Diversified carried out its business strategy in fourfive operating segments: Internet Operations, HVACAsset Management Operations, Real Estate Operations, Internet Operations, Home Services Operations, and Asset ManagementOther Operations. As of the year ended December 31, 2019, and for all prior periods presented, home services operations are reported as discontinued operations. Our primary focus is on generating cash flow from operations.so that we have the flexibility to pursue opportunities as they present themselves. We will only reinvestinvest cash in each segment if we believe that the return on this invested capital is appropriate for the risk associated with the investment. This consideration is measured against all investment opportunities available to us and is not limited to these fourparticular segments or the Company’s historical operations. An example of this is the introduction

Cash and growth of our HVAC Segment, which occurred duringequivalents totaled $666,810 at the year ended December 31, 2016. This also applies2019, compared to our Asset Management Segment, which commenced operations on January 1, 2017. Prior$435,726 at year-end December 31, 2018. The Company intends to our management change incontinue to build up cash reserves moving forward. Real estate held for investment decreased to $380,515 at the year ended December 2015, the Company was solely focused on the internet31, 2019, compared to $9,492,877 at year-end December 31, 2018, and real estate segments.held for resale decreased to $98,910 at the year ended December 31, 2019, compared to $2,318,912 at year-end December 31, 2018. Property and equipment also decreased to $17,753 at the year ended December 31, 2019, from $1,019,742 at year-end December 31, 2018. The decreases in real estate and property and equipment are primarily due to the equity sale and subsequent deconsolidation under the real estate segment. The Company does not expect to make significant reinvestments into property and equipment used in operating activities at this time. Total notes payable decreased to $511,025 from $7,521,819 during the same time period. This decrease was also primarily related to the equity sale and deconsolidation under the real estate segment.

Sitestar

The Company currently believes that itsour existing balances of cash, cash equivalents, and cash generated from operations and from the sale of its legacy real estate portfolio in Virginia will be sufficient to satisfy itsour currently anticipated cash requirements through at least the next 12 months and the foreseeable future. Our liquidity could be negatively affected if we were to make additional acquisitions, including the acquisition of additional properties under the Mt Melrose Purchase Agreement, which may necessitate the need to raise capital through future debt or equity financing. Additional financing may not be available at all or on terms favorable to us.months.

The aging of accounts receivable as of December 31, 2017,2019, and December 31, 2016,2018, is as shown:

We have no material capital expenditure requirements.

10

HVAC Value Fund, LLC typically structures acquisitions where a portion of the purchase price is held back and is subject to certain conditions. These notes payable may or may not bear interest. Four of the five HVAC acquisitions that occurred during the year ended December 31, 2016, resulted in notes payable to the sellers. As of December 31, 2017, three2019, no lines of these notes have been paid in full.credit remain open through the home services segment. The remaining notes payableline of credit that existed as of December 31, 2017, consisted2018 through the home services segment, was held with Steven L. Kiel, an ENDI director and our principal executive officer. The Company assumed this debt, which was paid off during the current year through the issuance of Company stock. Additional debt held through the home services segment as of December 31, 2018, included loans for various vehicles and equipment. Two vehicle loans were entered into during the quarter ended March 31, 2018. These loans required monthly payments through May 2023 and held annual interest rates of 5.99%. As of December 31, 2019, all of these loans have been assumed by Rooter Hero, as a result of our divestiture of the following:home services segment. See Note 3 for more information.

During the yearquarter ended December 31,September 30, 2017, EDI Real Estate, LLC, entered intoas a borrower, issued two promissory notes, each secured by a property held for investment. These notes carry annual interest rates of 6%, pay interest quarterly, and are due September 15, 2022, with early payoff permitted. Subsequent to the year ended December 31, 2019, one of these notes has been paid off. Additionally, during the quarter ended September 30, 2018, EDI Real Estate, LLC issued a promissory note secured by additional properties held for investment. This note carries an annual interest rate of 5.6% and fully matures on September 1, 2033, with early payoff permitted. The interest rate on this note is subject to change once each five-year period based on an index rate plus a margin of 2.750 percentage points. The index rate is calculated as a monthly average yield on U.S. Treasury Securities, adjusted to a constant maturity of five years.

With respect to outstanding debt secured by the real properties acquired by Mt Melrose, LLC, these notes began to mature during the year ended December 31, 2018, with the last note extending until January 2042. Some of these loans were interest only while others accrued interest that is due in full with a final balloon payment. As of December 31, 2018, the debt secured by the real properties had varying annual interest rates from 4.375% to 13%. As the Company no longer has a controlling financial interest in Mt Melrose, it no longer consolidates Mt Melrose, LLC’s assets, liabilities (including notes payable), or results of operations.

The remaining notes payable as of December 31, 2019, consisted of the following:

The timing of future payments of notes payable are as follows:

Off-Balance Sheet Arrangements

We are not a party to any material off-balance sheet arrangements as of December 31, 2017,2019, nor at any time from January 1, 2016,2019, through December 31, 2017.2019.

Subsequent to December 31, 2017, on January 10, 2018, our new, wholly owned subsidiary, Mt Melrose, LLC (“Purchaser”), a Delaware limited liability company entered into a certain Cash Flow Agreement with Mt. Melrose, LLC (“Seller”), a Kentucky limited liability company (the “Cash Flow Agreement”), pursuant to which, in connection with the parties’ anticipated consummation of all of the real property purchase transactions under the Mt Melrose Purchase Agreement, the parties agreed after January 10, 2018 until such time as the parties consummate the relevant closing as to each real property under the Mt Melrose Purchase Agreement, Seller assigns to Purchaser all of the income, rents, receivables and revenues arising from or issuing out of such real property, and Purchaser assumes Seller’s responsibility for payment of certain of the costs and expenses attributable to such real property. 

Under the Cash Flow Agreement, Purchaser is responsible for Seller’s monthly payments of interest and/or principal under the outstanding debt secured by the real properties; Seller’s real property taxes with respect to the real properties due and attributable to the periods from and after the effective date; and Seller’s ordinary expenses of operating the real properties, actually incurred, to the extent attributable to de minimis repairs, recurring maintenance services and/or water, electricity, sewer, gas, telephone or other similar utility charges.  However, the risk of loss and casualty damage with respect to all or any portion of the real properties will continue to be borne by Seller up to and including the actual time of the relevant closing respecting such real property.

Based on the 81 real properties presently outstanding for purchase under the Purchase Agreement, Purchaser presently is obligated under the Cash Flow Agreement for (i) monthly payments of interest and/or principal under the outstanding debt secured by such real properties in the aggregate amount of $40,698 per month, (ii) insurance of $4,619 per month, (iii) estimated annualized obligations for real property taxes with respect to such real properties in the aggregate amount of approximately $60,000 per year, and (iv) ordinary recurring expenses of operating such real properties that are expected to be immaterial in aggregate.

Other Contractual Obligations

As previously reported in our Current Reports on Form 8-K filed with the SEC on September 19, 2016, and December 30, 2016, respectively, on September 19, 2016, the Company announced that it had entered into a letter of intent agreement with Alluvial Capital Management, LLC (“Alluvial Capital”) to make a seed investment through Willow Oak Asset Management in the Alluvial Fund, LP, a private investment partnership that was launched by Alluvial Capital on January 1, 2017 (“Alluvial Fund”). Alluvial Capital acts as the general partner and the Company, through Willow Oak Asset Management, has invested in Alluvial Fund as a limited partner.

11

The Company, through Willow Oak, agreed to make capital contributions to Alluvial Fund in the aggregate amount of $10 million to be provided over four equal tranches on January 1, 2017, April 1, 2017, July 1, 2017, and October 1, 2017. As of September 30, 2017, the Company satisfied its obligation to provide $10 million in accordance with the contribution schedule. On January 1, 2018, pursuant to an amendment to the Alluvial Side Letter Agreement, dated December 15, 2017, Willow Oak Asset Management, LLC withdrew $3,000,000 from its $10,000,000 investment in Alluvial Fund, LP in order to partially fund the Company’s first close of the Mt Melrose Transaction.  Under the terms of the amendment to the Alluvial Side Letter Agreement, to the extent that funds withdrawn by Willow Oak are replaced coincidentally by funds from a third party, Willow Oak is no longer subject to the former “lockup” restrictions, which formerly conditioned any withdrawals upon Willow Oak having a $50,000,000 capital account balance. Arquitos Capital Partners, LP, which is managed by our Chief Executive Officer,director and principal executive officer Steven L. Kiel, simultaneously invested $3,000,000 in Alluvial to temporarily replace the amount withdrawn by Willow Oak. The Arquitos investment into Alluvial counts toward Willow Oak’s seed investment total for purposes of Willow Oak’s agreement with Alluvial.

Through the HVAC segment, multiple capital lease obligations were acquired as part of the most recent acquisition that occurred during the quarter ended March 31, 2017. These obligations include leases on various vehicles and equipment that extend

Also through 2020.

Through the asset management operations segment, aan operating lease on office space in New York City commenced on October 1, 2017. This lease extends through September 30, 2020. All related expenses will be allocated

Through the home services segment, an operating lease on warehouse and office space in Scottsdale, Arizona, commenced on May 1, 2018. This lease extends through May 31, 2021. This lease was not conveyed with the divestiture on May 24, 2019. Specialty Contracting Group, LLC (formerly known as HVAC Value Fund, LLC) was the lessee party to the asset management segment.lease. Specialty Contracting Group, in connection with its dissolution and winding up, surrendered possession of the premises to the landlord, in default of this lease.

As previously reported in our

On June 27, 2019, as per the Current ReportsReport on Form 8-K filed with the SEC on December 11, 2017 and January 17, 2018, respectively, Sitestar created a wholly owned subsidiary namedJuly 3, 2019, the Company sold 65% of its membership interest in Mt Melrose, LLC which currently is engaged into an acquisition of a portfolio of residential and other income-producing real estate inunaffiliated third-party purchaser, Woodmont Lexington, Kentucky pursuant to a certain Master Real Estate Asset Purchase Agreement entered into on December 10, 2017 with a like-named seller, Mt. Melrose, LLC a Kentucky limited liability company owned by Jeff Moore, also a Sitestar director. As set forth in a Form 8-K filed on January 17, 2018, on January 10, 2018, Mt Melrose, LLC, consistent with(“Woodmont”). Under the terms of the Purchase Agreement, completedparties’ membership interest purchase agreement, the Company agreed to indemnify Woodmont against any losses actually incurred as a first acquisition from Sellerresult of 44 residential and other income-producing real properties located in Lexington, Kentucky pursuant to the Purchase Agreement.  This first tranche of real properties was acquired for total consideration of $3,814,500, which was payable as follows:

On January 10, 2018,representations and warranties made under the Mt Melrose purchaseagreement. To date, Woodmont has made four claims for indemnification under the agreement, all of which have been rejected and disputed by the Company. Also, in connection with the transaction, the Company and Woodmont entered into a certain Cash FlowAmended and Restated Limited Liability Company Agreement with theof Mt Melrose, sellerLLC (the “Cash Flow“A&R LLC Agreement”), pursuant to which, in connection with. The A&R LLC Agreement sets forth the parties’ anticipated consummationgeneral terms and conditions governing the arrangements between the two members. The A&R LLC Agreement provides that the business and affairs of all of the real property purchase transactions under the Purchase Agreement described above, the parties have agreed that as ofMt Melrose will be managed exclusively by one or more managers; and from and after January 10, 2018, until such timeWoodmont is designated as the parties consummatesole manager. In addition, the relevant closing asCompany expressly agreed to each real property undera three-year “standstill” arrangement, during which time the Purchase Agreement, SellerCompany will assign to Purchaser allnot in any way participate, directly or indirectly, in the management or control of the income, rents, receivables,Mt Melrose; and revenues arising from or issuing out of such real property, and Purchaser will assume Seller’s responsibility for payment of certain of the costs and expenses attributable to such real property.   

Under the Cash Flow Agreement, Purchaser is responsible for Seller’s monthly payments of interest and/or principal under the outstanding debt secured by the real properties; Seller’s real property taxes with respect to any matters requiring a vote of the real properties due and attributablemembers, the Company will vote with (i.e., the same as) Woodmont. Subsequent to the periods fromtransaction, Woodmont, as the manager of Mt Melrose, has purported that the Company’s membership interest in Mt Melrose has been diluted to 20.8%. The Company disputes this assertion and after the effective date; and Seller’s ordinary expensesmaintains that it has retained its 35% membership interest.

Results of operating the real properties, actually incurred, to the extent attributable to de minimis repairs, recurring maintenance services, and/or water, electricity, sewer, gas, telephone, or other similar utility charges.  However, the risk of loss and casualty damage with respect to all or any portion of the real properties will continue to be borne by Seller up to and including the actual time of the relevant closing respecting such real property.Operations

Based on the 81 real properties presently outstanding for purchase under the Purchase Agreement, Purchaser presently is obligated under the Cash Flow Agreement for (i) monthly payments of interest and/or principal under the outstanding debt secured by such real properties in the aggregate amount of $40,698 per month, (ii) insurance of $4,619 per month, (iii) estimated annualized obligations for real property taxes with respect to such real properties in the aggregate amount of approximately $60,000 per year, and (iv) ordinary recurring expenses of operating such real properties that are expected to be immaterial in aggregate.

We have no other meaningful long-term debt obligations, purchase obligations, or other long-term liabilities as of December 31, 2017, other than those previously mentioned related to the HVAC andAsset Management Operations

The Company operates its asset management segment. The only operating lease obligations are agreements for leased office and warehouse space for HVAC Value Fund, LLC, which extendoperations business through July 31, 2019, and for leased office space fortwo wholly-owned subsidiaries, Willow Oak Asset Management, LLC which extendsand Willow Oak Capital Management, LLC. These subsidiaries were formed on October 10, 2016 and May 24, 2018, respectively. During the segment’s first year of operations, Willow Oak entered into three fee share agreements with multiple private investment partnerships and made an additional investment through September 30, 2020.

12

Results of Operations

Corporate

Inanother partnership arrangement. During the year ended December 31, 2017,2018, two new partnerships were formed, multiple fee share agreements were entered into, and a new service offering, Fund Management Services, was launched. During the corporate segment produced $61,350 of other income related primarily to realized gains on the sales of marketable securities. year ended December 31, 2019, one new joint venture was formed in which Willow Oak Capital Management is a non-managing owner.

As of December 2017, these types31, 2019, Willow Oak holds a direct investment in the Alluvial Fund, LP. The realized and unrealized investment gains and losses are reported as revenue on the accompanying consolidated statements of investments will no longer be held atoperations. This treatment can result in reporting negative revenue figures for a given period. Willow Oak continues to earn revenue through the corporate level. Corporateremaining fee share arrangements, as well as through fund management services.

During the year ended December 31, 2019, the asset management operations segment produced $1,773,276 of revenue. Cost of revenue was $0 and operating expenses totaled $660,333.$410,226. Other income attributable to the asset management operations segment totaled $36,565. Net income for the year ended December 31, 2019, totaled $1,399,615. This compares to $50,004the year ended December 31, 2018, when the asset management operations segment produced negative $775,249 of revenue, cost of revenue was $0, and operating expenses totaled $286,283. Additionally, other income for the year ended December 31, 2018, was $41,632, and corporatetotal net loss for the year ended December 31, 2018, was $1,019,900. The increase in revenue in 2019 is due to market volatility and the application of specific GAAP revenue recognition rules as noted above. The increase in operating expenses is primarily due to higher payroll and event expenses. Other income for the segment is primarily due to sub-lease rental income earned through the Company’s New York office space.

As of $804,712December 31, 2019, the fair value of long-term investments held through the asset management operations segment totaled $10,072,358. This compares to the fair value of long-term investments held at December 31, 2018, which totaled $8,446,488. This increase in investments is attributable to positive Alluvial Fund performance during the year ended December 31, 2019. 

The tables below provide a summary of income statement amounts over time. These figures are specific to the asset management operations segment and are presented for the annual and quarterly periods designated below.

Real Estate Operations

EDI Real Estate Operations

For the year ended December 31, 2019, the EDI Real Estate portfolio generated rental revenue of $76,792. The cost of rental revenue totaled $104,279. Operating expenses for the year ended December 31, 2019, were $42,080. Other expenses totaled $75,359 and the net loss for the year ended December 31, 2019, totaled $155,057. This compares to the year ended December 31, 2018, when the EDI Real Estate portfolio generated rental revenue of $77,391, cost of rental revenue totaled $43,063, operating expenses were $17,200, other expenses totaled $13,591, and net rental income was $3,537. Other expenses incurred during the years ended December 31, 2019 and 2018, were primarily interest-related expenses. The 2019 increases in cost of rental revenue and operating expenses were due to significant deferred maintenance expenses and newly allocated payroll expenses, respectively.

During the year ended December 31, 2019, net impairment adjustments of $26,170 were recorded on real estate held for resale through EDI Real Estate, LLC in order to properly reflect sales activity throughout the year. During the year ended December 31, 2018, an impairment adjustment of $64,038 was recorded to real estate held for resale through EDI Real Estate, LLC in order to properly reflect market value for those properties held during the year.

Through EDI Real Estate, as of December 31, 2019, the Company owns a total of eleven units consisting of six units held for investment, two units held for resale, and three vacant lots held for resale as noted below:

Units held for investment consist of single-family residential rental units.

The leases in effect, as of December 31, 2019, are based on annual time periods and typically include month-to-month provisions after the completion of the initial term. An outside property management company manages these rental properties on behalf of the Company. The property management company has introduced updated and renewed leases for existing rental properties.

Mt Melrose Operations

Management has determined that the Company no longer has a controlling financial interest in Mt Melrose and is no longer the primary beneficiary as of June 27, 2019. All activity prior to the deconsolidation event has been included on the accompanying consolidated statements of operations for the year ended December 31, 2019, under the real estate segment. Simultaneously, as of June 27, 2019, all previously consolidated assets and liabilities of Mt Melrose, LLC have been removed from the consolidated balance sheets. Note that this deconsolidation event is separate from the deconsolidation event that took place on November 1, 2018, related to the change in variable interest reporting. As of December 31, 2018, the Company did have a controlling financial interest in Mt Melrose and was the primary beneficiary.

For the period ended June 27, 2019, the Mt Melrose portfolio generated rental revenue of $365,971. The cost of rental revenue totaled $276,049. Operating expenses for the period ended June 27, 2019, were $295,945. Other expenses totaled $4,580,940 and the net loss for the period ended June 27, 2019, totaled $4,786,963. This compares to the year ended December 31, 2018, when the Mt Melrose portfolio generated rental revenue of $778,657, cost of rental revenue totaled $450,859, operating expenses were $920,309, other expenses totaled $1,416,257, and total net loss was $2,008,768. The other expenses for the year ended December 31, 2019 are primarily related to the loss recognized on the equity sale of the Mt Melrose entity mentioned previously, which totaled $4,157,809. Other expenses incurred during the year ended December 31, 2016. Expenses2018, were lowerprimarily impairment and interest-related expenses.

The consolidated Mt Melrose assets as of December 31, 2018, included the following units:

As of December 31, 2018, the Mt Melrose portfolio of properties was carried at the following amounts on the accompanying consolidated balance sheets:

Additionally, during the year ended December 31, 2017, compared to2019, a commercial warehouse was sold for gross proceeds of $850,000. Net proceeds after closing costs and a promissory note payoff were $487,944. This resulted in a loss on the sale in the amount of $56,467. This loss is included in other expenses under the real estate segment for the year ended December 31, 2016, primarily due2019.

The tables below provide a summary of income statement amounts over time. These figures are specific to decreased accountingthe real estate segment as a whole and are presented for the annual and quarterly periods designated below. Revenue and expenses related to the Mt Melrose portfolio of properties are included through the consolidation period, which ended on June 27, 2019 with the Company’s majority equity sale of the entity.

For the quarters ended September 30 and decreased legal expenses. This was offset by increased consulting expenses and increased payroll expenses.June 30, 2019, the Company previously reported the net loss recognized on the sale of our controlling interest in our Mt Melrose subsidiary as an other expense under Other Operations. As of December 31, 2019, the Company has found it appropriate to report this loss under the Real Estate segment. For all reported segment activity, this reclassification has been made as of June 30, 2019. The loss on the sale continues to show separately on the consolidated statements of operations for the year ended December 31, 2019. Additionally, an entry has been made to combine the deconsolidation activity previously reported on the consolidated statements of stockholders’ equity, in the amount of $638,749, with the net loss on the sale reported on the statements of operations for the period ended June 30, 2019. Total ending stockholder’s equity for the period ended June 30, 2019, remains unchanged.

Internet Operations

As of December 31, 2017,2019, the focus of our internet segment is to generate cash flow, work to make our costs variable, and reinvest in our operations when an acceptable return is available. We did not make significant reinvestments into the internet segment during 2017. Additionally, competitive pressures have negatively affected our ongoing revenue. Accordingly, internet segment revenue is slowly declining, though at a slower pace than previous years, as noted below.the year ended December 31, 2019.

Revenue attributed to the internet segment during the year ended December 31, 2017,2019, totaled $1,287,408. While this was a decrease$1,066,229 and cost of $127,881 when compared to revenue generated in thistotaled $330,654. Operating expenses for the segment duringtotaled $223,118 for the year ended December 31, 2016, totaling $1,415,289,2019, and other income totaled $10,169. Accumulated other comprehensive loss related to the year-over-year decline fromrecognition of foreign currency translation adjustments totaled $3,054. Total comprehensive income for the years ended December 31, 2016, and 2017internet segment was 9.0%. This was an improvement from the year-over-year decline of 11.7% reported at$519,572 for the year ended December 31, 2016, compared2019. This compares to the year ended December 31, 2015. The year-over-year2018, when revenue declinetotaled $1,168,843, cost of revenues totaled $325,234, operating expenses were $241,654, other income was $35,649, and comprehensive income was $637,604. Other income in 2018 for the segment is the result of fewer customer renewals and the absence of new customers. During the year ended December 31, 2017 the internet segment also had other income of $74,202 attributable primarily to the sale of various blocks of IP addressesaddresses.

Management is currently identifying the market value for domain names owned by the Company in order to assess potential income opportunities. Management evaluates these domain names for third-party sales potential, as well as for other marketing opportunities that could generate new revenue from current customers who utilize the domains.

As of December 31, 2019, we have a total of 7,466 customer accounts across the U.S. and the sale of the domain name, first.com.Canada. This compares to the year ended December 31, 2018, when we had a total of 8,058 customer accounts. As of December 31, 2019, approximately 64% of our internet segment revenue is driven by internet access services, with the remaining 36% being earned though web hosting and other incomeweb-based storage services.

Approximately 92% of our customer accounts are U.S.-based, while 8% are Canada-based. Revenue generated by the internet segmentour U.S. customers totaled $1,011,407 and revenue generated by our Canadian customers totaled $54,822 during the year ended December 31, 20162019. This compares to revenue generated by our U.S. customers of $99,149.

The cost$1,101,999 and revenue generated by our Canadian customers of revenue$66,844 during the year ended December 31, 2017, totaled $304,719. This was a decrease of $64,795 when compared to the cost of revenue in this segment during the year ended December 31, 2016, totaling $369,514. This decrease was the result of decreased revenues and our work to restructure vender contracts and reduce fixed costs.2018.

The tables below provide a condensed summary of income statement amounts over time. These figures are specific to the internet segment and are presented for the annual and quarterly periods designated below.

Management is currently identifying the market value for domain names owned by the Company in order to assess potential income opportunities. Management also evaluates domain names available for purchase in order to generate new revenue from customers who utilize the domains.

13Discontinued Operations - Home Services Operations

Effective January 1, 2016, we improved our internal reporting in the internet segment.

As of December 31, 2017, we have a total of 8,802 customer accounts across the U.S. and Canada. This compares to the year ended December 31, 2016, when we had a total of 9,423 customer accounts. As of December 31, 2017, our mix of customers consisted of approximately 89% internet access and 11% web hosting and storage.

Approximately 90% of our customer accountsnoted previously, Specialty Contracting Group, LLC’s historical operations are U.S. based, while 10% are Canadian based. Revenue generated by our U.S. customers totaled $1,205,281 and revenue generated by our Canadian customers totaled $82,127 during the year ended December 31, 2017. This compares to revenue generated by our U.S. customers of $1,312,444 and revenue generated by our Canadian customers of $102,845 during the year ended December 31, 2016.

We closed our Canada office on February 29, 2016 and terminated the employment of two employees. We now service our Canadian customers remotely and utilize one full-time employee in Canada.

HVAC Operations

The Company operates its HVAC operations through HVAC Value Fund, LLC, a wholly owned subsidiary focused on the acquisition and management of HVAC and plumbing companies in Arizona. After gaining experience with HVAC acquisitions, management noted the complementary nature of plumbing providers and completed two acquisitions where a significant amount of their revenue originated from plumbing services. As previously reportedclassified as “discontinued operations” in our Current Report on Form 8-K filed with the SEC on June 14, 2016, we, along with JNJ Investments, LLC, an unaffiliated third partyconsolidated financial statements, and member of HVAC Value Fund, LLC, organized and launched this subsidiary on June 13, 2016. HVAC Value Fund closed on five acquisitions totaling $1,455,000 during the year ended December 31, 2016. During year ended December 31, 2017, HVAC Value Fund closed on one additional acquisition totaling $560,000. As previouslyall presented prior periods have also been reclassified to discontinued operations for comparability. The net loss reported in our Current Report on Form 8-K filed with the SEC on June 14, 2016, and discussed further herein, the purpose of HVAC Value Fund is to acquire HVAC and plumbing businesses. Accordingly, all of our acquisitions were made in the ordinary course of business and consistent with the customs and practices (including with respect to nature, scope, magnitude, quantity, frequency, and contemplated purpose) of HVAC Value Fund, and, in turn, the Company.

Our HVACfrom discontinued operations generated revenue of $4,294,904 during the year ended December 31, 2017. This is an increase of $2,816,943 compared to generated revenue of $1,477,961 during the year ended December 31, 2016. For the year ended December 31, 2017 cost of revenue totaled $2,961,874 and operating expenses totaled $1,415,209. This is an increase of $1,974,653 and $847,494, respectively, compared to the year ended December 31, 2016 when cost of revenue totaled $987,221 and operating expenses totaled $567,715.  Other expenses for the year ended December 31, 2017 totaled $24,522. This is an increase of $22,654 compared to other expenses for the year ended December 31, 2016 when other expenses totaled $1,868. The other expenses are related to the interest portion of the notes payable incurred by HVAC Value Fund. Net loss before income taxes for the year ended December 31, 2017 totaled $106,701. This compares to the year ended December 31, 2016 when the net loss before income taxes for the year totaled $78,843. Management notes that for the year ended December 31, 2016, HVAC Value Fund had closed only five of the six currently held acquisitions and did not commence any operations until June 13, 2016.

Real Estate Operations

Sitestar created a wholly owned real estate subsidiary on July 10, 2017 named EDI Real Estate, LLC to hold Sitestar’s legacy portfolio of real estate. As of December 31, 2017, we owned ten residential properties, one commercial property, and interests in several lots. This compares December 31, 2016 when we owned 19 residential properties, one commercial property, and interests in several lots. In 2008, the Company had implemented a program to redirect cash generated from the internet operations into the purchase and renovation of real estate. This program was abolished with the change in management on December 14, 2015. From December 14, 2015, through the end of 2015, several real estate agents and investors were engaged to determine the marketability of our properties. Repair work ceased until a more thorough review for each property could be completed to determine the most profitable course forward. Prior to year-end 2015, a list of properties was assigned to a real estate agent. Additionally, during 2016 and 2017, we entered into negotiations with several investors to sell various properties. Many of these properties were held for resale by prior management, but prior marketing activity was poor.

During the year ended December 31, 2017, we continued to market for sale or prepare to market for sale each property in the held-for-resale category. Properties have either sold as-is or have been repaired and upgraded before being listed for sale. Several real estate agents continue to be engaged to market the remaining properties listed for resale.

We own eight rental properties managed by a third-party property management company. As of December 31, 2017, we had eight properties available for rent with all eight properties being occupied. One additional property continues to be renovated with the intention to have it ready for rent during 2018. The leases in effecthome services segment, as of the year ended December 31, 2017, are based2019, was $1,510,475. Included in this amount is an offsetting $21,629 loss recovery on either annual

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or multi-year time periods and include month-to-month provisions afterdiscontinued operations that represents royalties earned in accordance with the completion of the initial term. The property management company has introduced updated and renewed leases for existing rental properties. Eight properties were current with regard to tenant payments as of December 31, 2017.Rooter Hero royalty arrangement mentioned previously. This compares to the year ended December 31, 2016, when we had eight properties available for rent with sevennet loss of the properties occupied and seven properties current with regard to tenant payments.

During the year ended December 31, 2017, we sold nine residential properties for gross proceeds of $1,138,000. Net proceeds totaled $821,217. This compares to their carrying value of $1,105,914. One sale resulted in a note receivable$915,163 reported from the buyer.  This note is expected to be collected in full during 2018. As of December 31, 2017, real estate held for resale was carried on the balance sheet at $199,117. This comparesdiscontinued operations related to the year ended December 31, 2016 when real estate held for resale was carried at $1,399,280. During the year ended December 31, 2017, the Company generated rental revenue of $101,992, net of bad debt expense. The cost of rental revenue totaled $34,756. This compared to rental revenue of $111,987, net of bad debt expense and cost of rental revenue of $39,014 during the year ended December 31, 2016. The consistency of our rental revenue relative to cost of rental revenue is the result of stable tenant leases, which are managed by a third-party property management company. As of December 31, 2017, real estate held for investment was carried on the balance sheet at $616,374.  This compares to the year ended December 31, 2016 when real estate held for investment was held at $506,011.

Depreciation expense totaled $22,354 for the year ended December 31, 2017. Total accumulated depreciation as of December 31, 2017 totaled $86,361.

During the year ended December 31, 2017, a valuation adjustment of $101,694 was made by management on real estate properties held for sale in order to properly reflect market value for those properties held at the end of the year.  This compares to the valuation adjustment of $152,411 made during the year ended December 31, 2016.

For the real estate segment as a whole, for the year ended December 31, 2017, the total comprehensive loss was $100,693.  This compares to the $96,311 of comprehensive loss reported for thehome services segment for the year ended December 31, 2016.2018.

As previously reported in our Current Reports on Form 8-K filed with the SEC on December 11, 2017 and January 17, 2018, respectively, Sitestar created a wholly owned subsidiary named Mt Melrose, LLC, which currently is engaged in an acquisition of a portfolio of residential and other income-producing real estate in Lexington, Kentucky pursuant to a certain Master Real Estate Asset Purchase Agreement entered into on December 10, 2017 with a like-named seller, Mt. Melrose, LLC, a Kentucky limited liability company owned by Jeff Moore, also a Sitestar director. Unlike EDI Real Estate, LLC, which is a legacy business that we do not intend to grow, Mt Melrose is a real estate business that the Company expects will grow significantly over time. Mt Melrose has its own management team, led by our Chairman, Jeffrey Moore. Mr. Moore has extensive experience acquiring and operating real estate in the Lexington, KY region where Mt Melrose is focused. The Mt Melrose management team will be responsible for growing this business.

Asset ManagementOther Operations

The Company operates its asset management business through a wholly owned subsidiary, Willow Oak Asset Management, LLC. This subsidiary was formed on October 10, 2016. As of December 31, 2016, this subsidiary did not have material operations. Effective January 1, 2017, Willow Oak Asset Management made its first investment and was subsequently allocated all related expenses.

The tables below provide a summary of income statement amounts over time. These figures are specific to other business segments, including corporate and various other investments, held throughand are presented for the asset management segment totaled $10,008,902.  No comparable figure exists for 2016.annual and quarterly periods designated below.

This item is not required by smaller reporting companies.

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The information required by this Item 8 may be found immediately after the signatures to this report and is incorporated herein by reference.

Except as has been

As previously reported in those certainour Current Reports under Section 13 or 15(d) of The Securities Exchange Act of 1934Report on Form 8-K filed bywith the SEC on July 15, 2019, on July 10, 2019, the Company formally engaged Brown Edwards & Company, LLP to serve as the Company’s independent registered public accounting firm for the year ending December 31, 2019. Prior to this time, Cherry Bekaert, LLP had been appointed as the Company’s independent registered public accounting firm for the year ending December 31, 2019, having served as the Company’s independent registered public accounting firm since 2016. There has been no other change in the independent accountants engaged to audit the financial statements of the Company and its subsidiaries during the last two fiscal years ended December 31, 2019, and there have been no disagreements with such independent accountants during the Securities and Exchange Commissionlast two fiscal years ended December 31, 2019, on February 18, 2016, and March 7, 2016, respectively, noany matter of accounting principles or practices, financial statement disclosure, for this Item 9 is required herein.or auditing scope or procedure.

Evaluation of Disclosure Controls and Procedures

As of December 31, 2017,

The Company’s management, with the participation of our Chief Executiveprincipal executive officer and Financial Officer, performed an evaluation ofprincipal financial officer, have evaluated the effectiveness of the design and operation of our disclosure“disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act.Act, as of December 31, 2019. Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executiveour principal executive officer and Financial Officer,principal financial officer, to allow timely decisions regarding required disclosures. Because of inherent limitations, any controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance of achieving the desired control objective. Based upon theirthis evaluation, and based upon material weaknesses in our internal control over financial reporting identified as of the date of our most recent evaluation of internal controls over financial reporting, our Chief Executiveprincipal executive officer and Financial Officerprincipal financial officer concluded that our disclosure controls and procedures were not effective as of December 31, 2017.  During 2017 management continued to recruit and hire additional employees at the corporate level in order to add additional layers of internal review and further segregate employee responsibilities. Management is aware of these deficiencies and is working diligently to improve the relevant controls and procedures; provided, however, there can be no assurance that such relevant controls and procedures will be improved or, even if improved, that such improved controls and procedures will be effective.2019.

Management’s Report on Internal Control over Financial Reporting

The management of SitestarEnterprise Diversified, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of our consolidated financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the consolidated financial statements. Under the supervision and with the participation of our management, including our Chief Executive OfficerChairman and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. Based on this evaluation, our management concluded that, as of December 31, 2017,2019, our internal control over financial reporting was not effective based on such criteria. We have reviewed the results of management’s assessment with our Board of Directors. In addition, we will evaluate any changes to our internal control on a quarterly basis to determine if a material change occurred.

Material Weaknesses in Internal Controls

As defined by the Public Company Accounting Oversight Board’s Auditing Standard No. 5, a

A material weakness is a significant control deficiency, or a combination of significantdeficiencies, in internal control deficiencies,over financial reporting such that results in there being more thanis a remote likelihoodreasonable possibility that a material misstatement of the annual or interimour financial statements willwould not be prevented or detected.detected on a timely basis.

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As a result of our evaluations, we identified the following material weakness in our internal control over financial reporting as of December 31, 2017:2019:

We didhave not maintain proper segregation of duties forproperly designed internal controls over the preparation of our financial statements. DueWe have incorporated consultants, new hires, and review processes to alleviate some of the sizeassociated risks of our administrative staff, audit areas such as accounts receivable, accounts payable, and payroll had deficiencies related to segregation of duties. While weduties and financial reporting matters; however, formal and consistent policies and procedures, as well as complete control documentation for all significant financial reporting areas, have made strides to improve the control structure and add approval layers, incompatible functions among staff were not mitigated in a manner that would prevent a material misstatement from occurring as of December 31, 2017.been prepared or implemented.

Changes in Our Internal Controls

During the year ended December 31, 2017,2019, the Company hired an administrative assistanta new Vice President of Operations in order to assist with general accountingbuild out new company processes and recordkeeping functions. The additionoptimize existing company procedures. Additionally, this role is intended to create a dedicated operational manager across each of the administrative assistant adds an additional layer of reviewbusiness segments. As a result, corporate management has greater visibility over financial transactions and provides backup functionality for a wide range of accounting functions.internal control processes.

During the previous year ended December 31, 2016,2018, the Company had separated the Chief Executive Officer and Chief Financial Officer roles to allow for more specific focus on the Company’s operational and financial needs. Additionally, the Company had hired a Certified Public Accountant as a Controllernew Vice President and Chief of Staff to assist with allenhance management’s oversight and further segregate management roles and responsibilities. The Company also had hired an additional accountant at the corporate level in order to add additional layers of internal review and provide segregation of accounting and reporting functions. The addition of the Controller adds a second layer of review and oversight over all financial reporting functions.roles and responsibilities.

During the year ended December 31, 2016, the Company also implemented multiple policies regarding controls pertaining to the information technology environment. These policies include: Acceptable Use, Backup and Recovery, Cloud Computing, Password, System Access, Version Control System, and Vulnerability Assessment.

Specialty Contracting Group, LLC

On October 22, 2019, the Company, as and being the sole and managing member of Specialty Contracting Group, LLC, resolved to dissolve and wind up Specialty Contracting Group and proceed with distributing its assets in accordance with §18-804 of the Delaware Limited Liability Company Act. Management had determined that Specialty Contracting Group’s continued existence was not reasonably practicable or financially feasible; the entity having no operational capabilities, no significant assets, and no prospects for the carrying on of any business or receipt of revenue. All of Specialty Contracting Group’s cash on hand was paid out ratably to its creditors and claimants; however, its assets were not sufficient to satisfy in full its known liabilities. After making such payments out of and to the extent of its assets, Specialty Contracting Group filed a Certificate of Cancellation with the Secretary of State of the State of Delaware on November 15, 2019, thereby effecting the cancellation and termination of the entity.

Reverse Stock Split

As previously reported in our Current Report on Form 8-K filed with the SEC on June 7, 2018, the Board of Directors of the Company previously approved, on March 29, 2018, a reverse stock split of all of the Company’s Common Stock, pursuant to which every 125 shares of Common Stock of the Company were reverse split, reconstituted, and converted into one (1) share of Common Stock of the Company (the “Reverse Stock Split”). To effectuate the aforesaid Reverse Stock Split, the Company previously filed on May 23, 2018, a Certificate of Change Pursuant to Nevada Revised Statutes (“NRS”) Section 78.209 (the “Certificate of Change”) with the Secretary of State of the State of Nevada, with a specified effective filing date of June 1, 2018.

The Company submitted an Issuer Company Related Action Notification regarding the Reverse Stock Split to the Financial Industry Regulatory Authority (“FINRA”) on May 22, 2018. FINRA declared the Reverse Stock Split effective in the marketplace July 23, 2018 (the “FINRA Effective Date”). Accordingly, while the Certificate of Change became effective under Nevada state corporate law on June 1, 2018, the Reverse Stock Split did not become effective as to shareholders or the marketplace until the FINRA Effective Date.

Split Adjustment

On the FINRA Effective Date, the total number of shares of the Company’s Common Stock held by each stockholder converted automatically into the number of whole shares of Common Stock equal to (i) the number of shares of Common Stock held by such stockholder immediately prior to the Reverse Stock Split, divided by (ii) one hundred twenty five (125). No fractional shares were issued, and no cash or other consideration was paid. Rather, any fraction of a share of Common Stock that otherwise would have resulted from the Reverse Stock Split were rounded up to the next whole share of Common Stock. That is, stockholders who otherwise would have been entitled to receive fractional shares because they held a number of pre-Reverse Stock Split shares of the Company’s Common Stock not evenly divisible by one hundred twenty five (125), had the number of post-Reverse Stock Split shares of the Company’s Common Stock to which they were entitled rounded up to the next whole number of shares of the Company’s Common Stock. Stockholders’ equity and all references to share and per-share amounts in this annual report on Form 10-K and in the accompanying consolidated financial statements have been retroactively adjusted to reflect the Reverse Stock Split for all periods presented.

Ownership Unchanged

Immediately after the Reverse Stock Split, each stockholder’s percentage ownership interest in the Company and proportional voting power remained unchanged except for minor adjustments resulting from the Company’s election to round up any fraction of a share of Common Stock that otherwise would have resulted from the Reverse Stock Split. The rights and privileges of the holders of shares of Common Stock of the Company were substantially unaffected by the Reverse Stock Split.

Capitalization

Immediately prior to the Certificate of Change becoming effective, the aggregate number of shares which the Company had the authority to issue was three hundred fifty million (350,000,000) shares of Common Stock at $.001 par value, and thirty million (30,000,000) shares of Serial Preferred Stock at $.001 par value. As a result of the Certificate of Change and Reverse Stock Split, the aggregate number of shares which the Company has the authority to issue is two million eight hundred thousand (2,800,000) shares of Common Stock at $.125 par value, and thirty million (30,000,000) shares (unchanged) of Serial Preferred Stock at $.001 par value. 

None.

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PART III

We expect to file with the SEC in April 2018 2020 (and, in any event, not later than 120 days after the close of our last fiscal year), a definitive Proxy Statement, pursuant to SEC Regulation 14A in connection with our Annual Meetingannual meeting of Shareholdersstockholders scheduled to be held on May 19, 2018.28, 2020.

The information required by this item is incorporated herein by reference from the Company’s definitive Proxy Statement for the 20182020 annual meeting of stockholders under the sections entitled “Information with Respect to Nominees,” “Management,” and “Corporate Governance.”

The information required by this item is incorporated herein by reference from the Company’s definitive Proxy Statement for the 20182020 annual meeting of stockholders under the section entitled “Executive Compensation.”

The information required by this item is incorporated herein by reference from the Company’s definitive Proxy Statement for the 20182020 annual meeting of stockholders under the sections entitled “Security Ownership of Directors and Executive Officers” and “Information as to Certain Stockholders.”

The information required by this item is incorporated herein by reference from the Company’s definitive Proxy Statement for the 20182020 annual meeting of stockholders under the sections entitled “Determinations Regarding Independence” and “Transactions with Related Persons.”

The information required by this item is incorporated herein by reference from the Company’s definitive Proxy Statement for the 20182020 annual meeting of stockholders under the section entitled “Proposal 4. Ratification of the Selection of Independent Registered Public Accounting Firm.”

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PART IV