UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended ~~September~~June 30, ~~2017~~2020

~~SITESTAR CORPORATION~~ENTERPRISE DIVERSIFIED, INC.

(Exact Name of Registrant as Specified in Its Charter)

Commission file number 000-27763

Nevada		88-0397234
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1518 Willow Lawn Drive, Richmond, VA		23230
(Address of Principal Executive Offices)		(Zip Code)

(434) ~~382-7366~~336-7737

(~~Issuer’s~~Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	Not applicable	Not applicable

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the ~~past~~preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). [X] Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐		Accelerated filer	☐

Non-accelerated filer	☐ ~~(Do not check if a small reporting company)~~	☒	Smaller reporting company	~~[X]~~☒

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined byin Rule 12b-2 of the Exchange Act). ☐ Yes ~~[X]~~☒ No

The number of shares outstanding of the issuer’s Common Stock, ~~$0.001~~$0.125 par value, as of ~~November 9, 2017~~August 5, 2020 is ~~282,830,163.~~2,602,240.

Table of Contents

		Page No.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

PART I
~~PART 1~~Item 1. Financial Statements		3
~~Item 1.~~ ~~Financial Statements~~Condensed Consolidated Balance Sheets as of June 30, 2020 (Unaudited) and December 31, 2019		43
Unaudited Condensed Consolidated ~~Balance Sheets as~~Statements of ~~September~~Operations for the Three and Six Months Ended June 30, ~~2017~~2020 and ~~December 31, 2016~~2019		4
Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~September 30, 2016~~2019		5
Unaudited Condensed ~~Statements~~Consolidated Statement of ~~Comprehensive Income~~Changes in Stockholders’ Equity for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~September 30, 2016~~2019		6
~~Unaudited Consolidated Statements of Stockholders’ Equity as of September 30, 2017 and December 31, 2016~~		7
Unaudited Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~September 30, 2016~~2019		87
Notes to Unaudited Condensed Consolidated Financial Statements		109
Item 2. Management’s ~~Discussions~~Discussion and Analysis of Financial Condition and Results of Operations		2425
Item 3. Quantitative and Qualitative Disclosures About Market Risk		30
Item 4. Controls and Procedures		30

PART II
~~PART II~~
Item 1. Legal Proceedings		31
Item 1A. Risk Factors		3132
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds		31
~~Item 3.~~ ~~Defaults Upon Senior Securities~~		31
~~Item 4.~~ ~~Mine Safety Disclosures~~		31
~~Item 5.~~ ~~Other Information~~		32
Item 6. ~~Exhibits~~3. Defaults Upon Senior Securities	32
Item 4. Mine Safety Disclosures	32
Item 5. Other Information	32
Item 6. Exhibits	33

Signatures		34

CAUTIONARY STATEMENT ~~REGARDIN~~GREGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including, without limitation, Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein, contains statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. The words “believe,” “estimate,” “expect,” “intend,” “anticipate,” ~~“plan”~~“plan,” and similar expressions and variations thereof identify certain of such forward-looking statements which speak only as of the dates on which they were made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties which may affect the ~~Company's~~Company’s business and prospects, including changes in economic and market conditions, acceptance of the Company’s products, maintenance of strategic alliances, and other factors discussed elsewhere in this Form 10-Q, and that actual results may differ materially from those indicated in the forward-looking statements as a result of various factors.

PART I. ~~FINANCI~~ALFINANCIAL INFORMATION

Item 1.

Financial Statements

~~SITESTAR CORPORATION~~

ENTERPRISE DIVERSIFIED, INC.

And Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30, 2017 (unaudited)			December 31, 2016			June 30, 2020 (unaudited)			December 31, 2019
Assets
Current Assets
Cash and cash equivalents	$	151,867		$	2,607,370		$	425,985		$	666,810
Accounts receivable, net		481,123			212,751			28,394			52,889
Investments, at fair value		133,989			599,500
Other current assets		135,248			2,554,861			25,100			29,555
Other current assets - held for resale								291			428
Total current assets		902,227			5,974,482			479,770			749,682
Real estate - held for resale		337,481			1,399,280
Long-term Assets
Real estate - held for investment, net		502,368			506,011			383,128			380,515
Real estate - held for resale, net								—			98,910
Property and equipment, net		371,497			143,464			15,730			17,753
Goodwill, net		1,991,994			1,553,745			212,445			212,445
Note receivable		226,000			—			202,957			195,121
Non-current investments, at fair value		12,067,983			—
Long-term investments								9,586,178			10,126,204
Lease right-of-use assets								15,279			45,056
Other assets		69,625			264,250			73,605			73,958
		15,566,948			3,866,750
Total long-term assets								10,489,322			11,149,962
Total assets	$	16,469,175		$	9,841,232		$	10,969,092		$	11,899,644
Liabilities and Stockholders' Equity
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable							$	77,670		$	157,934
Accrued compensation								96,726			175,259
Accrued expenses								23,113			23,115
Deferred revenue	$	239,748		$	214,898			210,671			204,960
Lease liability, current								15,738			46,435
Notes payable, current		449,363			240,000			16,801			11,453
Accounts payable		180,692			77,918
Accrued bonus		110,000			51,855
Accrued expenses		108,294			71,532
Other current liabilities - held for resale								147,113			146,958
Total current liabilities		1,088,097			656,203			587,832			766,114
Notes payable		209,272			25,000
Long-term Liabilities
Notes payable, net of current portion								486,956			499,572
Total long-term liabilities		209,272			25,000			486,956			499,572
Total liabilities		1,297,369			681,203			1,074,788			1,265,686
Stockholders' equity
Stockholders’ Equity
Preferred stock, $0.001 par value, 30,000,000 shares authorized; none issued		—			—			—			—
Common stock, $0.001 par value, 300,000,000 shares authorized; 294,526,821 and 204,152,616 shares issued; 282,830,163 and 190,230,163 shares outstanding		294,527			204,152
Additional paid-in-capital		23,538,493			19,096,858
Treasury stock, at cost, 11,696,658 and 13,822,453 common shares		(544,571	)		(637,561	)
Accumulated other comprehensive (loss) income		(16,928	)		39,343
Common stock, $0.125 par value, 2,800,000 shares authorized; 2,602,240 and 2,566,646 shares issued and outstanding								325,280			320,831
Additional paid-in capital								27,439,334			27,313,734
Accumulated other comprehensive income								—			—
Accumulated deficit		(8,099,715	)		(9,542,763	)		(17,870,310	)		(17,000,607	)
Total stockholders' equity attributable to Sitestar Corporation Stockholders		15,171,806			9,160,029
Noncontrolling interest in consolidated subsidiaries		—			—
Total stockholders' equity		15,171,806			9,160,029
Total liabilities and stockholders' equity	$	16,469,175		$	9,841,232
Total stockholders’ equity								9,894,304			10,633,958
Total liabilities and stockholders’ equity							$	10,969,092		$	11,899,644

For the three months ended
September 30

For the nine months ended
September 30

2017

2016

2017

2016

Revenues - internet operations

$
314,202

$
355,384

$
977,629

$
1,068,283

Revenues - HVAC

1,332,239

906,910

3,526,913

939,932

Revenues - real estate

324,044

404,923

1,216,190

1,992,371

Revenues - asset management

715,598

—

1,320,808

—

Total revenues

2,686,083

1,667,217

7,041,540

4,000,586

Cost of revenues - internet operations

81,144

70,290

237,098

290,043

Cost of revenues - HVAC

875,991

619,881

2,307,902

633,053

Cost of revenues - real estate

306,537

402,285

1,264,602

1,918,603

Cost of revenues - asset management

—

—

—

—

Total cost of revenues

1,263,672

1,092,456

3,809,602

2,841,699

Gross profit - internet operations

233,058

285,094

740,531

778,240

Gross profit - HVAC

456,248

287,029

1,219,011

306,879

Gross profit (loss) - real estate

17,507

2,638

(48,412
)

73,768

Gross profit - asset management

715,598

—

1,320,808

—

Total gross profit

1,422,411

574,761

3,231,938

1,158,887

Selling, general and administrative expenses

606,378

634,338

1,909,650

1,152,715

Total operating expenses

606,378

634,338

1,909,650

1,152,715

Income from operations

816,033

(59,577
)

1,322,288

6,172

Other (expense) income, net

(8,877
)

93,779

120,760

98,350

Income before income taxes

807,156

34,202

1,443,048

104,522

Income tax benefit (expense)

—

—

—

—

Net income

807,156

34,202

1,443,048

104,522

Less: net income attributable to the noncontrolling interest

—

14,102

—

16,955

Net income attributable to Sitestar Corporation stockholders

$
807,156

$
20,100

$
1,443,048

$
87,567

Earnings per share, basic and diluted

0.00

0.00

0.01

0.00

Weighted average number of shares, basic and diluted

282,830,163

122,794,725

272,315,145

92,644,688

	For the three months ended						For the six months ended
	June 30						June 30
	2020			2019			2020			2019
Revenues - asset management	$	1,268,819		$	589,180		$	(476,335	)	$	1,286,160
Revenues - real estate		16,494			218,599			203,643			401,105
Revenues - internet operations		245,215			265,917			498,774			540,819
Revenues - other		—			—			—			212,631
Total revenues		1,530,528			1,073,696			226,082			2,440,715

Cost of revenues - real estate		7,114			164,130			139,323			327,373
Cost of revenues - internet operations		79,229			83,243			166,417			170,856
Cost of revenues - other		—			—			—			—
Total cost of revenues		86,343			247,373			305,740			498,229

Gross profit (loss) - asset management		1,268,819			589,180			(476,335	)		1,286,160
Gross profit - real estate		9,380			54,469			64,320			73,732
Gross profit - internet operations		165,986			182,674			332,357			369,963
Gross profit - other		—			—			—			212,631
Total gross profit (loss)		1,444,185			826,323			(79,658	)		1,942,486

Selling, general, and administrative expenses:
Insurance		4,690			60,612			28,823			118,295
Professional fees		134,115			207,866			344,249			307,157
Salaries and wages		166,247			191,144			327,596			429,412
Travel and meals		—			15,528			3,135			22,484
Other operating expenses		40,590			205,231			104,997			288,988
Total selling, general and administrative expenses		345,642			680,381			808,800			1,166,336
Income (loss) from operations		1,098,543			145,942			(888,458	)		776,150

Loss on sale of subsidiary		—			(4,157,809	)		—			(4,157,809	)
Impairment expense		—			(239,365	)		—			(239,365	)
Interest expense		(6,934	)		(120,306	)		(14,016	)		(279,729	)
Other income (loss), net		6,707			10,324			18,866			52,949
Total other income (loss)		(227	)		(4,507,156	)		4,850			(4,623,954	)

Income (loss) from continuing operations before income taxes		1,098,316			(4,361,214	)		(883,608	)		(3,847,804	)
Income tax benefit (expense)		—			—			—			—
Income (loss) from continuing operations		1,098,316			(4,361,214	)		(883,608	)		(3,847,804	)

Income (loss) from discontinued operations, net of taxes		3,149			(1,270,371	)		13,905			(1,410,005	)
Net income (loss)	$	1,101,465		$	(5,631,585	)	$	(869,703	)	$	(5,257,809	)

Net income (loss) per share, basic and diluted		0.42			(2.21	)		(0.34	)		(2.07	)
Net income (loss) per share from continuing operations, basic and diluted		0.42			(1.71	)		(0.34	)		(1.51	)
Net income (loss) per share from discontinued operations, basic and diluted		0.00			(0.50	)		0.01			(0.55	)
Weighted average number of shares, basic		2,602,240			2,544,776			2,593,661			2,544,776
Weighted average number of shares, diluted		2,602,908			2,544,776			2,594,218			2,544,776

For the three months ended
September 30

For the nine months ended
September 30

2017

2016

2017

2016

Net income

$
807,156

$
34,202

$
1,443,048

$
104,522

Other comprehensive income (loss), net of tax:

Change in foreign currency translation adjustments

—

(12
)

—

(103
)
Change in unrealized gains related to available-for-sale
   securities:

Change in fair value of available-for-sale securities

10,068

(21,694
)

20,664

28,657

Adjustment for net (gains)/losses realized and
   included in net income

—

—

(76,935
)

—

Total change in unrealized gains/losses on
   available-for-sale securities

10,068

(21,694
)

(56,271
)

28,657

Other comprehensive income (loss)

10,068

(21,706
)

(56,271
)

28,554

Comprehensive income

817,224

12,496

1,386,777

133,076

Less: comprehensive income attributable to the non
   controlling interest

—

14,102

—

16,955

Comprehensive income (loss) attributable to Sitestar
   Corporation stockholders

$
817,224

$
(1,606
)

$
1,386,777

$
116,121

	For the three months ended					For the six months ended
	June 30					June 30
	2020		2019			2020			2019
Net income (loss)	$	1,101,465	$	(5,631,585	)	$	(869,703	)	$	(5,257,809	)
Other comprehensive income (loss), net of tax:
Change in foreign currency translation adjustments		—		—			—			—
Comprehensive income (loss)	$	1,101,465	$	(5,631,585	)	$	(869,703	)	$	(5,257,809	)

Accumulated

Total

Common

Additional

Treasury

Other Comprehensive

Accumulated

Noncontrolling

Stockholders'

Stock

Amount

Paid In Capital

Stock

Income

Deficit

Interest

Equity

Balance December 31, 2015

77,404,010

$
91,327

$
13,728,989

$
(637,561
)

$
3,415

$
(9,435,125
)

$
—

$
3,751,045

Opening balance adjustment

100,000

—

—

—

—

—

—

—

Balance December 31, 2015 (restated)

77,504,010

91,327

13,728,989

(637,561
)

3,415

(9,435,125
)

—

3,751,045

Net (loss) income

—

—

—

—

—

(107,638
)

—

(107,638
)
Contributed capital

112,826,153

112,825

5,367,869

—

—

—

—

5,480,694

Loss on foreign exchange translation

—

—

—

—

(361
)

—

—

(361
)
Unrealized gain on investments

—

—

—

—

36,289

—

—

36,289

Balance December 31, 2016

190,330,163

204,152

19,096,858

(637,561
)

39,343

(9,542,763
)

—

9,160,029

Net income (loss)

—

—

—

—

—

1,443,048

—

1,443,048

Contributed capital

92,500,000

92,500

4,532,500

—

—

—

—

4,625,000

Unrealized (loss) gain on investments

—

—

—

—

(56,271
)

—

—

(56,271
)
Adjustment for share cancellation

—

(2,125
)

(90,865
)

92,990

—

—

—

—

Balance September 30, 2017

282,830,163

$
294,527

$
23,538,493

$
(544,571
)

$
(16,928
)

$
(8,099,715
)

$
—

$
15,171,806

					Additional				Accumulated Other					Total
	Common				Paid-in		Treasury		Comprehensive		Accumulated			Stockholders’
	Stock		Amount		Capital		Stock		Income		Deficit			Equity
Balance December 31, 2019		2,566,646	$	320,831	$	27,313,734	$	—	$	—	$	(17,000,607	)	$	10,633,958
Net income (loss)		—		—		—		—		—		(1,971,168	)		(1,971,168	)
Stock issuance		35,594		4,449		125,600		—		—		—			130,049
Balance March 31, 2020		2,602,240		325,280		27,439,334		—		—		(18,971,775	)		8,792,839
Net income (loss)		—		—		—		—		—		1,101,465			1,101,465
Balance June 30, 2020		2,602,240	$	325,280	$	27,439,334	$	—	$	—	$	(17,870,310	)	$	9,894,304

					Additional					Accumulated Other					Total
	Common				Paid-in		Treasury			Comprehensive		Accumulated			Stockholders’
	Stock		Amount		Capital		Stock			Income		Deficit			Equity
Balance December 31, 2018		2,544,776	$	328,160	$	27,718,308	$	(511,901	)	$	3,054	$	(11,621,970	)	$	15,915,651
Net income (loss)		—		—		—		—			—		373,769			373,769
Balance March 31, 2019		2,544,776		328,160		27,718,308		(511,901	)		3,054		(11,248,201	)		16,289,420
Net income (loss)		—		—		—		—			—		(5,631,585	)		(5,631,585	)
Balance June 30, 2019		2,544,776	$	328,160	$	27,718,308	$	(511,901	)	$	3,054	$	(16,879,786	)	$	10,657,835

2017

2016

Cash flows from operating activities:

Net income

$
1,443,048

$
104,522

Adjustments to reconcile net income to net cash provided by operating activities:

Amortization

—

55

Depreciation

82,309

23,236

Loss (gain) on sale of real estate

42,938

(213,454
)
Gain on sale of available-for-sale securities

(76,935
)

—

Gain on non-current investments

(1,317,983
)

—

Loss on disposal of vehicle

8,110

—

Bad debt expense

15,281

4,383

Real estate valuation adjustment

58,742

—

(Increase) decrease in:

Accounts receivable, net

(283,653
)

(247,828
)
Other current assets

(80,387
)

(21,888
)
Increase (decrease) in:

Deferred revenue

24,850

(5,088
)
Accounts payable

102,774

47,037

Accrued expenses

94,907

94,313

Net cash flows from operating activities

114,001

(214,712
)
Cash flows from investing activities:

Proceeds from sale of real estate held for sale

683,832

1,568,699

Proceeds from sale of real estate held for investment

137,475

344,850

Improvements to real estate held for sale

(100,596
)

(180,708
)
Improvements to real estate held for investment

—

(17,542
)
Proceeds from sale of marketable securities

486,175

—

Purchases of marketable securities

—

(2,486,403
)
Proceeds from sale of domain names

200,000

—

Purchase of domain names

—

(56,250
)
Purchase of property and equipment

(34,392
)

—

Capitalized loan fees

(5,375
)

—

Subsidiary acquisitions

(8,711,772
)

(1,238,436
)
Net cash flows from investing activities

(7,344,653
)

(2,065,790
)
Cash flows from financing activities:

Principal payments on note payable

(277,088
)

(90,000
)
Proceeds from notes payable

427,237

—

Proceeds from issuance of common stock

4,625,000

3,854,719

Net cash flows from financing activities

4,775,149

3,764,719

Net increase (decrease) in cash

(2,455,503
)

1,484,217

Cash and cash equivalents at beginning of the period

2,607,370

184,731

Cash and cash equivalents at end of the period

$
151,867

$
1,668,948

	2020			2019
Cash flows from (used in) operating activities:
Net income (loss) from continuing operations	$	(883,608	)	$	(3,847,804	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Loss on sale of subsidiary		—			4,157,809
Deconsolidation of assets and liabilities from sale of subsidiary		—			(149,425	)
Write-down of long-term assets		—			167,818
Depreciation and amortization		10,807			148,815
Loss (gain) on long-term investments		552,309			(1,415,906	)
Bad debt expense		264			93,749
Gain on sale of real estate		(73,165	)		(16,932	)
Loss on disposal of property and equipment		—			11,931
(Increase) decrease in:
Accounts receivable, net		24,231			(5,175	)
Notes receivable		(7,836	)		(7,793	)
Other current assets		4,455			(6,525	)
Increase (decrease) in:
Accounts payable		(80,264	)		5,399
Accrued expenses		50,594			(90,372	)
Deferred revenue		5,711			8,564
Accrued interest		—			103,909
Net cash flows (used in) from continuing operations		(396,502	)		(841,938	)
Net cash flows (used in) from discontinued operations		14,197			(88,430	)
Net cash flows (used in) operating activities		(382,305	)		(930,368	)
Cash flows from (used in) investing activities:
Proceeds from investments		—			693,805
Purchases of investments		(12,283	)		(44,089	)
Proceeds from sale of real estate		172,000			772,850
Improvements to real estate		(10,969	)		(105,204	)
Proceeds from sale of subsidiary		—			100,000
Proceeds from sale of inventory		—			4,160
Net cash flows from (used in) continuing operations		148,748			1,421,522
Net cash flows from (used in) discontinued operations		—			—
Net cash flows from investing activities		148,748			1,421,522
Cash flows from (used in) financing activities:
Principal payments on note payable		(132,370	)		(651,379	)
Proceeds from notes payable		125,102			300,000
Net cash flows (used in) from continuing operations		(7,268	)		(351,379	)
Net cash flows (used in) from discontinued operations		—			(32,645	)
Net cash flows (used in) financing activities		(7,268	)		(384,024	)
Net (decrease) increase in cash		(240,825	)		107,130
Cash and cash equivalents at beginning of the period		666,810			435,726
Cash and cash equivalents at end of the period	$	425,985		$	542,856

2017

2016

Non-cash supplemental information:

Unrealized loss (gain) on marketable securities reported as other comprehensive income

$
56,271

$
28,657

Issuance of note receivable on sale of real estate held for sale

$
226,000

$
—

Transfer of real estate held for resale to real estate held for investment

$
125,000

$
—

Transfer of real estate held for investment to real estate held for resale

$
—

$
152,003

Transfer of other current assets to investments

$
2,500,000

$
—

Adjustments to goodwill due to carryback obligations

$
29,504

$
—

HVAC equipment acquired through capital leases and debt obligations

$
172,990

$
—

HVAC acquisitions through notes payable

$
100,000

$
240,000

	2020		2019
Non-cash and other supplemental information:
Transfer of real estate held for investment to held for resale	$	43,917	$	822,829
Transfer of real estate held for resale to held for investment	$	43,992	$	145,000
Issuance of common stock per equity compensation plan	$	130,049	$	—
Effects of adoption of new lease guidance on continuing operations	$	—	$	73,826
Effects of adoption of new lease guidance on discontinued operations	$	—	$	66,277
Continuing operations cash paid for interest	$	14,016	$	279,729
Discontinued operations cash paid for interest	$	—	$	4,549

NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization and Lines of Business

~~Sitestar Corporation~~

Enterprise Diversified, Inc. (formerly White Dove Systems, Inc., ~~and then~~ Interfoods Consolidated, Inc.), and then Sitestar Corporation) was incorporated in Nevada on December 17, 1992. On ~~July 26, 1999,~~June 1, 2018, the Company ~~restated~~amended its Articles of Incorporation to change the name of the Company to ~~“Sitestar Corporation.~~“Enterprise Diversified, Inc.” Unless the context otherwise requires, and when used in this Report, the “Company,” ~~“Sitestar,~~“ENDI,” “we,” ~~“our”~~“our,” or “us” refers to ~~Sitestar Corporation~~Enterprise Diversified, Inc. and its subsidiaries.

~~The~~

During the three- and six-month period ended June 30, 2020, the Company ~~operates~~operated through ~~five~~four reportable segments: ~~Corporate, Internet Operations, HVAC~~Asset Management Operations, Real Estate Operations, Internet Operations, and ~~Asset Management~~Other Operations. Other Operations include corporate operations and nonrecurring or one-time strategic funding or similar activity that is not considered to be one of our primary lines of business. During periods prior to the quarter ended June 30, 2019, the Company also operated through a fifth reportable segment, Home Services Operations. However, as of the quarter ended June 30, 2020, and for all prior periods presented, Home Services Operations are reported as discontinued operations. The management of the Company also continually reviews various ~~investment~~business opportunities for the Company, including those in other lines of business.

~~Corporate~~

Asset Management Operations

The Company operates its asset management operations business through its wholly-owned subsidiaries, Willow Oak Asset Management, LLC (“Willow Oak”) and Willow Oak Capital Management, LLC.

In 2016, the Company made a strategic determination to fund a seed investment, through Willow Oak, to assist in the launch of Alluvial Fund, LP, a private investment fund that was launched on January 1, 2017 by an unaffiliated sponsor and general partner, Alluvial Capital Management, LLC. The Company had determined that Willow Oak’s support of Alluvial Capital Management, LLC and its direct investment in Alluvial Fund were both beneficial and necessary undertakings in conjunction with establishing an asset management operations business and gaining credibility within that industry. As of June 30, 2020, Willow Oak continues to hold its remaining direct investment in Alluvial Fund. Investment gains and losses are reported as revenue on the accompanying unaudited condensed consolidated statements of operations.

In furtherance of establishing the asset management operations business, Willow Oak signed a fee share agreement in June 2017, with Coolidge Capital Management, LLC (“Coolidge”), whose sole member is Keith D. Smith, an ENDI director. Willow Oak is the sole member of Bonhoeffer Capital Management, LLC, the general partner to Bonhoeffer Fund, LP, a private investment partnership managed by Coolidge. Under their agreement concerning Bonhoeffer Fund, LP, Willow Oak paid all start-up expense and pays agreed-upon operating expenses that are not partnership expenses, Coolidge is responsible for all investment management, and Willow Oak receives 50% of all performance and management fees earned.

On November 1, 2018, Willow Oak entered into a fund management services agreement with Arquitos Investment Manager, LP, which is managed by our Board chairman and principal executive officer, Steven L. Kiel, to provide Arquitos with Willow Oak’s Fund Management Services (“FMS”), consisting of the following services: investor relations, marketing, administration, legal, accounting and bookkeeping, annual audit coordination, and liaison to third-party service providers. As consideration for the services, Arquitos pays Willow Oak a monthly fixed fee and an annual performance-based fee.

On October 1, 2019, Willow Oak partnered with Geoff Gannon and Andrew Kuhn to form Focused Compounding Capital Management, LLC (“Focused Compounding”). This joint venture, of which Willow Oak Capital Management is a 10% owner, manages capital through separately managed accounts and a private investment fund launched January 1, 2020. As a member of the general partner, Willow Oak Capital Management provides ongoing FMS and operational support in addition to having covered all one-time expenses associated with the launch of Focused Compounding Fund, LP. As consideration for the arrangement, Willow Oak Capital Management is entitled to 10% of gross management and performance fees earned by Focused Compounding. In addition to hosting a popular investing podcast, the individual principals of Focused Compounding share investment news and advice through a subscription-based service.

Real Estate Operations

In December 2017, ENDI created a wholly-owned subsidiary named Mt Melrose, LLC, a Delaware limited liability company (“New Mt Melrose”), to acquire 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 in December 2017 with a like-named seller, Mt. Melrose, LLC (“Old Mt. Melrose”), a Kentucky limited liability company owned by Jeff Moore, then an ENDI director. During January and June 2018, New Mt Melrose, consistent with the terms of the purchase agreement, completed two bundled acquisitions from Old Mt. Melrose of residential and other income-producing real properties located in Lexington, Kentucky. As has been previously reported, on June 27, 2019, the Company sold 65% of its membership interest in New Mt Melrose to Woodmont. As a result of no longer having a controlling financial interest, the Company deconsolidated the operations of New Mt Melrose as of June 27, 2019. See Note 4 for more information.

In July 2017, ENDI created a wholly-owned real estate subsidiary named EDI Real Estate, LLC to hold ENDI’s legacy portfolio of real estate. As of June 30, 2020, through EDI Real Estate, LLC, ENDI owns a legacy real estate investment portfolio that includes six residential properties and vacant land. Our real estate portfolio under EDI Real Estate, LLC is primarily located in Roanoke, Virginia. The portfolio includes single-family homes, both rented and vacant, that are managed by a third-party property management company.

Internet Operations

The Company operates its internet operations segment through Sitestar.net, a wholly-owned subsidiary that offers consumer and business-grade internet access, wholesale managed modem services, web hosting, third-party software as a reseller, and various ancillary services. Sitestar.net provides services to customers in the United States and Canada.

Discontinued Operations - Home Services Operations

Prior to May 24, 2019, the Company operated its home services operations segment through its subsidiary, Specialty Contracting Group, LLC (formerly known as HVAC Value Fund, LLC). The Company had organized and launched this subsidiary in June 2016, initially with an unaffiliated third party. Specialty Contracting Group was focused on the management of HVAC and plumbing companies in Arizona.

As has been previously reported, on May 24, 2019, the Company completed its divestiture of the home services operations to Rooter Hero. See Note 3 for more information.

Other Operations

Other operations include nonrecurring or one-time strategic funding or similar activity and other corporate operations that are not considered to be one of the Company’s primary lines of business. Below are the main activities that comprise other operations. Additional investment activity that is not specifically mentioned below is included in the accompanying unaudited condensed consolidated financial statements.

Huckleberry Real Estate Fund

During the quarter ended March 31, 2019, all contributed capital was returned in full and a gain of $212,631 was recognized as revenue through the other operations segment ~~includes~~on our unaudited condensed consolidated statements of operations for the six-month period ended June 30, 2019.

Triad DIP Investors

In August 2017, the Company entered into an agreement with several independent third parties to provide debtor-in-possession financing to an unaffiliated third party, Triad Guaranty, Inc., through Triad DIP Investors, LLC. The Company initially contributed $100,000. Triad Guaranty, Inc. exited bankruptcy in April 2018, and the Company subsequently entered into an amended and restated promissory note. As part of the amended and restated promissory note, the Company provided an additional contribution in the amount of $55,000 in May 2018. The terms of the promissory note provided for interest in the amount of 10% annually and the issuance of warrants in Triad Guaranty, Inc. equal to 2.5% of the company. On November 12, 2019, the Company exercised its warrants and purchased 450,000 shares of Triad Guaranty, Inc. Subsequently, on December 30, 2019, the Company monetized all 450,000 shares. The borrower has requested an extension from the original note repayment date of April 29, 2020, and as of the quarterly period ended June 30, 2020, the Company is evaluating a renegotiation of terms.

Corporate Operations

Corporate operations include any revenue or expenses derived from corporate office operations, as well as expenses related to public company reporting, the oversight of subsidiaries, and other items that affect the overall Company.

~~Internet Operations~~

The Company operates its internet segment through Sitestar.net, a wholly-owned subsidiary that offers consumer and business-grade internet access, wholesale managed modem services, web hosting, and various ancillary services. Sitestar.net provides services to customers in the United States and Canada.

~~HVAC Operations~~

The Company operates its HVAC segment through HVAC Value Fund, LLC. HVAC Value Fund is focused on the acquisition and management of HVAC and plumbing companies in Arizona and throughout the Southwest United States. As previously reported in our Current Report on Form 8-K filed with the SEC on June 14, 2016, the Company, along with JNJ Investments, LLC, an unaffiliated third party and member of HVAC Value Fund, LLC, organized and launched this subsidiary on June 13, 2016. Sitestar has a 100% voting interest in HVAC Value Fund and JNJ Investments has the ability to earn profit interests. Under the operating agreement, the Company has first claim to a portion of net income, with the remainder being allocated between the Company and JNJ Investments. JNJ Investments shall also be subject to a Loss Carryforward limitation in the event of a net loss.

As of September 30, 2017, HVAC Value Fund had closed on six acquisitions for an aggregate purchase price of $2.02 million which includes estimated earn outs of approximately $350,000. As previously reported in our Current Report on Form 8-K filed with the SEC on June 14, 2016 and further described above, the purpose of HVAC Value Fund is to acquire HVAC and plumbing businesses. Accordingly, these six 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.

~~Real Estate Operations~~

Sitestar created a wholly-owned real estate subsidiary on July 10, 2017 named EDI Real Estate, LLC. Through EDI Real Estate, LLC, Sitestar owns a real estate investment portfolio that includes 10 residential properties, vacant land, and one commercial property. Our real estate portfolio is primarily focused in the Roanoke and Lynchburg areas of Virginia. The portfolio includes single family homes that are currently rented and managed through a third-party property manager, as well as vacant properties being prepared or currently listed for sale.

~~Notes to Unaudited Condensed Consolidated Financial Statements~~ ~~(Continued)~~

~~Asset Management Operations~~

Sitestar created a wholly-owned asset management subsidiary on October 10, 2016 named Willow Oak Asset Management, LLC (“Willow Oak”). As previously reported in our Current Reports on Form 8-K filed with the SEC on September 19, 2016 and December 30, 2016, respectively, the Company agreed to make a seed investment totaling $10 million through Willow Oak in Alluvial Fund, LP, an unrelated private investment partnership that was launched on January 1, 2017. Under the operating agreement included in the Form 8-K, the Company may not make any withdrawal from its Capital Account until its Capital Account balance exceeds $50,000,000 and any partial withdrawal may not reduce the Capital Account balance below $50,000,000. Additionally, a full withdrawal shall not be permitted prior to a date five years after the effective date of the accompanying Side Letter. As previously reported in our Current Reports on Form 8-K filed with the SEC on January 26, 2017, the Company also committed to make a capital contribution to Huckleberry Real Estate Fund II, LLC in the aggregate amount of $750,000. Under the operating agreement included in the Form 8-K, the Managing Member shall have sole discretion regarding the amounts and timing of Distributions to Members. The asset management segment did not produce revenue in 2016. Any expenses incurred in 2016 were allocated to the corporate segment. Starting January 1, 2017, all revenue earned and expenses incurred by this segment were allocated as such.

Willow Oak signed a fee share agreement on May 11, 2017 with Lizard Head, LLC, the general partner of Bridge Reid Fund I, LP, an unrelated private investment partnership. Under the agreement, Willow Oak became a special limited partner to Bridge Reid, providing fund advisory services to Bridge Reid in exchange for payments equal to 33% of the management fees accrued quarterly by the general partner and 33% of the incentive fees accrued annually, on investors who become limited partners after May 11, 2017.

Willow Oak signed a fee share agreement on June 13, 2017 with Coolidge Capital Management, LLC (“Coolidge”), whose sole member is Keith D. Smith, also a Sitestar director. Under the Agreement, Willow Oak and Coolidge are the sole members of Bonhoeffer Capital Management LLC, the general partner to Bonhoeffer Fund, LP, a private investment partnership. Under their agreement, Willow Oak pays all start-up and operating expenses that are not partnership expenses under the limited partnership agreement. Willow Oak receives 50% of all performance and management fees earned by the general partner.

Principles of Consolidation

The accompanying unaudited consolidated financial statements include the accounts of the Company, ~~and~~ its wholly-owned subsidiaries, and those entities in which it otherwise has a controlling financial interest, including: ~~Sitestar.net, Inc., HVAC Value Fund, LLC, EDI Real Estate, LLC, and~~ Willow Oak Asset Management, LLC, Willow Oak Capital Management, LLC, Mt Melrose, LLC (“New Mt Melrose”) prior to cessation of control resulting from the sale of 65% of the equity in New Mt. Melrose on June 27, 2019 (see Note 4), Specialty Contracting Group, LLC prior to the divestiture transaction on May 24, 2019 (see Note 3), Sitestar.net, Inc., and EDI Real Estate, LLC.

All intercompany accounts and transactions have been ~~eliminated.~~ eliminated in consolidation.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying interim consolidated financial statements are unaudited. These unaudited ~~condensed~~interim consolidated financial statements have been prepared ~~by Sitestar Corporation, pursuant to~~in accordance with the rules and regulations of the U.S. Securities and Exchange Commission ~~(SEC).~~(“SEC”) for interim financial information. Accordingly, they do not include all the information and footnotes required by U.S. Generally Accepted Accounting Principles (“GAAP”) for complete financial statements. The ~~information furnished~~December 31, 2019 consolidated balance sheet included herein ~~reflects all adjustments (consisting~~was derived from audited consolidated financial statements as of ~~normal recurring accruals and adjustments), which are, in the opinion of management, necessary to fairly present the operating results for the respective periods.~~that date. Certain information and footnote ~~disclosures~~disclosure normally ~~present~~included in ~~annual consolidated~~ financial statements prepared in accordance with ~~U.S. Generally Accepted Accounting Principles (GAAP)~~GAAP have been omitted pursuant to ~~such~~instructions, rules, and ~~regulations. These~~regulations prescribed by the SEC. We believe that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited interim consolidated financial statements ~~should be~~are read in conjunction with the audited ~~consolidated~~ financial statements and notes previously filed in our Annual Report on Form 10-K for the year ended December 31, ~~2016 included in~~2019. In the opinion of management, the unaudited interim consolidated financial statements reflect all the adjustments (consisting of normal recurring adjustments) necessary to state fairly the Company’s ~~Annual Report on Form 10-K filed with~~financial position as of June 30, 2020 and the ~~SEC on March 24, 2017 (the “2016 Form 10-K”). The~~ results of operations for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017 are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.~~2020 and 2019.

Use of Estimates

In accordance with ~~Accounting Principles Generally Accepted in the United State of America (GAAP),~~GAAP, the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period.

On an ongoing basis, management evaluates its estimates and judgments, including, among other items, those related to fair value of investments, revenue recognition, accrued expenses, financing operations, fair value of goodwill, fixed asset lives and impairment, lease right-of-use assets and impairment, deferred tax assets, liabilities and valuation allowance, other assets, the present value of lease liabilities, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. These accounting policies are described at relevant sections in the notes to the consolidated financial statements.

~~Notes to Unaudited Condensed Consolidated Financial Statements~~ ~~(Continued)~~

~~Cash and Cash Equivalents~~

~~For purposes of the statements of cash flows, the Company defines cash equivalents as all highly liquid instruments purchased with a maturity of three months or less.~~

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash, cash equivalents, accounts receivable, and ~~accounts~~note receivable. The Company places its cash with ~~high quality~~high-quality financial institutions and, at times, may exceed the FDIC and CDIC insurance limit. The Company extends credit based on an evaluation of customers’ financial condition, generally without collateral. Exposure to losses on receivables is principally dependent on each customer’s financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses.

Cash and Cash Equivalents

For purposes of the statements of cash flows, the Company defines cash equivalents as all highly liquid instruments purchased with a maturity of three months or less.

Investments

The Company ~~currently~~ holds and makes investments in marketable securities through its corporate operations. Marketable securities held are classified as available-for-sale based on management’s intent. Unrealized gains (losses) are categorized as other comprehensive income. Realized gains (losses) on marketable securities are determined by specific identification. Interest is recognized on an accrual basis; dividends are recorded as earned on the ex-dividend date. The Company holds additional non-currentvarious investments through its asset management ~~operations. Non-current~~operations and real estate operations segments. Additionally, investments may be held and reported under the Company’s “other” segment. Assets held through these segments do not ~~qualify~~have a readily determinable value as ~~available-for-sale securities. The classification of~~ these investments ~~is assessed upon purchase and reassessed at each reporting period. Non-current~~are not publicly traded, nor do they have published sales records. These investments are remeasured to fair value on a recurring basis. See Note 5 for more information.

As of June 30, 2020 and December 31, 2019, the Company also holds its remaining equity investment in Mt Melrose, LLC through its real estate operations segment. The Company has determined that its remaining equity investment does not have a readily determinable fair value, and the Company will account for the investment at cost, less any impairment, as adjusted for changes resulting from observable price changes. When fair value becomes determinable, the investment will be marked to ~~market at the end of each reporting period and revenue is recognized in the condensed consolidated statement of income in the period of adjustment.~~fair value on a periodic basis.

Accounts Receivable

The Company grants credit in the form of unsecured accounts receivable to its customers. The estimate of the allowance for doubtful accounts, which is ~~charged off to~~the recorded allowance for doubtful accounts and bad debt expense, is based on management’s assessment of current economic conditions and historical collection experience with each customer. Specific customer receivables are considered past due when they are outstanding beyond their contractual terms and are ~~charged~~written off tofrom the allowance for doubtful accounts when an account or invoice is individually determined to be uncollectible.

~~Sales~~

Real estate operations segment rental accounts are typically paid by tenants via cash or check no later than the fifth of ~~internet services, which~~the month. Any accounts collected after the fifth are charged either a flat-rate late fee or a daily-rate late fee based upon the lease agreement. If payments are not ~~automatically processed via credit card~~provided in a timely manner, then the amount due is designated as an account receivable. If accounts remain uncollected, then standard operating procedures are followed to commence a notice process for the tenant to either pay the amount due or ~~bank account drafts, have been~~vacate the ~~Company’s highest exposure to collection risk.~~ property. Accounts receivable from rental revenue are generally considered unrecoverable after 90 days unless the Company reasonably believes that recovery is probable. These procedures typically result in low amounts of past due receivables.

The ~~Company~~internet operations segment attempts to reduce ~~this~~the risk of non-collection by including a ~~late payment~~late-payment fee and a ~~manual processing payment~~manual-processing-payment fee to customer accounts. Receivables more than ~~ninety~~90 days past due are no longer included in accounts receivable and are turned over to a collection agency. Accounts receivable more than 30 days are considered past due.

~~Sales~~

As of ~~HVAC services~~June 30, 2020 and December 31, 2019, allowances offsetting gross accounts receivable on the accompanying consolidated balance sheets totaled $475 and $307, respectively. For the quarterly periods ended June 30, 2020 and 2019, bad debt expense from continuing operations was negative $141 and $82,818, respectively. For the six-month periods ended June 30, 2020 and 2019, bad debt expense from continuing operations was $264 and $93,749, respectively.

Property and Equipment

Property and equipment are ~~typically paid via credit card or check upon completion~~recorded at cost. Expenditures for maintenance and repairs are charged to operations as incurred, while renewals and betterments are capitalized. Gains and losses on disposals are included in the results of ~~service. Sales that are not collected upon completion are generally to existing~~operations. Depreciation is computed using the straight-line method based on the estimated useful lives for each of the following asset classifications:

Furniture and fixtures (in years)			5
Equipment (in years)			7
Building improvements (in years)			15
Buildings (in years)			27.5

Property and repeat customers who have established a track record of timely payments. Historically, HVAC has not encountered issues with collectability of customer accounts. Accounts receivable more than 60 days are considered past due.

~~Note Receivable~~

~~The Company currently holds a note receivable from the sale of a real estate property to a third-party. This note is long term in nature and no collection issues are expected.~~

~~Impairment of Long-Lived Assets~~

~~In accordance with GAAP, long-lived assets to be held and used~~equipment are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable.

The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, then the Company uses estimated future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. ~~Long-lived assets~~Property and equipment to be disposed are reported at the lower of carrying amount or fair value of the asset less cost to sell.

~~Notes to Unaudited Condensed Consolidated Financial Statements~~ ~~(Continued)~~

~~Property and Equipment~~

Property and equipment are recorded at cost. Depreciation is computed using the straight-line method based on estimated useful lives from three to seven years for equipment and vehicles, fifteen years for building improvements, and thirty-nine years for buildings. Assets held through capital leases are amortized over the life of the related lease. Expenditures for maintenance and repairs are charged to operations as incurred while renewals and betterments are capitalized. Gains and losses on disposals are included in the results of operations.

Goodwill and Other Intangible Assets

Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations accounted for under the acquisition method of accounting. The Company ~~does not amortize goodwill. The Company~~ tests its goodwill annually ~~during the fourth quarter~~as of ~~its fiscal year~~December 31st or ~~when~~more often if events and circumstances indicate that those assets might not be recoverable.

No impairment adjustments were recorded during the three- and six-month periods ended June 30, 2020.

During the three- and six-month periods ended June 30, 2019, an impairment of the remaining home services goodwill of $1,024,591 was recognized and reported as a component of the loss on the divestiture of Specialty Contracting Group, LLC's assets.

Impairment testing of goodwill is required at the ~~reporting unit~~reporting-unit level (operating segment or one level below operating segment) ~~and~~. The impairment test involves ~~a two-step process.~~calculating the impairment of goodwill based solely on the excess of the carrying value of the reporting unit over the fair value of the reporting unit. Prior to performing the ~~two-step~~ impairment test, the Company may make a qualitative assessment of the likelihood of goodwill impairment to determine whether a detailed quantitative analysis is required. The ~~first step of the impairment test involves comparing the estimated fair values of the Company’s reporting units with the reporting units’ carrying amounts, including goodwill. The~~ Company estimates the fair value of its reporting units using discounted expected future cash flows. If the carrying amount of the reporting unit exceeds its fair value, a second step is performed to compare the carrying amount of goodwill to the implied fair value of that goodwill. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess.

The Company performs an analysis of its goodwill as of December 31 annually, or whenever events or changes in circumstances indicate that the assigned values may no longer be appropriate. No impairment was recorded in 2016. During the quarter ended September 30, 2017, a net downward adjustment of $14,504 was made to goodwill held through the HVAC segment. This adjustment was the result of two previous sellers not meeting or exceeding the operational terms of carryback notes that were previously included as consideration for these acquisitions. See Note 3 for more information.

~~Other intangible~~Intangible assets consist of customer relationships, developed technology and software, trade names, and other assets acquired in conjunction with the purchases of businesses or purchases of assets from other companies. As of September 30, 2017, these intangible assets have been fully amortized. The remaining intangible assets(other than goodwill) consist of domain names attributed to the internet operations segment. The Company owns 228 domain names, of which 106 are available for sale. These domains are valued at historical cost. When management determines that material intangible assets are acquired in conjunction with the purchase of a business, the Company determines the fair values of the identifiable intangible assets by taking into account ~~management’s own analysis~~internal and ~~an independent third-party valuation specialist’s appraisal.~~external appraisals. Intangible assets determined to have definite lives are amortized over their estimated useful lives.

The Company ~~owns 634 domain names,~~evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of ~~which 107~~impairment, then the Company uses estimated future undiscounted cash flows of the related intangible asset or asset grouping over the remaining life in measuring whether the assets are ~~available for sale. These domains~~recoverable. In the event such cash flows are ~~valued at historical cost.~~not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value.

Real Estate

Real estate properties held for resale are carried at the lower of cost or fair ~~market~~ value. All costs directly related to the improvement and carrying of real estate are capitalized, including renovations and property taxes, to the extent the capitalized costs of the property do not exceed the estimated fair value of the property. If the cost of the real estate exceeds the estimated fair value, then the excess is charged to expense. Fair value is estimated based on comparable sales in the geographic area in which the real estate is ~~located and tax assessed values.~~located. Fair value is evaluated annually by management or when events or changes in circumstances indicate the carrying value of the real estate may not be recoverable.

No impairment adjustments were recorded during the three- and six-month periods ended June 30, 2020.

During the three- and six-month periods ended June 30, 2019, impairment adjustments of $166,799 were recorded on a commercial warehouse and various vacant lots held for resale.

Real estate properties held for investment are carried at the cost basis plus additional ~~expenses~~costs where the ~~expense~~cost extended the life of or added value to the property. Otherwise, the ~~expense~~cost is ~~not capitalized and is charged to expense.~~expensed as incurred. Properties categorized as real estate held for investment are not expected by management to be sold in the next 12 months. This determination is periodically reviewed by management.

~~Accrued Bonus~~

During the three- and six-month periods ended June 30, 2020, $43,992 of real estate held for resale was transferred to real estate held for investment and $43,917 of real estate held for investment was transferred to real estate held for resale. Additionally, $10,969 of improvements were made to existing real estate held for investment during the three- and six- month periods ended June 30, 2020. During the three- and six-month periods ended June 30, 2019, $7,435 of improvements were made to real estate held for resale.

Accrued ~~bonuses represent performance based~~Compensation

Accrued compensation represents performance-based incentives that have not yet been paid. Additional compensation can be paid in the form of cash or via the issuance of Company stock. Compensation structures for employees are a pre-approved part of a formal employment agreement or arrangement. Stock based compensation, issued as part of the Company’s 2020 Equity Incentive Plan, is reserved for board members and members of senior management. The compensation accrual amount is based on the final value of Company stock that has been approved to be issued by the Governance, Compensation and Nomination Committee of the Board of Directors. These ~~bonus~~compensation amounts are accrued when earned and able to be estimated and are paid or issued annually after financial records are finalized.

~~Notes to Unaudited Condensed Consolidated Financial Statements~~ ~~(Continued)~~

Other Accrued Expenses

Other accrued expenses represent incurred but ~~not yet paid~~not-yet-paid expenses from ~~Sales and Use taxes for ISP services, vacation~~payroll accruals, professional fees, and other ~~payroll accruals.~~accrued taxes.

~~Deferred Revenue~~

~~Deferred~~Leases

On January 1, 2019, the Company adopted ASU No. 2016-02, “Leases” (Topic 842). The guidance in ASU No. 2016-02 supersedes the lease recognition requirements in ASC Topic 840 and established ASC Topic 842. ASU No. 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company adopted this guidance using the following practical expedients:

	●	the Company did not reassess if any expired or existing contracts are leases or contain leases;

	●	the Company did not reassess the classification of any expired or existing leases; and

	●	the Company did not reassess whether the classification of existing costs associated with expired or existing leases should be classified as initial direct costs.

Additionally, the Company made ongoing accounting policy elections whereby it (i) does not recognize right-of-use (ROU) assets or lease liabilities for short-term leases (those with original terms of 12 months or less) and (ii) combines lease and non-lease elements of our leases.

Upon adoption of the new guidance on January 1, 2019, the Company recorded an ROU asset of approximately $184,000 (net of existing deferred rent liability) and recognized a lease liability of approximately $186,000, with no resulting cumulative effect adjustment to retained earnings.

Revenue Recognition

Asset Management Operations and Other Investment Revenue

The Company earns revenue ~~represents collections~~ from ~~customers~~investments and through various fee share and consulting agreements, including realized and unrealized gains and losses, which may result in ~~advance~~negative period or quarterly revenues. Management fees earned are recorded monthly and are included in revenue on the accompanying unaudited condensed consolidated statements of ~~internet services~~operations. Performance fees earned are accrued monthly, paid out annually, and are also included in revenue on the accompanying unaudited condensed consolidated statements of operations. Consulting fees are billed, paid, and recorded on a monthly basis. Long-term investments are marked to ~~be performed. Revenue is~~market at the end of each reporting period. Realized and unrealized gains and losses are recognized as revenue in the period ~~service~~of adjustment.

Management notes that the structure of these arrangements leaves a very low possibility for nonperformance. While the amount of revenue varies from month to month, collectability is ~~provided.~~very high. No contract assets or liabilities are recognized or incurred.

Additionally, the Company earns revenue from direct participation in various private investment funds, primarily the Alluvial Fund. This results in the realized and unrealized gains and losses within a fund such as the Alluvial Fund being recognized as revenue, or a decrease in revenue, on the accompanying unaudited condensed consolidated statements of operations.

A summary of revenue earned through asset management operations for the three- and six-month periods ended June 30, 2020 and 2019 is included below:

	For the three months ended				For the six months ended
Asset Management Operations Revenue	June 30, 2020		June 30, 2019		June 30, 2020			June 30, 2019
Realized and unrealized gains (losses) on investment activity	$	1,228,776	$	547,559	$	(555,630	)	$	1,203,275
Management and performance fee revenue		16,043		15,964		31,295			30,973
Fund management services revenue		24,000		25,657		48,000			51,912
Total revenue	$	1,268,819	$	589,180	$	(476,335	)	$	1,286,160

Real Estate Revenue

The Company earns real estate revenue through rental agreements on real estate held for investment, as well as through the sale of real estate held for resale.

Rental revenue from real estate held for investment is recognized when it is earned, generally on the last day of each month or at another regular period agreed upon by the Company and the tenant. Tenants generally provide a security deposit at the time of possession. This deposit is held separately from revenue and only applied to revenue when rental payment comparable to the security deposit amount is not provided in a timely manner and considered unlikely to be recovered. Otherwise, the security deposit is returned in a timely manner after the property is surrendered back to the Company. Management has concluded that the nature of the performance obligation is cyclical and predictable with a very low possibility for nonperformance. No contract assets or liabilities are recognized or incurred.

Revenue ~~Recognition~~from real estate held for resale is recognized upon closing of the sale (transfer of control), as all conditions for full revenue recognition have been met at that time. All costs associated with the property sold are removed from the consolidated balance sheets and charged to cost of revenue at that time.

Internet ~~Operations~~Revenue

The Company sells internet services under annual and monthly contracts. Under the annual contracts, the subscriber pays a one-time annual fee, which is recognized as revenue ratably over the life of the contract. Under the monthly contracts, the subscriber is billed monthly and revenue is recognized for the period to which the service relates. Domain name registration revenue is recognized at the point of registration. Sales of computer hardware are recognized as revenue upon delivery and acceptance of the product by the customer. Sales are adjusted for any returns or allowances. Management has concluded that the nature of the performance obligation is cyclical with a very low possibility for nonperformance. Contract liabilities (deferred revenue) were recognized in the amount of collections received in advance of services to be performed. No contract assets were recognized or incurred.

The Company generates revenue in its internet operations segment from consumer and business-grade internet access, wholesale managed modem services for downstream ISPs, web hosting, third-party software as a reseller, and various ancillary services in the United States and Canada. Services include narrow-band (dial-up and ISDN) and broadband services (DSL, fiber-optic, and wireless), web hosting, and additional related services to consumers and businesses. Customers may also subscribe to web hosting plans to include email access and storage. Internet revenue is affected by the changing composition of revenue sources. In some years, this shift can be significant.

~~HVAC Operations~~

~~The~~Discontinued Revenue - Home Services Revenue

Prior to the divestiture transaction on May 24, 2019, the Company ~~performs~~performed HVAC and plumbing service repairs and ~~installs~~installed HVAC units for its ~~customers.~~customers through its home services operations segment. Revenue iswas recognized ~~at the time~~upon completion of the installation or service call. Sales ~~are~~were adjusted for any returns or allowances. A return or allowance situation would arise based on the two-year workmanship warranty that typically ~~conveys~~conveyed with the installation of a new unit. There iswas also a two-year assurance warranty on newly installed parts and equipment that iswas honored by the manufacturer. If an installation iswas performed over multiple days, then it iswas accounted for using ~~work in process~~work-in-process (WIP) ~~accounting in accordance with GAAP.~~ accounting. Contract progress was measured by comparing materials and labor hours incurred to materials and labor hours expected per the contract. These types of contracts were typically completed within one month’s time. A small portion of revenue was from the sale of annual service agreements. Revenue attributable to these agreements was recognized over the life of the agreement.

If payment iswas received prior to contract completion, then the amount of revenue attributable to the unperformed work was designated as unearned revenue. If payment was not provided in advance or at the time of service or installation completion, then the amount due ~~is designated~~was recognized as revenue and as an account receivable.

~~Real Estate Operations~~

Management has acknowledged that these performance obligations were recognized at designated points in time during the contract, including the completion of the contract. As the customer controlled the asset and had the right to use it during the contract, the Company had the right to payment for performance completed to date. Contract liabilities (deferred revenue) were recognized in the amount of collections received in advance of services to be performed. No contract assets were recognized or incurred.

Deferred Revenue

Deferred revenue represents collections from ~~real estate held for resale~~customers in advance of internet or home services to be performed. Revenue is recognized upon closing of the sale, as all conditions for full revenue recognition have been met at that time. All costs associated with the property sold are removed from the consolidated balance sheets and charged to cost of revenue at that time.

Rental revenue from real estate held for investment is recognized when it is due, generally on the first of each month or at another regular period agreed upon between the Company and the tenant. If payments are not provided in a timely manner, the amount due is designated as an account receivable. Accounts receivable from rental revenue are generally considered unrecoverable after 90 days unless the Company reasonably believes that recovery is probable. Tenants generally provide a security deposit at the time of possession. This deposit is held separate from revenue and only applied to revenue when rental payment comparable to the security deposit amount is not provided in a timely manner and considered unlikely to be recovered. Otherwise, the security deposit is returned in a timely manner after the property is surrendered back to the Company.

~~Asset Management Operations~~

The Company earns revenue from investments held through the asset management segment through various fee share agreements as well as through realized and unrealized gains and losses. Management fees earned are recorded and paid out monthly and are included in revenue on the condensed consolidated statement of income. Performance fees earned are accrued monthly, paid out yearly and are also included in revenue on the condensed consolidated statement of income. As non-current investments do not quality as available-for-sale securities, non-current investments are marked to market at the end of each reporting period. Realized and unrealized gains and losses are recognized as revenue in the period service is provided. Total deferred revenue from continuing operations increased from $204,960 at December 31, 2019 to $210,671 at June 30, 2020. During the quarterly periods ended June 30, 2020 and 2019, $43,718 and $46,159, respectively, of ~~adjustment.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~ ~~(Continued)~~revenue from continuing operations was recognized from prior-year contract liabilities (deferred revenue). For the six-month periods ended June 30, 2020 and 2019, $172,553 and $171,675, respectively, of revenue from continuing operations was recognized from prior-year contract liabilities.

Income Taxes

Income taxes are accounted for under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax benefits or consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax ~~bases~~basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of ~~enactment.~~enactment, inclusive of the recent tax reform act. The most recent three tax years, fiscal years ~~ending~~ended December 31, ~~2016,~~2019, December 31, ~~2015,~~2018, and December 31, ~~2014,~~2017, are open to potential IRS examination.

Income (Loss) Per Share

~~The basic~~

Basic income (loss) per ~~common~~ share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period.

In periods of net loss, diluted loss per share is calculated similarly to basic loss per share because the impact of all potentially dilutive common shares is anti-dilutive. In periods of net income, diluted earnings per share is computed using the more dilutive of the “two class method” or the “treasury method.” Dilutive earnings per share under the “two class method” is calculated by dividing net income available to common stockholders as adjusted for the participating securities, by the weighted-average number of shares outstanding plus the dilutive impact of all other potentially dilutive common shares, consisting primarily of common shares underlying common stock equity incentives. Dilutive earnings per share under the “treasury method” are calculated by dividing net income available to common stockholders by the ~~weighted average~~weighted-average number of shares outstanding plus the dilutive impact of all potentially dilutive common shares, consisting primarily of common shares ~~outstanding. Diluted~~underlying common stock equity incentives.

None of the potentially dilutive securities had a dilutive impact during the three- and six-month periods ended June 30, 2020. No potentially dilutive securities existed for the three- and six-month periods ended June 30, 2019.

The number of anti-dilutive shares for the three- and six-month periods ended June 30, 2020, consisting of common shares underlying common stock equity incentives, which have been excluded from the computation of diluted income per ~~common~~ share, is computed similar to basic income per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company has no potentially dilutive securities. was 668.

~~Other Comprehensive Income~~

Other comprehensive income is the result of two items: the impact of foreign currency translations related to the Company’s operations in Canada, and the unrealized gains (losses) from marketable securities classified as available-for-sale.

Recently Issued Accounting Pronouncements

In ~~February 2016,~~August 2018, the FASB issued ASU ~~2016-02, “Leases”~~No. 2018-13, “Fair Value Measurement” (Topic ~~842)~~820). The guidance ~~in ASU 2016-02 supersedes~~intends to improve the ~~lease recognition requirements in ASC Topic 842, Leases. ASU 2016-02 requires an entity~~effectiveness of the disclosures relating to ~~recognize assets~~recurring and ~~liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02~~nonrecurring fair value measurements. The guidance is effective for fiscal years beginning after December 15, ~~2018, with early~~2019. Portions of the guidance are to be adopted prospectively while other portions are to be adopted retroactively. Early adoption is permitted. The Company ~~is required to adopt~~adopted this ~~standard in the first quarter~~guidance on January 1, 2020. The adoption of ~~2019. The Company is currently evaluating the effect~~ this ~~standard will~~guidance did not have a material impact on ~~its Consolidated Financial Statements.~~our consolidated financial statements.

In August 2015, the FASB issued ASU No. 2015-14, which defers the effective date of ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” by one year. As a result, the ASU is now effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. ASU No. 2014-09 provides comprehensive guidance on the recognition of revenue from customers arising from the transfer of goods and services. The ASU also provides guidance on accounting for certain contract costs, and requires new disclosures. Early adoption is not permitted. The Company is required to adopt this standard in the first quarter of 2018.

In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes” (Topic 740). The ASU provides guidance related to the classifications of deferred income tax assets and liabilities into current and noncurrent amounts in a classified statement of financial position. Deferred tax assets and liabilities are classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. Deferred tax assets and liabilities that are not related to an asset or liability for financial reporting are classified according to the expected reversal date of the temporary difference. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted. The Company is required to adopt this standard in the first quarter of 2018. The initial application of the standard is not expected to significantly impact the Company.

~~In January~~June 2016, the FASB issued ASU No. ~~2016-01 "Financial~~2016-13, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." Although the ASU retains many of the current requirements for financial instruments, it significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments. The ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2017; earlier adoption is permitted under certain criteria. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial condition, results of operations, and cash flows.

~~Notes to Unaudited Condensed Consolidated Financial Statements~~ ~~(Continued)~~

~~In January 2017, the FASB issued ASU No. 2017-04 “Simplifying the Test for Goodwill Impairment”~~Credit Losses” (Topic 326). The guidance eliminates the ~~requirement~~probable initial recognition threshold that was previously required prior to ~~calculate “implied~~recognizing a credit loss on financial instruments. The credit loss estimate should now reflect an entity’s current estimate of all future expected credit losses. Under the previous guidance, an entity only considered past events and current conditions. In April 2019, the FASB further clarified the scope of the credit losses standard and addressed issues related to accrued interest receivable balances, recoveries, variable interest rates, and prepayments. In May 2019, the FASB issued further guidance to provide entities with an option to irrevocably elect the fair value ~~of goodwill” (previously Step 2) from~~option applied on an instrument-by-instrument basis for eligible financial instruments. In November 2019, the ~~goodwill impairment analysis. Companies are required~~FASB issued further guidance on expected recoveries for purchased financial assets with credit deterioration, and transition refiled for troubled debt restructurings, disclosures related to calculate the impairment of their goodwill based solely on the excess of the carrying value of the reporting unit over its fair value (previously Step 1). Companies are still allowed to perform an initial qualitative assessment for a reporting unit to determine if the quantitative assessment is necessary. Thisaccrued interest receivables, and financial assets secured by collateral maintenance provisions. The guidance is ~~required to be adopted in~~effective for fiscal years beginning after December 15, ~~2019 and early~~2022, including interim periods within those fiscal years. Early adoption is ~~permitted.~~permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The adoption of certain amendments of this guidance must be applied on a modified retrospective basis and the adoption of the remaining amendments must be applied on a prospective basis. The Company currently expects that the adoption of this guidance may change the way we assess the collectability of our receivables and recoverability of other financial instruments. The Company will adopt this ~~new~~ guidance ~~for its 2017 goodwill impairment analysis.~~as of January 1, 2023. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

The Company does not believe that any other recently issued effective standards, or standards issued but not yet effective, if adopted, would have a material effect on the accompanying unaudited consolidated financial statements.

NOTE 3. ~~BUSINESS CONBINATIONS OR ACQUISITIONS~~HOME SERVICES SUBSIDIARY ASSET SALE

As of June 17, 2016 and June 30, 2016, HVAC Value Fund completed the 100% acquisition of two HVAC subsidiaries. As of July 8, 2016, HVAC Value Fund completed the 100% acquisition of a third subsidiary. As of July 15, 2016, HVAC Value Fund completed the 100% acquisition of a fourth subsidiary. As of October 1, 2016, HVAC Value Fund completed the 100% acquisition of a fifth subsidiary. As of January 20, 2017, HVAC Value Fund completed the 100% acquisition of a sixth subsidiary. These subsidiaries engage in providing heating, ventilation, plumbing, and air conditioning services, installation, and repairs to residential and commercial customers. As a result of the acquisitions, HVAC Value Fund offers heating, ventilation, plumbing, and air conditioning services to customers in Arizona and the surrounding southwestern states. As previously

On May 24, 2019, as reported in ~~our~~the Current Report on Form 8-K filed with the SEC on ~~June 14, 2016 and described further herein,~~May 28, 2019, the ~~purpose~~Company completed a divestiture of its Home Services Operations, via its subsidiary, Specialty Contracting Group, LLC (formerly known as HVAC Value Fund, isLLC), to ~~acquire HVAC~~an unaffiliated third-party purchaser, Rooter Hero Plumbing, Inc. (“Rooter Hero”). In the transaction, the Company sold and ~~plumbing businesses. Accordingly, these six acquisitions were made~~conveyed all of the subsidiary’s personal property and customer lists and records, excluding stock inventory and other current assets. As part of the transaction, Rooter Hero assumed the subsidiary’s obligations under lease and/or loan agreements for all outstanding vehicles and equipment, as well as the obligations to service all of the subsidiary’s remaining customer accounts going forward. No cash consideration was exchanged in the ~~ordinary course~~transaction. Rather, as consideration for the transaction, Rooter Hero agreed to pay monthly royalties for the sixty (60) months following the closing, calculated on the basis of ~~business and consistent with~~any revenue received from the ~~customs and practices (including with respect to nature, scope, magnitude, quantity, frequency, and contemplated purpose)~~customer accounts transferred. Under such royalty arrangements, the Company will receive 7.5% of ~~HVAC Value Fund, and, in turn, the Company.~~

~~On a pro forma basis, the business acquired on January 20, 2017 contributed revenues of $225,112, net income of $1,353, and additional selling, general and administrative expenses to HVAC Value Fund~~any monthly revenue generated from qualified sales during the ~~quarter ended September 30, 2017. The following unaudited pro forma summaries present consolidated information~~first year, and 5% of ~~HVAC Value Fund as if the current and previous year business combinations had occurred on January 1 of each respective fiscal year. Some of the pro forma information~~any monthly revenue during years two through five. Royalties received will be reduced by pre-approved warranty-related costs for the year ended December 31, 2016 was calculated using annualized, unaudited 2015 financial information, and pro forma information for the period ended September 30, 2017 was calculated using annualized, unaudited 2016 information, as information for the period from January 1, 2016 through the applicable subsidiary closing date is unavailable.

As previously reported in our Current Report on Form 8-K filed with the SEC on June 14, 2016, Sitestar has a 100% voting interest in HVAC Value Fund and JNJ Investments has the ability to earn profit interests. Pro forma earnings for the quarter ended September 30, 2017 and for the year ended December 31, 2016 are reported as gross without deducting the profits share that otherwise would be attributable to JNJ Investments in accordance with the operating agreement between Sitestar Corporation and JNJ Investments.

Pro forma nine months ended September 30, 2017 (unaudited)

With January 20, 2017 acquisition

Revenue

$
3,602,740

Earnings

$
104,179

Pro forma year ended December 31, 2016
(unaudited)

With 2016 acquisitions
(in aggregate)

With 2017 acquisition

Consolidated pro forma year ended
December 31, 2016 (unaudited)

Revenue

$
3,781,167

$
1,456,685

$
5,237,852

Earnings

$
517,495

$
295,886

$
813,381

~~HVAC Value Fund did not have any material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~ ~~(Continued)~~

The following tables summarize the consideration transferred to acquire each subsidiary and the amounts of identified assets acquired and liabilities assumed at the acquisition dates. Management continues to evaluate the valuation components of each acquisition on an ongoing basis.

June 2016 acquisitions (in aggregate)

Fair value of consideration transferred:

Cash

$
160,000

Notes payable

$
65,000

Fair value of assets acquired:

Vehicles

$
35,000

Equipment

$
13,700

Total identifiable assets

$
48,700

Goodwill

$
176,300

Subsequent adjustments

$
(15,000
)
Adjusted goodwill

$
161,300

July 8, 2016 acquisition

Fair value of consideration transferred:

Cash

$
375,000

Notes payable

$
100,000

Fair value of assets acquired:

Goodwill

$
475,000

Subsequent adjustments

$
3,276

Adjusted goodwill

$
478,276

July 15, 2016 acquisition

Fair value of consideration transferred:

Cash

$
340,000

Notes payable

$
100,000

Fair value of assets acquired:

Vehicles

$
40,000

Total identifiable assets

$
40,000

Goodwill

$
400,000

Subsequent adjustments

$
(17,780
)
Adjusted goodwill

$
382,220

October 1, 2016 acquisition

Fair value of consideration transferred:

Cash

$
315,000

Preliminary fair value of assets acquired:

Vehicles

$
20,000

Equipment

$
5,000

Total identifiable assets

$
25,000

Goodwill

$
290,000

January 20, 2017 acquisition

Fair value of consideration transferred:

Cash

$
460,000

Notes payable

$
100,000

Assumed obligations

$
169,255

Preliminary fair value of assets acquired:

Equipment

$
119,684

Leased Vehicles

$
143,590

Total identifiable assets

$
263,274

Goodwill

$
465,981

~~Notes to Unaudited Condensed Consolidated Financial Statements~~ ~~(Continued)~~

The goodwill amounts noted above are attributable to the workforce of the acquired subsidiaries and the significant efficiencies expected to arise after acquisition by HVAC Value Fund. All of the goodwill was assigned to the HVAC segment.select customers.

As ~~previously mentioned~~reported in ~~Note 2~~prior periods, the home services subsidiary had failed to meet approved budgets and ashad underperformed since its inception in 2016. Management noted ~~above,~~that the largely decentralized management approach was not a good fit for this industry, and the extensive operating requirements were not conducive to smaller company capacities. The cyclical nature of the business also resulted in unpredictable cash flows, which created immediate and significant needs for additional Company resources. Due to the ~~July 8, 2016 and July 15, 2016 acquisitions a net downward adjustment~~past performance of ~~$14,504~~the company, management determined that additional resources should not be allocated to this subsidiary.

The decision was made to ~~goodwill during~~exit the quarter ended September 30, 2017. Part of the considerations paid for the July 2016 acquisitions were seller carryback notes. The notes were payable in full on July 11, 2017 and July 30, 2017 and were contingent on certain revenue targets and other operational conditions. As of the quarter ended September 30, 2017 it was determined by management that the revenue targets for the July 8, 2016 acquisition were exceeded, therefore, the payable amount increased and total consideration paid for the acquisition increased. As of the quarter ended September 30, 2017 it was also determined by management that the revenue targets for the July 15, 2016 acquisition were not met, therefore, the payable amount decreased and total consideration paid for the acquisition decreased.

~~As previously reported in the quarterly reported filed with the SEC on August 8, 2017 and as noted above, in the June 2016 acquisitions, a downward adjustment of $15,000 was made to goodwill~~business during the quarter ended June 30, ~~2017. Part~~2019. The operations of Specialty Contracting Group, LLC were considered a component of, and the divestiture reflected a strategic shift in, the Company’s business. As such, Specialty Contracting Group, LLC’s historical operations have been classified as discontinued operations in the Company’s financial statements. The loss from discontinued operations has been determined using a loss recovery approach, as the collection of future royalties is uncertain and a reasonable estimate could not be made. This approach requires that the contingent consideration, the future royalties to be received, be valued at the lesser of the amount of the “probable,” defined as a greater than 50% likelihood, future proceeds or the carrying value of the disposed assets. Due to the unpredictability of the contingent consideration, ~~paid for~~and management’s inherent lack of control over the ~~June 2016 acquisitions was~~buyer’s operations, management determined it would not be reasonable to attempt to value the contingent consideration. This resulted in assigning the contingent consideration a ~~$15,000 seller carryback note. The note was payable in full~~current valuation of zero. As and to the extent any royalties are deemed probable, they will be subsequently recognized as a “recovery from discontinued operations” on ~~July 1, 2017 contingent on certain revenue targets~~the statements of operations and ~~other operational conditions. As of~~will offset, or recover, the initial loss recorded. Accordingly, during the quarter ended June 30, ~~2017~~2020, an offsetting $5,237 recovery on discontinued operations was recognized within the reported $3,149 of net income from discontinued operations.

A breakdown of discontinued assets and liabilities as reported on the face of the accompanying condensed consolidated balance sheets for the periods ended June 30, 2020 and December 31, 2019, is as follows:

	June 30, 2020		December 31, 2019
Cash and cash equivalents	$	291	$	428
Total current assets - held for resale		291		428

Accounts payable		97,003		96,848
Lease liabilities		50,110		50,110
Total current liabilities - held for resale	$	147,113	$	146,958

A reconciliation of discontinued operations as reported on the accompanying unaudited condensed consolidated statements of operations for the three- and six-month periods ended June 30, 2020 and 2019, is as follows:

	For the three months ended					For the six months ended
	June 30, 2020		June 30, 2019			June 30, 2020		June 30, 2019
Revenues	$	—	$	318,886		$	—	$	675,963
Cost of revenues		—		211,384			—		432,872
Gross profit		—		107,502			—		243,091
Selling, general, and administrative expenses		2,088		215,381			2,351		489,814
Income (loss) on sale of subsidiary, net of recoveries		5,237		(1,158,733	)		16,256		(1,158,733	)
Other income (expense), net		—		(3,759	)		—		(4,549	)
Net income (loss) reported as discontinued operations	$	3,149	$	(1,270,371	)	$	13,905	$	(1,410,005	)

NOTE 4. SALE OF CONTROLLING INTEREST IN REAL ESTATE SUBSIDIARY

Transaction

On June 27, 2019, the Company sold 65% of its membership interest in Mt Melrose, LLC to an unaffiliated third-party purchaser, Woodmont Lexington, LLC, a Delaware limited liability company (“Woodmont”). As consideration for the transaction, Woodmont paid the Company $100,000 and agreed to assume full responsibility for the management and operation of Mt Melrose and its real estate portfolio. The Company retained a 35% membership interest in Mt Melrose, with Woodmont owning the other 65% membership interest. Subsequent to the transaction, however, 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 maintains that it has retained its 35% membership interest.

Prior to this transaction, the Company had grown uncomfortable with the extreme amounts of high-priced debt that the Mt Melrose subsidiary had taken on. There were significant principal payments due over the next 12 months at the subsidiary level that the portfolio’s cash flows could not offset and the Company was unwilling to subsidize. As reported in previous quarterly and annual reports, in November 2018 management implemented a right-sizing strategy for the Mt Melrose portfolio. This strategy included the hiring of a dedicated third-party property manager, a restructuring of overhead expenses, the divestiture of non-cash-flowing properties, and a focus on refinancing high-interest debt. The property manager was responsible for all day-to-day operations including, but not limited to: tenant relations and communications, property repairs and renovations, vacancy marketing, and turnover procedures. This allowed management to remain passive operationally and focus on property sales and refinancing opportunities. Subsequent to the sale on June 27, 2019, the property manager continued to fulfill the day-to-day operational responsibilities, and, to management’s knowledge, Woodmont continues to act on management’s previous right-sizing efforts by liquidating non-cash-flowing properties and pursuing refinancing options.

In connection with this transaction, the Company and Woodmont entered into a certain Amended and Restated Limited Liability Company Agreement of Mt Melrose, LLC (the “A&R LLC Agreement”). The A&R LLC Agreement sets forth the general terms and conditions governing the arrangements between the two members. The A&R LLC Agreement provides that the business and affairs of Mt Melrose will be managed exclusively by one or more managers; and Woodmont is designated as the sole manager. In addition, the Company has expressly agreed to a three-year “standstill” arrangement, during which time the Company will not in any way participate, directly or indirectly, in the management or control of Mt Melrose; and with respect to any matters requiring a vote of the members, the Company will vote with (i.e., the same as) Woodmont. This arrangement allows the Company to maintain its passive management structure, while still owning a significant portion of the partnership.

Under the terms of the A&R LLC Agreement, distributions of cash, from whatever source, may be made to the members at such times, and in such amounts, as the manager, Woodmont, determines; provided, however, that any such distributions will be made in accordance with the following priorities: (i) distribution of amounts up to a cumulative total of $2,000,000 will be made pro rata in accordance with the members’ respective percentage interests (as expressly specified in the A&R LLC Agreement); (ii) then, distribution of cumulative amounts in excess of $2,000,000 and up to $3,000,000 will be made 67% to the Company and 33% to Woodmont; and (iii) thereafter, distribution of cumulative amounts in excess of $3,000,000 will be made pro rata in accordance with the members’ respective percentage interests (as expressly specified in the A&R LLC Agreement).

Deconsolidation Due to Transfer of Control

Prior to the sale of 65% of its Mt Melrose interest, the Company owned 100% of the membership interests in Mt Melrose, LLC and controlled the entity by virtue of its voting interests. As a result, the Company consolidated Mt Melrose under the “voting interests” (VOE) consolidation model.

By virtue of the A&R LLC Agreement, and the aforementioned standstill agreement, Woodmont is the sole “manager” responsible for all management and operating decisions of Mt Melrose. Management determined ~~by management~~ that ~~neither~~as of June 27, 2019, the ~~revenue targets nor the operational conditions had been met, therefore, the payable was~~Company no longer ~~due~~has a “controlling financial interest” in Mt Melrose and ~~total consideration paid~~will no longer consolidate Mt Melrose. Furthermore, the Company has concluded that Mt Melrose does not qualify as a “variable interest entity” as Mt Melrose has sufficient equity at risk to permit operations and the Company is not the primary beneficiary of Mt Melrose’s activities. All activity prior to the deconsolidation event has been included on our consolidated statements of operations for given prior reporting periods in continuing operations, and under the ~~acquisition decreased.~~real estate segment. As of June 27, 2019, all previously consolidated assets and liabilities of Mt Melrose, LLC have been removed from our consolidated balance sheets. The Company’s membership interest in Mt Melrose is now accounted for as an investment in the equity of Mt Melrose in the Company’s reported financial statements.

~~The purchase price allocations above are deemed preliminary~~

Accounting for valuation purposes, and management may adjust the allocations for the one year period allotted. Allocations for the October 1, 2016 and January 20, 2017 acquisitions remain open for subsequent management adjustment.Remaining Mt Melrose Investment

~~NOTE 4. INVESTMENTS~~

The Company ~~holds various~~adopted ASU 2016-01 effective January 1, 2018. ASU 2016-01 generally requires entities to measure equity investments ~~through Willow Oak, LLC through~~at fair value and recognize any changes in fair value in net income. However, entities are able to elect a measurement alternative for equity investments that do not have a “readily determinable fair value.” The Company has determined that its ~~asset management segment and may invest excess cash~~equity investment in ~~marketable securities through its corporate segment.~~Mt Melrose does not have a readily determinable fair value at the time of deconsolidation. The ~~fair values~~Company’s inability to “exercise significant influence” due to the previously mentioned standstill agreement, also supports the use of the ~~Company’s marketable securities are determined in accordance with GAAP, with~~measurement alternative. Under this alternative, the Company will measure the Mt Melrose investment at its implied fair value ~~being defined as the amount that would be received to sell an asset~~and assess it for impairment at each reporting date, or ~~paid to transfer~~more often if indication of a ~~liability in an orderly transaction between market participants. As such,~~potential impairment exists. When fair value ~~is a market-based measurement that should~~becomes determinable, from observable price changes in orderly transactions, the Company’s investment will be ~~determined based on assumptions that market participants would use in pricing an asset or liability.~~ ~~The following available-for-sale securities are re-measured~~marked to fair value on a ~~recurring basis~~periodic basis. Future dividends will be recognized as income and ~~are valued using Level 1 inputs, which are quoted prices (unadjusted) for identical assets~~returns of capital recognized as a reduction in ~~active markets.~~

Cost Basis

Unrealized Gain

Unrealized Loss

Fair Value

September 30, 2017 (unaudited)

Common Stock available for sale

$
153,970

$
—

$
(19,981
)

$
133,989

Cost Basis

Unrealized Gain

Unrealized Loss

Fair Value

December 31, 2016

Common Stock available for sale

$
563,211

$
36,289

$
—

$
599,500

In the ~~three~~Company’s investment when and nine month period ended September 30, 2017, the Company recognized no realized gains or losses and $76,935 of realized gains, respectively. This compares to the three and nine month period ended September 30, 2016 when the Company recognized no realized gains or losses.if received.

~~Non-current~~Using the $100,000 transaction price for a 65% interest in Mt Melrose, LLC, the implied value of the retained 35% interest at the time of the transaction is $53,846. This amount is included under the long-term investment amount on the accompanying consolidated balance sheet as of June 30, 2020 and December 31, 2019.

NOTE 5. INVESTMENTS

Certain assets held through the Company, Willow Oak Asset Management, LLC, or EDI Real Estate, LLC do not have a ~~Readily Determinable Value~~readily determinable value, as these investments are not publicly traded, nor do they have published sales records. The investment in Alluvial Fund, LP is measured using net asset value (NAV) as the practical expedient and is exempt from the fair value hierarchy in ~~accordance~~ ~~with FASB ASC 820-10.~~(see Note 6). The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and allocated based on total fund contributions. ~~Due to~~The Company’s investment in the ~~nature of the Huckleberry Real Estate~~Alluvial Fund ~~II, LLC investment, the investment~~ is measured at cost basis as cost approximates fair value until additional inputs and measurements become available. As the inputs for this investment are not readily observable, this investment is valued using Level 3 inputs. The following non-current investments are re-measuredremeasured to fair value on a recurring basis and realized and unrealized gains and losses are recognized as revenue in the period of adjustment. ~~Included in~~Due to the nature of the Mt Melrose, LLC investment (subsequent to the loss of control (see Note 4)), the investment is measured at cost basis as fair value is ~~the cost basis of the investment as well as any accrued management fees.~~not determinable until additional inputs and measurements become available.

	Cost Basis		Unrealized Gain		Carrying Value
June 30, 2020
Alluvial Fund, LP (at fair value)	$	7,055,015	$	2,477,317	$	9,532,332
Mt Melrose, LLC (at cost)		53,846		—		53,846
Total	$	7,108,861	$	2,477,317	$	9,586,178

~~Notes to Unaudited Condensed Consolidated Financial Statements~~ ~~(Continued)~~

Cost Basis

Accrued Fees

Unrealized Gain

Fair Value

September 30, 2017 (unaudited)

Alluvial Fund, LP

$
10,000,000

$
702

$
1,317,281

$
11,317,983

Huckleberry Real Estate Fund II, LLC

750,000

—

—

750,000

Total

$
10,750,000

$
702

$
1,317,281

$
12,067,983

	Cost Basis		Unrealized Gain		Carrying Value
December 31, 2019
Alluvial Fund, LP (at fair value)	$	7,042,732	$	3,029,626	$	10,072,358
Mt Melrose, LLC (at cost)		53,846		—		53,846
Total	$	7,096,578	$	3,029,626	$	10,126,204

Alluvial Fund is a private investment fund that focuses on investing in what it believes are deeply mispriced securities in the United States and abroad. Alluvial Fund focuses on small companies, thinly traded issues, and special situations, seeking to identify value that its management believes the market has yet to recognize. During the three- and six-month periods ended June 30, 2020 and 2019, the Company did not withdraw management or performance fees earned through the Alluvial Fund. For the quarterly periods ended June 30, 2020 and 2019, the total amounts of these reinvested fees were $3,958 and $4,636, respectively. For the six-month periods ended June 30, 2020 and 2019, the total amounts of these reinvested fees were $12,283 and $9,264, respectively.

NOTE 5.6. FAIR VALUE OF ASSETS AND LIABILITIES

~~The Company has adopted FASB ASC 820,~~ ~~Fair Value Measurements. ASC 820~~

GAAP defines fair value as the amount that would be received from the sale of an asset or paid for the transfer of a liability in an orderly transaction between market participants at the measurement ~~date. ASC 820~~date, and establishes a hierarchy for disclosing assets and liabilities measured at fair value based on the inputs used to value them. The fair value hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are based on market pricing data obtained from sources independent of the Company. Unobservable inputs reflect management’s judgment about the assumptions market participants would use in pricing the asset or liability. The fair value hierarchy includes three levels based on the objectivity of the inputs as follows:

Level 1 - Inputs are quoted prices in active markets as of the measurement date for identical assets and liabilities that the Company has the ability to access. This category includes exchange-traded mutual funds and equity securities.

	●	Level 1 - inputs are quoted prices in active markets as of the measurement date for identical assets and liabilities that the Company has the ability to access; this category includes exchange-traded mutual funds and equity securities;

	●	Level 2 - inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates or yield curves, that are observable at commonly quoted intervals; this category includes mortgage-backed securities, asset-backed securities, corporate debt securities, certificates of deposit, commercial paper, U.S. agency and municipal debt securities, U.S. Treasury securities, and derivative contracts; and

	●	Level 3 - inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability; the measurements are highly subjective.

Level 2 - Inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates or yield curves, that are observable at commonly quoted intervals. This category includes mortgage-backed securities, asset-backed securities, corporate debt securities, certificates of deposit, commercial paper, U.S. agency and municipal debt securities, U.S. Treasury securities and derivative contracts.

Level 3 - Inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. The measurements are highly subjective.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company valued its ~~marketable securities~~investments at fair value at the end of each reporting period. See description of these investments in Note 45 above.

(Level 1)

(Level 2)

(Level 3)

(Excluded) ^(a)

Total at Fair Value

September 30, 2017 (unaudited)

Marketable securities

$
133,989

$
—

$
—

$
—

$
133,989

Huckleberry Real Estate Fund II, LLC

$
—

$
—

$
750,000

$
—

$
750,000

Alluvial Fund, LP

$
—

$
—

$
—

$
11,317,983

$
11,317,983

Total investments

$
133,989

$
—

$
750,000

$
11,317,983

$
12,201,972

	(Level 1)		(Level 2)		(Level 3)		(Excluded) (a)		Total at Fair Value
June 30, 2020
Alluvial Fund, LP	$	—	$	—	$	—	$	9,532,332	$	9,532,332
Total investments	$	—	$	—	$	—	$	9,532,332	$	9,532,332

(Level 1)

(Level 2)

(Level 3)

(Excluded) ^(a)

Total at Fair Value

December 31, 2016

Marketable securities

$
599,500

$
—

$
—

$
—

$
599,500

	(Level 1)		(Level 2)		(Level 3)		(Excluded) (a)		Total at Fair Value
December 31, 2019
Alluvial Fund, LP	$	—	$	—	$	—	$	10,072,358	$	10,072,358
Total investments	$	—	$	—	$	—	$	10,072,358	$	10,072,358

^(a)

~~In accordance with Subtopic 820-10, certain~~Certain investments that are measured at fair value using the NAV per share (or its equivalent) as a practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the ~~condensed~~ consolidated balance sheets.

~~Notes to Unaudited Condensed Consolidated Financial Statements~~ ~~(Continued)~~

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

The Company analyzes goodwill on an annual basis or ~~whenever~~more often if events or changes in circumstances indicate potential impairments. ~~For~~No impairments were recorded during the ~~year~~three- and six-month periods ended ~~December 31, 2016, goodwill held at year end was determined to be valued appropriately and no impairment existed.~~ June 30, 2020.

During the ~~quarter~~three- and six-month periods ended ~~September~~June 30, ~~2017,~~2019, an impairment of the remaining home services goodwill of $1,024,591 was recognized and reported as a ~~net downward adjustment~~component of ~~$14,504 was made to goodwill held through~~ the ~~HVAC segment. This adjustment was~~loss on the ~~result~~divestiture of ~~previous sellers not meeting or exceeding the revenue targets of carryback notes that were previously included as consideration for the acquisition. See Note 3 for more information.~~Specialty Contracting Group, LLC's assets.

The Company values real estate held on the balance sheet on an annual basis or whenever events or changes in circumstances indicate ~~a change in their fair market value. For the quarter ended~~ ~~September~~ 30, 2017, the Company adjusted the carrying value of properties held downward by $10,001. For the year ended December 31, 2016, the Company adjusted the carrying value of properties held downward by $152,411. Thesean impairment may have occurred. No impairment adjustments were recorded during the ~~result~~three- and six-month periods ended June 30, 2020.

During the three- and six-month periods ended June 30, 2019, impairment adjustments of ~~repair~~$166,799 were recorded on a commercial warehouse and ~~improvement expenses exceeding~~various vacant lots held for resale.

As discussed in Note 4, the ~~current market value of~~Company’s ongoing equity investment in Mt Melrose, LLC is carried at its implied cost under the ~~property.~~alternative approach and will be assessed for impairment at each balance sheet date.

NOTE 6.7. PROPERTY AND EQUIPMENT

The cost of property and equipment at ~~September~~June 30, ~~2017~~2020, and December 31, ~~2016~~2019, consisted of the following:

	2017			2016			2020			2019
Automobile	$	264,778		$	115,688
Building							$	—		$	—
Computers and equipment		178,341			36,030			17,330			17,330
Furniture and fixtures		25,206			25,206			10,850			10,850
Land								—			—
		468,325			176,924			28,180			28,180
Less accumulated depreciation		(96,828	)		(33,460	)		(12,450	)		(10,427	)
Property and equipment, net	$	371,497		$	143,464		$	15,730		$	17,753

Depreciation expense from continuing operations was ~~$65,258~~$1,011 for the ~~nine months~~quarterly period ended ~~September~~June 30, ~~2017~~2020, and ~~$10,172~~$23,127 for the ~~year~~quarterly period ended ~~December 31, 2016. Increased automobile, computers,~~June 30, 2019. Included in these amounts are $0 and ~~equipment~~$421 for the quarterly periods ended June 30, 2020 and 2019, respectively, of depreciation expense related to personal property used in real estate segment rental operations. Depreciation expense from continuing operations was $2,023 for the six-month period ended June 30, 2020, and $16,736 for the six-month period ended June 30, 2019. Included in these amounts are $0 and $6,809 for the ~~result~~six-month periods ended June 30, 2020 and 2019, respectively, of ~~acquisitions~~depreciation expense related to personal property used in real estate segment rental operations. The depreciation expense related to personal property is included in the ~~HVAC operations and new servers purchased related to~~real estate segment cost-of-goods-sold amount on the ~~internet segment.~~accompanying unaudited condensed consolidated statements of operations.

NOTE 7.8. REAL ESTATE

EDI Real Estate, LLC

As of ~~September~~June 30, ~~2017,~~2020 and December 31, 2019, the Company owned 10 residential properties, one commercial property, and interests in several lots. The Company sold three residential properties in the quarter ended September 30, 2017 for gross proceeds of $299,900 and net proceeds of $271,037. The carrying value of the three properties sold was $275,541. The Company did not purchase any properties in the quarter ended ~~September~~ ~~30, 2017.~~

EDI Real Estate ~~Held for Investment~~portfolio of properties included the following units:

~~As of~~ ~~September~~ ~~30, 2017, the Company accounted for eight residential properties as~~

EDI Real Estate	June 30, 2020		December 31, 2019
Units occupied or available for rent		6		6
Vacant units being prepared for rent		—		—
Vacant lots		3		—
Total units held for investment		9		6

Units held for resale		—		2
Vacant lots held for resale		—		3
Total units held for resale		—		5

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

The leases in effect as of ~~the quarter ended~~ ~~September~~June 30, ~~2017~~2020, are based on ~~either~~ annual ~~or multi-year~~ 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.

~~Depreciation~~

EDI Real Estate	June 30, 2020			December 31, 2019
Total real estate held for investment	$	495,634		$	484,590
Accumulated depreciation		(112,506	)		(104,075	)
Real estate held for investment, net		383,128			380,515

Real estate held for resale	$	—		$	98,910

For the three- and six-month periods ended June 30, 2020, depreciation expense ~~totaled $17,051~~on the EDI Real Estate portfolio of properties was $4,340 and $8,431, respectively. This compares to depreciation expense for the ~~nine months~~three- and six-month periods ended ~~September~~June 30, ~~2017. Total accumulated~~2019, when depreciation ~~as of~~ ~~September~~ ~~30, 2017 totaled $81,057. These properties held for investment were carried~~expense on the ~~balance sheet at $502,368.~~

EDI Real Estate ~~Held for Resale~~portfolio of properties was $6,116 and $11,420, respectively.

~~As of September~~

During the three- and six-month periods ended June 30, ~~2017, the Company accounted for~~2020, two ~~residential properties, one commercial property, and several lots as held for resale. These~~ properties held for resale were ~~carried~~sold for gross proceeds of $172,000. Net proceeds totaled $34,749. No properties were purchased or sold during the three- and six-month periods ended June 30, 2019. EDI Real Estate did not purchase any properties during the three- and six-months periods ended June 30, 2020 and 2019.

There were no impairment adjustments recorded during the three- and six-month periods ended June 30, 2020. During the three- and six-month periods ended June 30, 2019, impairment adjustments of $39,972 were recorded on various vacant lots held for resale within the EDI Real Estate portfolio.

Mt Melrose, LLC

As described in Note 4, management previously has determined that the Company no longer has a controlling financial interest in Mt Melrose. All activity prior to the deconsolidation event has been included on our unaudited condensed consolidated statements of operations for given prior reporting periods under the real estate segment. No Mt Melrose activity is included for the three- and six-month periods ended June 30, 2020. As of June 27, 2019, all previously consolidated assets and liabilities of Mt Melrose, LLC have been removed from our condensed consolidated balance sheets. Accordingly, there are no consolidated Mt Melrose assets as of the periods ended June 30, 2020 and December 31, 2019 included on the accompanying condensed consolidated balance ~~sheet at $337,481.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~ ~~(Continued)~~sheets.

For the three- and six-month periods ended June 30, 2019, depreciation expense on the Mt Melrose portfolio of properties was $62,393 and $114,020, respectively.

During the quarterly period ended June 30, 2019, Mt Melrose sold 14 residential properties and one vacant lot for gross proceeds of $654,000 and net proceeds of $78,596. This compares to their carrying value of $669,980, which resulted in a net loss $15,980. During the six-month period ended June 30, 2019, Mt Melrose sold 21 residential properties and five vacant lots for gross proceeds of $775,850 and net proceeds of $151,671. This compares to their carrying value of $755,918, which resulted in a net gain of $19,932. Mt Melrose did not purchase any properties during the three- and six-month periods ended June 30, 2019.

During the three- and six-month periods ended June 30, 2019, an impairment adjustment of $126,827 was recorded on a commercial warehouse held for resale within the Mt Melrose portfolio.

Future Minimum Rental Revenues

The future anticipated minimum rental revenues based on leases in place as of June 30, 2020, for EDI Real Estate, LLC are as follows:

2020	$	19,120
2021		5,180
Total	$	24,300

NOTE 8.9. NOTES PAYABLE

Notes payable at ~~September~~June 30, ~~2017~~2020, and December 31, ~~2016~~2019, consist of the following:

2017

2016

Interest bearing amount due on acquisition through HVAC
   Value Fund, LLC

25,000

250,000

Non-interest bearing amount due on acquisition through
   HVAC Value Fund, LLC

73,838

15,000

Interest bearing amount due on line of credit through HVAC
   Value Fund, LLC

289,637

—

Equipment and vehicle capital leases acquired by HVAC
   Value Fund, LLC

132,560

Interest bearing amount due on real estate held for investment
   through EDI Real Estate, LLC

137,600

—

Less current portion

(449,363
)

(240,000
)
Long-term portion

$
209,272

$
25,000

	Interest Rates		Average Term	2020			2019
Interest-bearing amount due on PPP loan through Enterprise Diversified, Inc.		1.00%	2 years	$	125,102		$	—
Interest-bearing amount due on promissory note through EDI Real Estate, LLC		5.60%	15 years		282,655			373,425
Interest-bearing amount due on real estate held for investment through EDI Real Estate, LLC		6.00%	5 years		96,000			137,600
Less current portion					(16,801	)		(11,453	)
Long-term portion				$	486,956		$	499,572

~~HVAC Value Fund typically structures acquisitions where a portion~~

The timing of ~~the purchase price is held back and is subject to certain conditions.~~ ~~These~~future payments of notes payable ~~may or may not bear interest. HVAC Value Fund made five acquisitions in~~are as follows as of June 30, 2020:

2020	$	6,941
2021		17,285
2022		239,395
2023		19,359
2024 and thereafter		220,777
Total	$	503,757

During the ~~year~~quarterly period ended ~~December 31, 2016 and one additional acquisition in~~June 30, 2020, the quarter ended March 31, 2017. Four of the five acquisitions made in the year ended December 31, 2016 resulted in a note payable to the seller. The non-interest bearing note payable was due July 1, 2017Company received loan proceeds in the amount of ~~$15,000,~~$125,102 under the Paycheck Protection Program, as amended (the “PPP”), administered by the U.S. Small Business Administration. The PPP, established as part of the U.S. Coronavirus Aid, Relief, and ~~was contingent on meeting a revenue target and other operational conditions. As mentioned in Note 3, the revenue targets and operational conditions were not met, resulting~~Economic Security Act of 2020 (the “CARES Act”), generally provides for economic assistance in the ~~note being written off. There were three separate interest bearing notes payable as~~way of loans to qualifying business for amounts up to two-and-a-half times the average monthly payroll expenses of the ~~quarter~~qualifying business. Under the PPP, amounts of loan principal and accrued interest are eligible for forgiveness after a period, as selected by the borrower, of either eight or twenty-four weeks, provided the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the selected time period.

PPP loan amounts that are not forgiven will be payable over two years at an interest rate of 1%, with a deferral of payment for the first six months. The Company intends to use the proceeds of its PPP loan for purposes consistent with the eligible purposes enumerated under the PPP. However, while the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan, we cannot make assurances that we will not take actions that could cause the Company to be ineligible for forgiveness of the loan, in whole or in part.

During the quarterly period ended ~~June~~September 30, ~~2017. The first interest bearing~~2018, EDI Real Estate, LLC, as a borrower, issued a promissory note payable accrues interest at 7% annually. $25,000 was payable on June 16, 2017 and $25,000 is payable on June 16, 2018. These payments are contingent on meeting revenue targets and other operational conditions. The second interest bearing note payable issecured by additional properties held for ~~$100,000 and bears interest at 6% annually.~~investment. This note ~~was due July 11, 2017~~carries an annual interest rate of 5.6% and ~~was contingent~~fully matures on ~~meeting revenue targets and other operational conditions. As mentioned in Note 3,~~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. During the revenue targets and operational conditions were not met, resulting in the note being written down. The third interest bearing note payable was for $100,000 and bears interest at 7% annually. This note was due July 30, 2017 and was contingent on meeting revenue targets and other operational conditions. As mentioned in Note 3, the revenue targets and operational conditions were exceeded, and per the purchase agreement, resulted in an increased payout. The acquisition made in the quarterquarterly period ended March 31, ~~2017 also resulted in a $100,000 note payable to~~2020, one property from the ~~seller. The payment amounts are contingent on meeting quarterly revenue targets.~~original loan package was sold and the corresponding principal balance of $83,296 was paid down.

During the ~~quarter~~quarterly period ended September 30, 2017, EDI Real Estate, LLC, ~~entered into~~as 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.

~~NOTE 9. ACCOUNTS RECEIVABLE AND BAD DEBT EXPENSE~~

~~For~~ During the ~~nine months~~quarterly period ended ~~September 30, 2017 and December~~March 31, ~~2016, bad debt expense~~2020, one note totaling $41,600 was ~~$15,281 and $34, respectively. For~~paid in full as the nine months ended September 30, 2017 and December 31, 2016, accounts receivable were $481,123 and $212,751, respectively. The increase in accounts receivable is the result of the formation of the HVAC subsidiary and a seller financing arrangement for a residentialsecured property ~~sold during the nine months ended September 30, 2017. As of September 30, 2017 and December 31, 2016, accounts receivable consisted of the following:~~was sold.

2017

2016

Gross accounts receivable

$
483,123

$
213,624

Less allowance for doubtful accounts

(2,000
)

(873
)
Accounts receivable, net

$
481,123

$
212,751

NOTE 10. SEGMENT INFORMATION

~~As of September~~

During the three- and six-month period ended June 30, ~~2017,~~2020, the Company ~~has five~~operated through four business ~~units~~segments with separate management and reporting infrastructures that offer different products and services. The four business ~~units~~segments are as follows: Asset Management Operations, Real Estate Operations, Internet Operations, and Other Operations. During periods prior to the quarter ended June 30, 2019, the Company also operated through a fifth reportable segment, Home Services Operations. However, as of the quarter ended June 30, 2020, and for all prior periods presented, Home Services Operations are reported as discontinued operations.

As mentioned in Note 3, on May 24, 2019, the Company completed a divestiture of its Home Services Operations, via its subsidiary, Specialty Contracting Group, LLC, to an unaffiliated third-party purchaser, Rooter Hero Plumbing, Inc. (“Rooter Hero”). The current and comparative results of the home services segment have been ~~aggregated into five reportable segments: Corporate, Internet, HVAC,~~reported as discontinued on the accompanying unaudited condensed consolidated financial statements for the quarterly period ended June 30, 2020.

As mentioned in Note 4, on June 27, 2019, the Company sold 65% of its membership interest in Mt Melrose, LLC to an unaffiliated third-party purchaser, Woodmont Lexington, LLC.

Management determined that as of June 27, 2019, the Company no longer has a “controlling financial interest” in Mt Melrose; therefore, the Company no longer consolidates Mt Melrose. All activity prior to the deconsolidation event has been included on our consolidated statements of operations for given prior reporting periods under the real estate segment. As of June 27, 2019, all previously consolidated assets and liabilities of Mt Melrose, LLC have been removed from our consolidated balance sheets.

The asset management operations segment includes revenues and expenses derived from various joint ventures, service offerings, and initiatives undertaken in the asset management industry. The real estate operations segment includes revenue and expenses related to the management of properties held for investment and held for resale through Mt Melrose (prior to the sale of 65% of our equity in Mt Melrose on June 27, 2019) located in Lexington, Kentucky, and revenue and expenses related to the management of legacy properties held for investment and held for resale through EDI Real Estate ~~and Asset Management.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~ ~~(Continued)~~

located in Roanoke, Virginia. The ~~corporate~~internet operations segment includes revenue and expenses related to our sale of internet access, hosting, storage, and other ancillary services. The home services operations segment includes discontinued revenue and expenses derived from our former operation of HVAC and plumbing companies in Arizona. The other operations segment includes revenue and expenses from nonrecurring or one-time strategic funding or similar activity and any revenue or expenses derived from corporate office operations, as well as expenses related to public company reporting, the oversight of subsidiaries, and other items that affect the overall Company. Sitestar also invests in marketable securities through the corporate segment. The internet segment includes revenue and expenses related to the sale of internet access, hosting, storage, and other ancillary services. The HVAC segment includes revenue and expenses derived from the acquisition and management of HVAC and plumbing companies in Arizona and throughout the Southwest. The real estate segment includes revenue and expenses related to the management of properties held for investment and revenue and expenses involving the preparation and sale of properties held for resale. The asset management segment includes revenues and expenses derived from various investment opportunities and partnerships.

The internet operations segment includes revenue generated by operations in both the United States and Canada. InDuring the ~~quarter~~quarterly period ended ~~September~~June 30, ~~2017,~~2020, the internet operations segment generated revenue of ~~$295,371~~$231,999 in the United States and revenue of ~~$18,831~~$13,216 in Canada. This compares to the ~~quarter~~quarterly period ended ~~September~~June 30, ~~2016 where~~2019, when the internet operations segment generated revenue of ~~$331,480~~$252,260 in the United States and revenue of ~~$23,904~~$13,657 in Canada. During the six-month period ended June 30, 2020, the internet operations segment generated revenue of $472,621 in the United States and revenue of $26,153 in Canada. This compares to the six-month period ended June 30, 2019, when the internet operations segment generated revenue of $512,518 in the United States and revenue of $28,301 in Canada. All assets reported under the internet operations segment for the periods ended June 30, 2020 and December 31, 2019, are located within the United States.

Summarized financial information concerning the Company’s reportable segments is shown in the following tables for the ~~three months~~three- and six-month periods ended June 30, 2020 and 2019.

Three Months Ended June 30, 2020	Asset Management		Real Estate			Internet		Other			Discontinued Operations - Home Services		Consolidated

Revenues	$	1,268,819	$	16,494		$	245,215	$	—		$	—	$	1,530,528
Cost of revenue		—		7,114			79,229		—			—		86,343
Operating expenses		93,742		1,075			46,434		204,391			—		345,642
Other income (expense)		—		(6,730	)		2,753		3,750			—		(227	)
Income (loss) from continuing operations		1,175,077		1,575			122,305		(200,641	)		—		1,098,316
Income (loss) from discontinued operations		—		—			—		—			3,149		3,149
Goodwill		—		—			212,445		—			—		212,445
Identifiable assets	$	9,608,598	$	465,663		$	441,802	$	452,738		$	291	$	10,969,092

Six Months Ended June 30, 2020	Asset Management			Real Estate			Internet		Other			Discontinued Operations - Home Services		Consolidated

Revenues	$	(476,335	)	$	203,643		$	498,774	$	—		$	—	$	226,082
Cost of revenue		—			139,323			166,417		—			—		305,740
Operating expenses		202,983			17,711			94,282		493,824			—		808,800
Other income (expense)		2,283			(7,998	)		3,123		7,442			—		4,850
Income (loss) from continuing operations		(677,035	)		38,611			241,198		(486,382	)		—		(883,608	)
Income (loss) from discontinued operations		—			—			—		—			13,905		13,905
Goodwill		—			—			212,445		—			—		212,445
Identifiable assets	$	9,608,598		$	465,663		$	441,802	$	452,738		$	291	$	10,969,092

Three Months Ended June 30, 2019	Asset Management		Real Estate			Internet		Other			Discontinued Operations - Home Services			Consolidated

Revenues	$	589,180	$	218,599		$	265,917	$	—		$	—		$	1,073,696
Cost of revenue		—		164,130			83,243		—			—			247,373
Operating expenses		104,526		211,536			59,035		305,284			—			680,381
Other income (expense)		7,052		(4,510,278	)		3,541		(7,471	)		—			(4,507,156	)
Income (loss) from continuing operations		491,706		(4,667,345	)		127,180		(312,755	)		—			(4,361,214	)
Income (loss) from discontinued operations		—		—			—		—			(1,270,371	)		(1,270,371	)
Goodwill		—		—			212,445		—			—			212,445
Identifiable assets	$	9,839,643	$	675,268		$	449,095	$	1,329,722		$	195,548		$	12,489,276

Six Months Ended June 30, 2019	Asset Management		Real Estate			Internet		Other			Discontinued Operations - Home Services			Consolidated

Revenues	$	1,286,160	$	401,105		$	540,819	$	212,631		$	—		$	2,440,715
Cost of revenue		—		327,373			170,856		—			—			498,229
Operating expenses		227,990		315,844			122,298		500,204			—			1,166,336
Other income (expense)		14,091		(4,638,404	)		3,933		(3,574	)		—			(4,623,954	)
Income (loss) from continuing operations		1,072,261		(4,880,516	)		251,598		(291,147	)		—			(3,847,804	)
Income (loss) from discontinued operations		—		—			—		—			(1,410,005	)		(1,410,005	)
Goodwill		—		—			212,445		—			—			212,445
Identifiable assets	$	9,839,643	$	675,268		$	449,095	$	1,329,722		$	195,548		$	12,489,276

NOTE 11. COMMITMENTS AND CONTINGENCIES

Leases

As of June 30, 2020, the Company has one lease classified as an operating lease and no finance leases.

The operating lease corresponds to the office space for Willow Oak Asset Management, LLC. The lease has remaining terms expiring in September ~~30, 2017~~2020. The right-of-use asset and ~~2016 and~~corresponding lease liability for the ~~nine months ended September 30, 2017 and 2016. No comparable financial information exists~~Company’s operating lease is reported separately on the accompanying consolidated balance sheets. The discount rate used in the calculation of our lease liability was approximately 6.7%. In addition, the Company is the lessor for facility space in New York that it sublets to other tenants; the remaining two subleases of which expired on December 31, 2019.

Lease costs for the ~~asset~~quarterly period ended June 30, 2020 consisted of the following:

Finance lease costs:
Amortization of ROU assets	$	—
Interest on lease liabilities		—
Operating lease cost		15,455
Sublease income		—
Total lease costs from continuing operations		15,455
Total lease costs from discontinued operations		—
Total lease costs	$	15,455

With respect to the former leased facilities for Specialty Contracting Group, LLC, possession of the premises was surrendered to the landlord, in connection with the dissolution and winding up of Specialty Contracting Group, in default of that lease. The outstanding lease liability amount remains on the Company's balance sheet under other liabilities - held for resale as of the quarterly period ended June 30, 2020.

A maturity analysis of our operating lease, including the lease related to discontinued operations, is as follows:

2020	$	54,550
2021		15,710
2022		—
Total		70,260

Discount factor		(4,412	)
Lease liability		65,848
Less lease liability from discontinuing operations		(50,110	)
Amounts due within 12 months		(15,738	)
Long-term lease liability	$	—

Other Commitments

As mentioned in Note 4, on June 27, 2019, the Company sold 65% of its membership interest in Mt Melrose, LLC to an unaffiliated third-party purchaser, Woodmont Lexington, LLC. As consideration for the transaction, Woodmont paid the Company $100,000 and agreed to assume full responsibility for the management ~~segment because it did not commence operations until January 1, 2017. Also note~~and operation of Mt Melrose and its real estate portfolio. Under the terms of the parties’ membership interest purchase agreement, the Company agreed to indemnify Woodmont against any losses actually incurred as a result of breaches of the Company’s representations and warranties made under the agreement. To date, Woodmont has made four claims for indemnification under the agreement, all of which have been rejected and disputed by the Company.

Litigation

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

On April 12, 2016, the 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 5% of the Company’s Common Stock, alleging, among other things, that the ~~HVAC segment did not commence operations until June 14, 2016.~~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).

Corporate

Internet

HVAC

Real Estate

Asset Management

Consolidated

Three months ended September 30, 2017

Revenues

$
—

$
314,202

$
1,332,239

$
324,044

$
715,598

$
2,686,083

Cost of revenue

$
—

$
81,144

$
875,991

$
306,537

$
—

$
1,263,672

Net income (loss) before income taxes

$
(167,120
)

$
172,415

$
119,681

$
8,126

$
674,054

$
807,156

Goodwill

$
—

$
212,445

$
1,779,549

$
—

$
—

$
1,991,994

Identifiable assets

$
201,291

$
315,754

$
2,787,303

$
1,072,849

$
12,091,978

$
16,469,175

Corporate

Internet

HVAC

Real Estate

Asset Management

Consolidated

Three months ended September 30, 2016

Revenues

$
—

$
355,384

$
906,910

$
404,923

$
—

$
1,667,217

Cost of revenue

$
—

$
70,290

$
619,881

$
402,285

$
—

$
1,092,456

Net income (loss) before income taxes

$
(315,062
)

$
285,847

$
66,370

$
(2,953
)

$
—

$
34,202

Goodwill

$
—

$
212,445

$
1,053,851

$
—

$
—

$
1,266,296

Identifiable assets

$
3,840,647

$
614,610

$
1,921,609

$
2,117,404

$
—

$
8,494,270

Corporate

Internet

HVAC

Real Estate

Asset Management

Consolidated

Nine months ended September 30, 2017

Revenues

$
—

$
977,629

$
3,526,913

$
1,216,190

$
1,320,808

$
7,041,540

Cost of revenue

$
—

$
237,098

$
2,307,902

$
1,264,602

$
—

$
3,809,602

Net income (loss) before income taxes

$
(403,869
)

$
585,930

$
88,774

$
(68,810
)

$
1,241,023

$
1,443,048

Goodwill

$
—

$
212,445

$
1,779,549

$
—

$
—

$
1,991,994

Identifiable assets

$
201,291

$
315,754

$
2,787,303

$
1,072,849

$
12,091,978

$
16,469,175

Corporate

Internet

HVAC

Real Estate

Asset Management

Consolidated

Nine months ended September 30, 2016

Revenues

$
—

$
1,068,283

$
939,932

$
1,992,371

$
—

$
4,000,586

Cost of revenue

$
—

$
290,043

$
633,053

$
1,918,603

$
—

$
2,841,699

Net income (loss) before income taxes

$
(645,927
)

$
614,670

$
74,922

$
60,857

$
—

$
104,522

Goodwill

$
—

$
212,445

$
1,053,851

$
—

$
—

$
1,266,296

Identifiable assets

$
3,840,647

$
614,610

$
1,921,609

$
2,117,404

$
—

$
8,494,270

~~Notes to Unaudited Condensed Consolidated Financial Statements~~ ~~(Continued)~~Other: Mt Melrose-related Proceedings

~~NOTE 11. ADJUSTMENT TO OPENING BALANCE NUMBER OF SHARES AND CANCELLATION OF TREASURY SHARES~~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”).

~~During~~

In undertaking a sale of its membership interests in Mt Melrose, the ~~quarter ended March 31, 2017,~~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 ~~was made aware~~and operation of ~~a clerical error that affected~~Mt Melrose and its real estate portfolio and endeavor in good faith to generate favorable returns inuring to the ~~reported number~~long-term best interests of ~~treasury shares held~~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. Woodmont also has submitted four 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.

In addition, Woodmont, acting as the sole manager of Mt Melrose, purported to unilaterally amend and restate as of ~~December 31, 2016. It was discovered that~~August 29, 2019 the ~~number~~Mt Melrose limited liability company agreement among the parties, purporting to change the terms of ~~treasury shares held was overstated by 100,000 shares, which~~the distribution waterfall the parties had expressly agreed to and purporting to reallocate the parties’ respective interests in ~~turn understated~~Mt Melrose – unilaterally reducing the ~~total number of shares outstanding by the same amount.~~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 ~~concluded~~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 believed 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 was 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 had engaged in settlement negotiations, although they had not been successful. On August 3, 2020, the Company voluntarily dismissed its Verified Counterclaims against Woodmont Lexington, LLC without prejudice, but may re-file them (whether in Kentucky or Delaware) at a ~~full restatement is~~later time. This dismissal likely terminates the Fayette Circuit Action.

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 ~~necessary~~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 ~~total misstatement accounts for 0.035%~~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 ~~total number~~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 shares outstanding and no per share metrics were effected. This error dates back to records kept by prior management, but has since been reconciled and corrected. Further, management is actively working to cancel existing treasury shares. As noted on the condensed consolidated balance sheets and the condensed consolidated statements of stockholders’ equity, asChancery of the ~~quarter ended September 30, 2017, 2,125,795 treasury shares have been cancelled.~~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. On April 6, 2020, Woodmont filed an answer to the complaint in the Delaware Action, along with verified counter-claims against the Company for Woodmont’s previously-asserted claims for indemnification under the parties’ purchase agreement. 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. On July 24, 2020, the Company filed its reply to the counterclaims asserted by Woodmont in which it denied Woodmont’s allegations. 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.

NOTE 12. STOCKHOLDERS’EQUITY

Classes of Shares

As of ~~November 9, 2017,~~June 30, 2020, the ~~correct number~~Company’s Articles of Incorporation, as amended, authorize 32,800,000 shares ~~outstanding is 282,830,163~~of capital stock of the Company, consisting of 30,000,000 authorized shares of serial preferred stock, par value of $0.001 per share, and 2,800,000 authorized shares of common stock, par value of $0.125 per share.

Preferred Stock

Preferred stock, any series, shall have the ~~correct number~~powers, preferences, rights, qualifications, limitations, and restrictions as fixed by the Company’s Board of Directors in its sole discretion. As of June 30, 2020, the Company has not issued any preferred stock.

As previously reported in the Company’s Current Report on Form 8-K filed with the SEC on July 29, 2020, as of July 24, 2020, the Company has designated a series of its preferred stock as the Series A Preferred Stock, consisting of 250,000 shares so designated.

Common Stock

As of June 30, 2020, 2,602,240 shares of common stock were issued and outstanding.

Cancellation of Treasury Shares

On December 30, 2019, the Company completed the cancellation of 80,506 treasury shares ~~held is 11,696,658.~~then-remaining, upon resolution from the Board of Directors.

NOTE ~~12.~~13. SUBSEQUENT EVENTS

As previously reported in the Company’s Current Report on Form 8-K filed with the SEC on July 29, 2020, the Company has adopted a certain stockholder rights agreement styled as the Tax Benefit Preservation Plan, dated as of July 24, 2020, by and between the Company and Colonial Stock Transfer Company, Inc., as rights agent. The Tax Benefit Preservation Plan was adopted as a means designed to safeguard against inadvertent diminution or limitation of the Company’s valuable tax assets. Pursuant to the Tax Benefit Preservation Plan, the Company has designated a series of its preferred stock as the Series A Preferred Stock, consisting of 250,000 shares so designated.

Management has evaluated all other subsequent events from ~~September~~June 30, ~~2017~~2020, through ~~November 9, 2017,~~ the date the unaudited condensed consolidated financial statements were issued. Management concluded that no other subsequent events have occurred that would require recognition or disclosure in the ~~unaudited condensed~~ consolidated financial statements.

Item 2.

~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section is intended to provide readers of our financial statements information regarding our financial condition, results of operations, and items that management views as important. The following discussion and analysis should be read in conjunction with the Company’s unaudited condensed consolidated financial statements and related footnotes for the ~~quarter~~quarterly period ended ~~September~~June 30, ~~2017.~~2020. 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.

Overview

~~Sitestar Corporation~~

During the quarterly period ended June 30, 2020, Enterprise Diversified, Inc. (“~~Sitestar,~~ENDI,” the “Company,” or “we”) operated under four reportable segments:

●

Asset Management Operations - this segment includes revenue and expenses derived from our various joint ventures, service offerings, and initiatives undertaken in the asset management industry;

●

Real Estate Operations - this segment includes revenue and expenses related to the management of properties held for investment and held for resale through Mt Melrose (prior to the sale of 65% of our equity in Mt Melrose on June 27, 2019) located in Lexington, Kentucky, and revenue and expenses related to the management of legacy properties held for investment and held for resale through EDI Real Estate located in Roanoke, Virginia;

●

Internet Operations - this segment includes revenue and expenses related to our sale of internet access, hosting, storage, and other ancillary services; and

●

Other Operations - this segment includes any revenue and expenses from nonrecurring or one-time strategic funding or similar opportunities previously undertaken, and any revenue or expenses derived from corporate office operations, as well as expenses related to public company reporting, the oversight of subsidiaries, and other items that affect the overall Company.

During periods prior to the quarter ended June 30, 2019, the Company also operated through a fifth reportable segment, Home Services Operations. This segment now includes discontinued revenue and expenses derived from our former operation of HVAC and plumbing companies in Arizona. As of the quarterly period ended June 30, 2020, and for all prior periods presented, Home Services Operations are reported as discontinued operations.

Management of the Company also continually reviews various business opportunities for the Company, including those in other lines of business.

Note that as of May 24, 2019, as reported in the Current Report on Form 8-K filed with the SEC on May 28, 2019, the Company completed a divestiture of its Home Services Operations, via its subsidiary, Specialty Contracting Group, LLC (formerly known as HVAC Value Fund, LLC), to an unaffiliated third-party purchaser, Rooter Hero Plumbing, Inc. (“Rooter Hero”). In the transaction, the Company sold and conveyed all of the subsidiary’s personal property and customer lists and records, excluding stock inventory and other current assets. As part of the transaction, Rooter Hero assumed the subsidiary’s obligations under lease and/or loan agreements for all outstanding vehicles and equipment, as well as the obligations to service all of the subsidiary’s remaining customer accounts going forward. No cash consideration was exchanged in the transaction. Rather, as consideration for the transaction, Rooter Hero agreed to pay monthly royalties for the sixty (60) months following the closing, calculated on the basis of any revenue received from the customer accounts transferred. Under such royalty arrangements, the Company will receive 7.5% of any monthly revenue generated from qualified sales during the first year, and 5% of any monthly revenue during years two through five. Royalties received will be reduced by pre-approved warranty-related costs for select customers.

Additionally, on June 27, 2019, as reported in the Current Report on Form 8-K filed with the SEC on July 3, 2019, the Company sold 65% of its membership interest in Mt Melrose, LLC to an unaffiliated third-party purchaser, Woodmont Lexington, LLC (“Woodmont”). As consideration for the transaction, Woodmont paid the Company $100,000 and agreed to assume full responsibility for the management and operation of Mt Melrose and its real estate portfolio.

Asset Management Operations

The Company operates ~~under five segments:~~its asset management operations business through its wholly-owned subsidiaries, Willow Oak Asset Management, LLC (“Willow Oak”) and Willow Oak Capital Management, LLC.

In furtherance of establishing the asset management operations business, Willow Oak signed a fee share agreement in June 2017, with Coolidge Capital Management, LLC (“Coolidge”), whose sole member is Keith D. Smith, an ENDI director. Willow Oak is the sole member of Bonhoeffer Capital Management, LLC, the general partner to Bonhoeffer Fund, LP, a private investment partnership launched by Willow Oak and managed by Coolidge. Under their agreement concerning Bonhoeffer Fund, LP, Willow Oak paid all start-up expenses and pays agreed-upon operating expenses that are not partnership expenses, Coolidge is responsible for all investment management, and Willow Oak receives 50% of all performance and management fees earned.

On November 1, 2018, Willow Oak entered into a fund management services agreement with Arquitos Investment Manager, LP, which is managed by our Board chairman and principal executive officer, Steven L. Kiel, to provide Arquitos with Willow Oak’s Fund Management Services (“FMS”) consisting of the following services: investor relations, marketing, operations, legal, accounting and bookkeeping, annual audit coordination, and liaison to third-party service providers. As consideration for the services, Arquitos pays Willow Oak a monthly fixed fee and an annual performance-based fee.

~~Corporate:~~

Real Estate Operations

In July 2017, ENDI created a wholly-owned real estate subsidiary named EDI Real Estate, LLC, to hold ENDI’s legacy portfolio of real estate. As of June 30, 2020, through EDI Real Estate, LLC, ENDI owns a legacy real estate investment portfolio that includes six residential properties and vacant land. Our real estate portfolio under EDI Real Estate, LLC is primarily located in Roanoke, Virginia. The portfolio includes occupied single-family homes that are managed by a third-party property management company. The leases in effect as of June 30, 2020, are based on annual time periods and include month-to-month provisions after the completion of the initial term.

State and municipal laws and regulations govern the real estate industry and do not vary significantly from one community to another. State laws, including the Virginia Residential Landlord and Tenant Act, in addition to local ordinances, govern rental properties and also do not vary significantly throughout our real estate holding areas.

Internet Operations

The Company operates its internet operations segment through Sitestar.net, a wholly-owned subsidiary. Sitestar.net is an Internet Service Provider (ISP) that offers consumer and business-grade internet access, web hosting, and various ancillary services. We provide services to customers in the United States and Canada. This segment markets and sells narrow-band (dial-up and ISDN) and broadband services (DSL and fiber-optic). Additionally, we market and sell web hosting and related services to consumers and businesses.

Our primary competitors include regional and national cable and telecommunications companies that have substantially greater market presence, brand-name recognition, and financial resources compared to Sitestar.net. Secondary competitors include local and regional ISPs.

The residential broadband internet access market is dominated by cable and telecommunications companies. These companies offer internet connectivity through the use of cable modems, Digital Subscriber Line (DSL) programs, and fiber. These competitors have extensive scale and significantly more resources than Sitestar.net. Competitors often offer incentives for customers to purchase internet access by offering discounts for bundled service offerings (i.e., phone, television, Internet). While we are a reseller of broadband services including DSL and fiber services, our profit margin is heavily influenced by these competitive forces.

There are currently laws and regulations directly applicable to access or commerce on the internet, covering issues such as user privacy, freedom of expression, pricing, characteristics and quality of products and services, taxation, advertising, intellectual property rights, information security, and the convergence of traditional telecommunications services with Internet communications. We may be positively or negatively affected by the repeal, modification, or adoption of various laws and regulations. These changes may occur at the international, federal, state, and local levels, and may cover a wide range of issues.

As of June 30, 2020, the focus of our internet operations 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 operations segment during the current quarter.

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.

Discontinued Operations - Home Services Operations

As has been previously reported, on May 24, 2019, the Company completed its divestiture of the home services operations to Rooter Hero.

Other Operations

Huckleberry Real Estate Fund

In January 2017, the Company, through Willow Oak, committed to make a capital contribution to Huckleberry Real Estate Fund II, LLC, a private investment fund, in the aggregate amount of $750,000. In May 2018, Willow Oak transferred the Huckleberry investment to EDI Real Estate, LLC, another wholly-owned subsidiary of the Company. During the quarter ended March 31, 2019, all contributed capital was returned in full and a gain of $212,631 was recognized as revenue through the other operations segment ~~includes~~on our unaudited condensed consolidated statements of operations for the six-month period ended June 30, 2019.

Triad DIP Investors

Corporate Operations

~~Internet Operations:~~ The Company operates its internet operations through Sitestar.net, a wholly owned subsidiary that offers consumer and business-grade internet access, wholesale managed modem services, web hosting, and various ancillary services. Sitestar.net provides services and support to customers in the United States and 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 and throughout the Southwest. As previously reported 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 party and member of HVAC Value Fund, LLC, organized and launched this subsidiary on June 13, 2016. As of September 30, 2017, HVAC Value Fund had closed on six acquisitions totaling $2,015,000, plus estimated earn outs of approximately $350,000.

~~Real Estate Operations:~~ Sitestar owns a real estate investment portfolio through EDI Real Estate, LLC that includes residential properties, vacant land, and one commercial property. Our real estate portfolio is primarily focused in the Roanoke and Lynchburg areas of Virginia. The portfolio includes single family homes that are currently rented and managed through a third-party property manager, as well as vacant properties being prepared or currently listed for sale.

~~Asset Management Operations:~~ Sitestar created a wholly-owned asset management subsidiary on October 10, 2016 named Willow Oak Asset Management, LLC (“Willow Oak”). As previously reported in our Current Reports on Form 8-K filed with the SEC on September 19, 2016 and December 30, 2016, respectively, the Company agreed to make a seed investment totaling $10 million through Willow Oak in Alluvial Fund, LP, an unrelated private partnership that was launched on January 1, 2017. As previously reported in our Current Report on Form 8-K filed with the SEC on January 30, 2017, on January 24, 2017 Willow Oak entered into a certain Limited Liability Company Operating Agreement of Huckleberry Real Estate Fund II, LLC (“Huckleberry Fund”) dated as of January 24, 2017. Future investments of this nature will operate under Willow Oak and all related revenues and expenses will be allocated to the asset management segment accordingly. Sitestar, through its wholly-owned subsidiary, Willow Oak signed a fee share agreement on May 11, 2017 with Lizard Head, LLC, the general partner of Bridge Reid Fund I, LP. Under the agreement, Willow Oak became a special limited partner to Bridge Reid, providing fund advisory services to Bridge Reid in exchange for payments equal to 33% of the management fees accrued quarterly by the general partner and 33% of the incentive fees accrued annually, on investors who become limited partners after May 11, 2017. Willow Oak signed a fee share agreement on June 13, 2017 with Coolidge Capital Management, LLC (“Coolidge”), whose sole member is Keith D. Smith, also a Sitestar director. Under the Agreement, Willow Oak Asset and Coolidge are the sole members of Bonhoeffer Capital Management LLC, the general partner to Bonhoeffer Fund, LP, a private investment partnership. Under their agreement, Willow Oak pays all start-up and operating expenses that are not partnership expenses under the limited partnership agreement. Willow Oak receives 50% of all performance and management fees earned by the general partner.

Summary of Financial Performance

Common stockholders’ equity ~~increased~~decreased from ~~$9,160,029~~$10,633,958 at December 31, ~~2016~~2019, to ~~$15,171,806~~$9,894,304 at ~~September~~June 30, ~~2017. The change was mostly attributable to $4,625,000 of additional common stock issued.~~2020. This change was ~~also driven~~attributable to $677,035 of net loss in the asset management operations segment and $486,382 of net loss in other segments, and was partially offset by ~~$585,930~~$241,198 of ~~comprehensive~~net income in the internet operations segment, ~~$88,774~~net income of ~~comprehensive income~~$38,611 in ~~the HVAC segment, $68,810 of comprehensive loss from~~ the real estate ~~segment, $1,241,023 of comprehensive income in the asset management~~operations segment, and ~~$460,140~~$13,905 of ~~comprehensive loss in~~net income resulting from discontinued operations under the ~~corporate~~home services operations segment. ~~The comprehensive loss attributable to the corporate segment was offset by realized capital gains from investments in marketable securities of $76,940.~~ Corporate expenses for the ~~nine months~~six-month period ended ~~September~~June 30, ~~2017~~2020, included in the net loss from other operations, totaled ~~$482,561.~~

~~Item 2.~~ ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~ ~~(Continued)~~$493,824. Total comprehensive net loss (all attributable to Enterprise Diversified, Inc. stockholders) for the six-month period ended June 30, 2020 equaled $869,703.

Balance Sheet Analysis

This section provides an overview of changes in our assets, liabilities, and equity and should be read together with our accompanying unaudited ~~condensed~~ 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.

	September 30, 2017		June 30, 2017		March 31, 2017		December 31, 2016		June 30, 2020		March 31, 2020		December 31, 2019		September 30, 2019		June 30, 2019
ASSETS
Cash and equivalents	$	151,867	$	2,231,807	$	4,573,708	$	2,607,370	$	425,985	$	553,468	$	666,810	$	161,275	$	542,856
Accounts receivables, net										28,394		35,298		52,889		35,646		20,212
Investments, at fair value		12,201,972		8,978,684		6,075,884		599,500		9,586,178		8,354,270		10,126,204		9,522,236		9,735,274
Real estate, total		839,849		1,102,158		1,098,758		1,905,291		383,128		376,499		479,425		1,412,208		1,421,364
Accounts receivables, net		481,123		440,403		260,051		212,751
Goodwill and other assets		2,794,364		2,763,402		2,976,470		4,516,320		545,407		548,725		574,316		713,578		769,570
Total assets	$	16,469,175	$	15,516,454	$	14,984,871	$	9,841,232	$	10,969,092	$	9,868,260	$	11,899,644	$	11,844,943	$	12,489,276
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deferred revenue	$	239,748	$	247,873	$	238,941	$	214,898
Accounts payable		180,692		220,631		92,953		77,918	$	77,670	$	188,732	$	157,934	$	66,584	$	161,357
Accrued expenses		218,294		195,414		219,602		123,387		119,839		124,255		198,374		51,703		80,761
Deferred revenue										210,671		201,430		204,960		217,811		217,020
Notes payable and other liabilities		658,635		497,954		528,676		265,000		666,608		561,004		704,418		1,137,250		1,372,303
Total liabilities		1,297,369		1,161,872		1,080,172		681,203		1,074,788		1,075,421		1,265,686		1,473,348		1,831,441
Total stockholders’ equity		15,171,806		14,354,582		13,904,699		9,160,029		9,894,304		8,792,839		10,633,958		10,371,595		10,657,835
Total liabilities and stockholders’ equity	$	16,469,175	$	15,516,454	$	14,984,871	$	9,841,232	$	10,969,092	$	9,868,260	$	11,899,644	$	11,844,943	$	12,489,276

Results of ~~operations~~

~~Corporate~~

In the quarter ended September 30, 2017 the corporate segment produced a total of $97,029 of comprehensive loss. This includes $10,068 of other comprehensive income which was generated as a result of unrealized capital gains from the ownership of marketable securities. Expenses totaled $108,849. This compares to corporate expenses of $315,301 incurred during the quarter ended September 30, 2016. Expenses were higher during the quarter ended September 30, 2016 compared to the quarter ended September 30, 2017 primarily due to increased accounting and legal expenses related to outsourced accounting roles and legacy legal matters. Accounting and legal roles have since been brought in-house.

~~Internet~~ Operations

Asset Management Operations

The Company operates its asset management operations business through its wholly-owned subsidiaries, Willow Oak Asset Management, LLC (“Willow Oak”) and 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 ~~September 30, 2017, the focus of our internet segment is to generate cash flow, work to make our costs variable,~~operations, Willow Oak entered into three fee share agreements with multiple private investment partnerships and ~~reinvest in our operations when~~made an acceptable return is available. We did not make significant reinvestments into the internet segment during the three months ended September 30, 2017. Additionally, competitive pressures have negatively affected our ongoing revenue. Accordingly, revenue has continued to decline, though at a slower pace than previous years, as noted below.

Revenue attributed to the internet segment during the quarter ended September 30, 2017 totaled $314,202. While this was a decrease of $41,182 when compared to revenue generated in this segment during the quarter ended September 30, 2016 totaling $355,384, income from operations reported for the segment decreased by only $19,426 during the same time period. The year over year revenue decline from the quarters ended September 30, 2017 and 2016 was 11.6%. This was a slight improvement from the year over decline of 11.7% reported atadditional investment through another partnership arrangement. During the year ended December 31, ~~2016 compared to~~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 year ended December 31, ~~2015.~~2019, one new joint venture was formed in which Willow Oak Capital Management is a non-managing owner.

As of June 30, 2020, Willow Oak holds a direct investment in the Alluvial Fund, LP. The ~~year over year~~realized and unrealized investment gains and losses are reported as revenue ~~decline is~~on the accompanying unaudited condensed consolidated statements of operations. This treatment can result in reporting negative revenue figures for a given period. Willow Oak continues to earn revenue through the remaining fee share arrangements, as well as through fund management services.

During the quarterly period ended June 30, 2020, the asset management operations segment produced $1,268,819 of ~~fewer customer renewals~~revenue. Cost of revenue was $0 and operating expenses totaled $93,742. Total net gain for the ~~absence~~quarterly period ended June 30, 2020, totaled $1,175,077. This compares to the quarterly period ended June 30, 2019, when the asset management operations segment produced $589,180 of ~~new customers.~~

~~The~~revenue, cost of revenue ~~during~~was $0, and operating expenses totaled $104,526. Additionally, other income for the ~~quarter~~quarterly period ended ~~September~~June 30, ~~2017 totaled $81,144. This~~2019, was an$7,052, and total net income was $491,706. The increase in revenue for the quarterly period ended June 30, 2020 is due to market volatility and the application of ~~$10,854 when compared~~specific GAAP revenue recognition rules as noted above. The decrease in operating expenses is primarily due to lower payroll expenses. Other income for the ~~cost of revenue in this~~ segment during the ~~quarter ended September 30, 2016 totaling $70,290. This increase was the result of a temporary contract price decrease experienced during the quarter ended September 30, 2016.~~

~~As noted in the~~ quarterly ~~report filed on August 8, 2017, during the quarter~~period ended June 30, ~~2017,~~2019, was primarily due to sub-lease rental income earned through the ~~internet segment closed on the sale~~Company’s New York office space.

As of First.com, a domain name that has been actively marketed since the first quarter of 2016. The domain name had a cost basis of $200,000 and was sold for net proceeds of $200,000, which includes broker and commission fees paid. This transaction was reported in other income during the quarter ended June 30, ~~2017.~~

~~Item 2.~~ ~~Management’s Discussion~~2020, the fair value of long-term investments held through the asset management operations segment totaled $9,532,332. This compares to the fair value of long-term investments held at June 30, 2019, which totaled $9,681,428. This decrease in investments is attributable to negative Alluvial Fund performance and ~~Analysis of Financial Condition and Results of Operations~~ ~~(Continued)~~the Company’s withdrawal from its investment in Willow Oak Select Fund. Management notes that, while short-term market volatility can have a significant effect on reported revenue for a given period, the Company’s overall investment strategy is ultra-long-term focused.

The table below provides a summary of ~~income~~revenue statement ~~figures~~amounts over time. These figures are specific to the ~~internet~~asset management operations segment and are presented for the ~~quarterly~~three- and six-month periods designated below.

	For the three months ended				For the six months ended
Asset Management Operations Revenue	June 30, 2020		June 30, 2019		June 30, 2020			June 30, 2019
Realized and unrealized gains (losses) on investment activity	$	1,228,776	$	547,559	$	(555,630	)	$	1,203,275
Management and performance fee revenue		16,043		15,964		31,295			30,973
Fund management services revenue		24,000		25,657		48,000			51,912
Total revenue	$	1,268,819	$	589,180	$	(476,335	)	$	1,286,160

September 30, 2017

June 30, 2017

March 31, 2017

December 31, 2016

Revenues

$
314,202

$
328,341

$
335,086

$
347,005

Cost of revenue

81,144

76,145

79,809

79,471

Operating expenses

61,299

68,214

94,024

66,375

Other income

656

2,771

54,309

6,382

Other comprehensive income (loss)

—

—

—

(258
)
Comprehensive income (loss)

$
172,415

$
186,753

$
215,562

$
207,283

~~Management is currently identifying~~Real Estate Operations

For the market value for domain names in order to assess potential income opportunities. Management also evaluates domain names available for purchase in order to generate new revenue from customers who utilizequarterly period ended June 30, 2020, the ~~domains.~~

Effective January 1, 2016, we have improved and restructured our internal reporting in the internet segment. Our current sales mix of customers consists of approximately 69% internet access and 31% web hosting and storage. Approximately 91% of our customer accounts are managed by our U.S.real estate operations ~~and 9% of our customer accounts are managed by our Canada operations. Revenue~~segment generated by our U.S. operations totaled $295,371 and revenue generated by our Canada operations totaled $18,831 during the quarter ended September 30, 2017. This compares to revenue generated by our U.S. operations of $330,480 and revenue generated by our Canada operations of $23,904 during the quarter ended September 30, 2016.

~~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 and throughout the Southwest. 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 reported 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 party 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 the nine months ended September 30, 2017, HVAC Value Fund closed on one additional acquisition totaling $560,000. As previously 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 HVAC operations generated~~rental revenue of ~~$1,332,239 during the quarter ended September 30, 2017. Cost~~$16,494. The cost of rental revenue totaled ~~$875,991 and operating~~$7,114. Operating expenses ~~totaled $322,639.~~for the quarterly period ended June 30, 2020, were $1,075. Other expenses totaled ~~$13,928. The other expenses are related to the interest portion of the notes payable incurred by HVAC Value Fund as well as a loss incurred on the disposal of an asset. Comprehensive~~$6,730 and net income for the ~~quarter~~quarterly period ended ~~September~~June 30, ~~2017~~2020, totaled ~~$119,681.~~$1,575. This compares to the ~~quarter~~quarterly period ended ~~September~~June 30, ~~2016,~~2019, when ~~HVAC~~the real estate operations segment generated rental revenue of ~~$906,910,~~$218,599 and cost of rental revenue totaled ~~$619,881,~~$164,130. Operating expenses for the quarterly period ended June 30, 2019 were $211,536, other expenses totaled $4,510,278, and total loss reported was $4,667,345. During the quarterly period ended June 30, 2019, a $4,157,809 loss on the sale of the Mt Melrose subsidiary was recognized. Also included in other expenses during the quarterly period ended June 30, 2019, was an impairment adjustment of $126,827 recorded on a commercial warehouse held for resale within the Mt Melrose portfolio. Other expenses incurred during the quarterly periods ended June 30, 2020 and 2019, were primarily interest-related expenses. The current period decreases in rental revenue, cost of rental revenue, operating expenses ~~totaled $219,537~~ and ~~comprehensive income for~~interest expense are largely due to the ~~quarter totaled $66,370. Management notes that for~~deconsolidation of activity from the ~~quarter ended September 30, 2016, HVAC Value Fund had closed only four of the six currently held acquisitions.~~ Mt Melrose rental portfolio, which is no longer consolidated as previously described in Note 4.

EDI Real Estate Operations

As of ~~September~~June 30, ~~2017, we owned 10 residential properties, one commercial property,~~2020 and ~~interests in several lots. In 2008,~~December 31, 2019, 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 listEDI Real Estate portfolio of properties was assigned to a real estate agent. Additionally, during 2015, 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.

~~Item 2.~~ ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~ ~~(Continued)~~included the following units:

EDI Real Estate	June 30, 2020		December 31, 2019
Units occupied or available for rent		6		6
Vacant units being prepared for rent		—		—
Vacant lots		3		—
Total units held for investment		9		6

Units held for resale		—		2
Vacant lots held for resale		—		3
Total units held for resale		—		5

The Company sold three residential properties in the quarter ended September 30, 2017 for gross proceeds of $299,900 and net proceeds of $271,037. The carrying value of the three properties sold was $275,541. Two of these properties were previously held for sale, while the other property was

Units held for investment and sold through a tenant purchase option. No properties were acquired during this time period or subsequent to the quarter ending. We continue 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 have been engaged to market the remaining properties listed for resale.consist of single-family residential rental units.

~~We own several rental properties managed by a third-party property management company. As of September 30, 2017, we had eight properties available for rent. All rental properties were occupied.~~

The leases in effect, as of ~~the quarter ended September~~June 30, ~~2017~~2020, are based on ~~either~~ annual ~~or multi-year~~ 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. ~~All eight~~

EDI Real Estate	June 30, 2020			December 31, 2019
Total real estate held for investment	$	495,634		$	484,590
Accumulated depreciation		(112,506	)		(104,075	)
Real estate held for investment, net		383,128			380,515

Real estate held for resale	$	—		$	98,910

For the quarterly period ended June 30, 2020, depreciation expense on the EDI Real Estate portfolio of properties was $4,340. This compares to depreciation expense for the quarterly period ended June 30, 2019, when depreciation expense on the EDI Real Estate portfolio of properties was $6,116.

There were ~~current with regard to tenant payments as of September~~no properties sold or purchased during the quarterly periods ended June 30, ~~2017. This is comparable to~~2020 and 2019 within the ~~quarter ended September 30, 2016 when we also had eight properties available for rent with all of the properties occupied and current with regard to tenant payments.~~EDI Real Estate portfolio.

During the ~~quarter~~quarterly period ended ~~September~~June 30, ~~2017,~~2020, one residential rental property and two vacant lots were transferred from “held for resale” to “held for investment”. The carrying value of these properties was $43,992. EDI Real Estate did not transfer any properties during the quarterly period ended June 30, 2019.

There were no impairment adjustments recorded during the quarterly period ended June 30, 2020. During the quarterly period ended June 30, 2019, impairment adjustments of $39,972 were recorded on various vacant lots held for resale within the EDI Real Estate portfolio.

Mt Melrose Operations

As described in Note 4, management previously has determined that the Company ~~generated rental revenue~~no longer has a controlling financial interest in Mt Melrose. All activity prior to the deconsolidation event has been included on our unaudited condensed consolidated statements of ~~$24,144,~~operations for given prior reporting periods under the real estate segment. No Mt Melrose activity is included for the quarterly period ended June 30, 2020. As of June 27, 2019, all previously consolidated assets and liabilities of Mt Melrose, LLC have been removed from our condensed consolidated balance sheets. Accordingly, there are no consolidated Mt Melrose assets as of the periods ended June 30, 2020 and December 31, 2019 included on the accompanying condensed consolidated balance sheets.

For the periods ended June 30, 2020 and December 31, 2019, the Company’s remaining investment in Mt Melrose is carried on our condensed consolidated balance sheets for $53,846. This carrying value is reflective of the mechanics of the June 27th transaction, rather than management’s perceived value of the Company’s remaining interest. By way of the Mt Melrose transaction, the Company was able to significantly reduce direct and overhead expenses, improve net cash flows, and fully deconsolidate approximately $6.4 million of ~~bad~~debt. Additionally, the Company was afforded the opportunity to refocus growth opportunities to its asset management operations segment. These circumstances, rather than the cash consideration received, are what strategically prompted the majority sale of the Mt Melrose entity. Additional debt ~~expense. The~~restructurings and sales of previously inactive real estate properties have allowed the portfolio to continue its redirection, which management believes will provide long-term returns greater than its current carrying value.

For the quarterly period ended June 30, 2019, depreciation expense on the Mt Melrose portfolio of properties was $62,393.

During the quarterly period ended June 30, 2019, an impairment adjustment of $126,827 was recorded on a commercial warehouse held for resale within the Mt Melrose portfolio.

Internet Operations

Revenue attributed to the internet operations segment during the quarterly period ended June 30, 2020, totaled $245,215 and cost of revenue totaled ~~$6,081.~~$79,229. Operating expenses for the segment totaled $46,434 for the quarterly period ended June 30, 2020, and other income totaled $2,753. Total net income for the internet operations segment was $122,305 for the quarterly period ended June 30, 2020. This ~~compared~~compares to ~~rental~~the quarterly period ended June 30, 2019, when revenue ~~of $27,023, net of bad debt during the quarter ended September 30, 2016. The~~totaled $265,917, cost of ~~revenue during~~revenues totaled $83,243, operating expenses were $59,035, other income was $3,541, and net income was $127,180. Other income for the ~~comparison period totaled $11,104. The decrease in cost of revenue was~~segment is the result of ~~improved maintenance of the rental properties by our third-party property manager.~~

~~Depreciation expense totaled $5,304 for the quarter ended September 30, 2017. Total accumulated depreciation as of September 30, 2017 totaled $81,057.~~

~~Asset Management Operations~~

The Company operates its asset management business through a wholly-owned subsidiary, Willow Oak Asset Management, LLC (“Willow Oak”). This subsidiary was formed on October 10, 2016. As of the quarter ended September 30, 2017, all four $2.5 million payments of the $10 million seed investment in Alluvial Fund, as previously described, have been made. Willow Oak earns revenues through a fee share arrangement with Alluvial Fund, LP. In accordance with GAAP, for financial reporting purposes, all Alluvial Fund investment gainscredit card rewards and ~~losses are reported as revenue on the condensed consolidated statement of income. For~~refundable sales tax purposes, the realized portion of these gains will be taxable. Fees earned from the fee share agreement specific to management fees are paid monthly and reported as revenue. Fees earned from the fee share agreement specific to performance are accrued monthly and reported as revenue. These fees are paid out annually and may fluctuate throughout the year.

Willow Oak entered into a certain Limited Liability Company Operating Agreement of Huckleberry Real Estate Fund II, LLC (“Huckleberry Fund”) dated as of January 24, 2017 (the “Operating Agreement”). In connection with entering into the Operating Agreement, Willow Oak also entered into a certain Side Letter Agreement dated January 23, 2017 (the “Side Letter”) with Huckleberry Fund and Huckleberry Capital Management, LLC (“Huckleberry Management”), an unaffiliated and unrelated New Jersey limited liability company and registered investment adviser. Under the terms of the Operating Agreement and the Side Letter, Willow Oak subscribed for a membership interest in Huckleberry Fund, a Delaware limited liability company and private investment fund managed by Huckleberry Management and organized to invest in the Oak Street properties real estate project in Lakewood, New Jersey. In connection with our subscription for a membership interest in Huckleberry Fund, Willow Oak committed to make a capital contribution to Huckleberry Fund in an aggregate amount of at least $750,000, which was made during the quarter ended March 31, 2017.

Willow Oak signed a fee share agreement on May 11, 2017 with Lizard Head, LLC, the general partner of Bridge Reid Fund I, LP. Under the agreement, Willow Oak became a special limited partner to Bridge Reid, providing fund advisory services to Bridge Reid in exchange for payments equal to 33% of the management fees accrued quarterly by the general partner and 33% of the incentive fees accrued annually, on investors who become limited partners after May 11, 2017.

Willow Oak signed a fee share agreement on June 13, 2017 with Coolidge Capital Management, LLC (“Coolidge”), whose sole member is Keith D. Smith, also a Sitestar director. Under the Agreement, Willow Oak Asset and Coolidge are the sole members of Bonhoeffer Capital Management LLC, the general partner to Bonhoeffer Fund, LP, a private investment partnership. Under their agreement, Willow Oak pays all start-up and operating expenses that are not partnership expenses under the limited partnership agreement. Willow Oak receives 50% of all performance and management fees earned by the general partner.

~~Item 2.~~ ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~ ~~(Continued)~~credits.

~~In the quarter ended September~~As of June 30, ~~2017 the asset management segment produced~~2020, we have a total of ~~$674,054~~7,231 customer accounts across the U.S. and Canada. This compares to the quarterly period ended June 30, 2019, when we had a total of ~~comprehensive~~7,742 customer accounts. As of June 30, 2020, approximately 60% of our revenue is driven by internet access services, with the remaining 40% being earned though web hosting and other web-based storage services.

Approximately 92% of our customer accounts are U.S.-based, while 8% are Canada-based. Revenue generated by our U.S. customers totaled $231,999 and revenue generated by our Canadian customers totaled $13,216 during the quarterly period ended June 30, 2020. This compares to revenue generated by our U.S. customers of $252,260 and revenue generated by our Canadian customers of $13,657 during the quarterly period ended June 30, 2019.

Discontinued Operations - Home Services Operations

As noted previously, Specialty Contracting Group, LLC’s historical operations are now classified as “discontinued operations” in our consolidated financial statements, and all presented prior periods have also been reclassified to discontinued operations for comparability. Net income ~~which~~reported from discontinued operations related to the home services operations segment for the quarterly period ended June 30, 2020 was ~~generated as~~$3,149. Included in this amount is an $5,237 loss recovery on discontinued operations that represents royalties earned in accordance with the Rooter Hero royalty arrangement mentioned previously. This compares to the net loss of $1,270,371 reported from discontinued operations related to the home services operations segment for the quarterly period ended June 30, 2019.

Other Operations

For the quarterly period ended June 30, 2020, our other operations segment did not produce any revenue or cost of goods sold. Operating expenses totaled $204,391 and other income was $3,750 for the quarterly period ended June 30, 2020. Corporate operating expenses accounted for the full $204,391 of reported operating expenses for our other operations. This resulted in a ~~result~~net loss of ~~unrealized capital gains recognized as~~$200,641 for the quarterly period ended June 30, 2020. This compares to the quarterly period ended June 30, 2019 when the other operations segment again did not produce any revenue ~~from its partnership with Alluvial Fund, LP. As previously noted, these non-current securities are marked to market at~~or cost of goods sold, but did incur corporate operating expenses of $305,284, other expenses of $7,471, and a net loss of $312,755 for the ~~end of each reporting period and unrealized gains and losses are recognized as revenue in the period of adjustment. Expenses totaled $41,544. These~~period. Corporate expenses were higher for the quarterly period ended June 30, 2019, primarily due to additional legal ~~and consulting~~ fees related to the ~~launch~~sales of the ~~Bonhoeffer Fund, LP. No comparable figures exist for the quarter ended September 30, 2016~~Mt Melrose and home services subsidiaries, as ~~the asset management subsidiary did not commence activities until January 1, 2017.~~well as higher accounting and payroll expenses.

Financial Condition, Liquidity, and Capital Resources

During the quarterly period ended June 30, 2020, Enterprise Diversified carried out its business strategy in four operating segments: Asset Management Operations, Real Estate Operations, Internet Operations, and Other Operations. During periods prior to the quarter ended June 30, 2019, the Company also operated through a fifth reportable segment, Home Services Operations. However, as of the quarterly period ended June 30, 2020, and for all prior periods presented, home services operations are reported as discontinued operations. Our primary focus is on generating cash flow so that we have the flexibility to pursue opportunities as they present themselves. We will only invest 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 particular segments or the Company’s historical operations.

Cash and equivalents totaled ~~$151,867~~$425,985 at the quarter ~~end September~~ended June 30, ~~2017~~2020, compared to ~~$2,607,370~~$666,810 at ~~year end~~year-end December 31, ~~2016.~~2019. Real estate held for investment increased slightly to $383,128 at the quarter ended June 30, 2020, compared to $380,515 at year-end December 31, 2019, and real estate held for resale decreased to $0 at the quarter ended June 30, 2020, compared to $98,910 at year-end December 31, 2019. The fluctuations in real estate amounts are primarily due to the opportunistic sales of certain EDI Real Estate rental properties. The Company does not expect to make significant reinvestments into property and equipment used in operating activities at this time. Also, our total notes payable decreased to $503,757 from $511,025 during the same time period. This decrease in cash and equivalents is the result of our investments in Alluvial Fund and an acquisition by our HVAC segment. During this time period, net accounts receivable increased to $481,123 from $212,751 due to increased saleswas related to the ~~HVAC segment during~~sale of the ~~quarter ended September 30, 2017.~~

Accounts payable increased to $180,692 at quarter end September 30, 2017 compared to $77,918 at year end December 31, 2016. Accrued expenses increased to $158,271 from $71,532 during this time period. The increases in accounts payable and accrued expenses are also due to increased activity in the HVAC segment in the quarter ended September 30, 2017. Accrued bonus increased to $110,000 from $51,855 during this time period. Deferred revenue increased to $239,748 from $214,898 during this time period. Fluctuation in accrued bonus and deferred revenue are cyclical differences based on the timing of bonuses paidpreviously mentioned real estate properties and the ~~renewal~~subsequent payoff of ~~customer subscriptions in~~ the ~~internet segment.~~attached notes.

The Company currently ~~believe~~believes that our existing balances of cash, cash equivalents, and cash generated from operations ~~and from the sale of our real estate portfolio~~ will be sufficient to satisfy our currently anticipated cash requirements through at least the next 12 months and the foreseeable future. The Company does not have significant long-term debt. Our liquidity could be negatively affected if we were to make an acquisition, 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 ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 is as shown:

	June 30, 2020		December 31, 2019
Current	$	25,079	$	50,909
30 – 60 days		2,649		1,495
60 + days		666		485
Total	$	28,394	$	52,889

We have no material capital expenditure requirements.

September 30, 2017

December 31, 2016

Current

$
291,269

$
155,224

30 – 60 days

$
56,270

$
14,016

60 + days

$
135,584

$
43,511

Total

$
483,123

$
212,751

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,~~

In 2016, the Company ~~announced that it had entered into~~made a ~~letter of intent agreement with Alluvial Capital Management, LLC (“Alluvial Capital”)~~strategic determination to ~~make~~fund a seed investment, through Willow Oak, ~~Asset Management~~to assist in the launch of Alluvial Fund, LP, a private investment ~~partnership~~fund that was launched ~~by Alluvial Capital~~ on January 1, 2017 ~~(“Alluvial Fund”).~~by an unaffiliated sponsor and general partner, Alluvial Capital ~~will act as the general partner~~Management, LLC. The Company had determined that Willow Oak’s support of Alluvial Capital Management, LLC and ~~the Company, through Willow Oak Asset Management, will invest~~its direct investment in Alluvial Fund ~~as a limited partner.~~

~~The Company has agreed to make capital contributions to Alluvial Fund~~were both beneficial and necessary undertakings in ~~the aggregate amount of $10 million to be provided over four equal tranches on January 1, 2017, April 1, 2017, July 1, 2017~~conjunction with establishing an asset management operations business and ~~October 1, 2017.~~gaining credibility within that industry. As of ~~September~~June 30, ~~2017,~~2020, Willow Oak continues to hold its remaining direct investment in Alluvial Fund. Investment gains and losses are reported as revenue on the ~~Company satisfied its obligation to provide $10 million in accordance with the contribution schedule.~~accompanying unaudited condensed consolidated statements of operations.

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 ~~will commence~~commenced on October 1, 2017. This lease extends through September 30, 2020. ~~All related expenses will be allocated to the asset management segment.~~

~~Item 2.~~ ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~ ~~(Continued)~~

~~We have no other meaningful long-term debt obligations, purchase obligations or other long-term liabilities as of September 30, 2017 other than those previously mentioned related to~~Through the ~~HVAC and asset management segment. The only~~former home services operations segment, an operating lease ~~obligations are agreements for leased~~on warehouse and office ~~and warehouse~~ space ~~for~~in Scottsdale, Arizona, commenced on May 1, 2018. This lease would have extended 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 lease. However, Specialty Contracting Group, in connection with its dissolution and winding up, surrendered possession of the premises to the landlord, in default of this lease.

On June 27, 2019, as reported in the Current Report on Form 8-K filed with the SEC on July 3, 2019, the Company sold 65% of its membership interest in Mt Melrose, LLC to an unaffiliated third-party purchaser, Woodmont Lexington, LLC (“Woodmont”). Under the terms of the parties’ membership interest purchase agreement, the Company agreed to indemnify Woodmont against any losses actually incurred as a result of breaches of the Company’s representations and warranties made under the agreement. To date, Woodmont has made four claims for indemnification under the agreement, all of which ~~extend through July 31, 2019,~~have been rejected and ~~for leased office space for Willow Oak Asset Management,~~disputed by the Company. Also, in connection with the transaction, the Company and Woodmont entered into a certain Amended and Restated Limited Liability Company Agreement of Mt Melrose, LLC (the “A&R LLC Agreement”). The A&R LLC Agreement sets forth the general terms and conditions governing the arrangements between the two members. The A&R LLC Agreement provides that the business and affairs of Mt Melrose will be managed exclusively by one or more managers; and Woodmont is designated as the sole manager. In addition, the Company expressly agreed to a three-year “standstill” arrangement, during which ~~extends through September 30,2020.~~time the Company will not in any way participate, directly or indirectly, in the management or control of Mt Melrose; and with respect to any matters requiring a vote of the members, the Company will vote with (i.e., the same as) Woodmont. Subsequent to the transaction, 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 maintains that it has retained its 35% membership interest.

Off-Balance Sheet Arrangements

We are not a party to any material off-balance sheet arrangements as of ~~September~~June 30, ~~2017.~~2020.

Discussion Regarding COVID-19 Potential Impacts

Due to the uncertainty surrounding the COVID-19 pandemic, the Company has experienced, and continues to expect, market volatility as it relates to its investment in the Alluvial Fund. As reported in prior quarters, this volatility can create periods when the asset management operations segment produces negative revenue amounts. Due to the size of the investment, these negative revenue amounts can also have a sizable impact on the Company’s balance sheets at a given point-in-time. The nature of this investment has inherent market risks, and while short-term results can be unpredictable, the Company’s overall investment strategy continues to be ultra-long-term focused.

These periods of volatility do not typically have significant short-term cash flow impacts; however, due to the Company's relative size, there is an inherent lack of affordable, short-term lending options in the event of an unexpected negative cash flow situation. As previously mentioned, during the quarterly period ended June 30, 2020, the Company received loan proceeds in the amount of $125,102 under the Paycheck Protection Program. The Small Business Administration has determined that companies of our size generally are less likely to have access to adequate sources of liquidity in the current economic environment, and because of this, has established a safe harbor whereby borrowers that received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.

Management continues to monitor and assess all Company operations for additional potential impacts of the COVID-19 pandemic. As of the quarterly period ended June 30, 2020, the Company has not been forced to make significant operational changes as a result of the pandemic. Management does not anticipate additional challenges in meeting existing obligations, nor do we expect significant customer or vendor interruptions. However, the extent to which the COVID-19 pandemic ultimately may impact our business, financial condition, liquidity and results of operations likely will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the direct and indirect impact of the pandemic on employees, customers and service providers, as well as the U.S. economy, and the actions taken by governmental authorities and other third parties in response to the pandemic.

Item 3.

Quantitative and ~~Qualitative~~Qualitative Disclosures About Market Risk

This item is not required by smaller reporting companies.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

~~As of September 30, 2017,~~

The Company’s management, with the participation of our ~~Chief Executive Officer~~principal executive officer and ~~Chief Financial Officer, performed an evaluation of~~principal 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 June 30, 2020. 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 Executive Officer~~our principal executive officer and ~~the Chief 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 ~~their~~this 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 Executive Officer~~principal executive officer and ~~Chief Financial Officer~~principal financial officer concluded that our disclosure controls and procedures were not effective as of ~~September~~June 30, 2017. 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.2020.

Changes in Our Internal Control over Financial Reporting

No change in the Company’s internal control over financial reporting occurred during the fiscal quarter ended ~~September~~June 30, ~~2017,~~2020, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting subsequent to the date of our most recent evaluation of the Company’s internal control over financial reporting.

PART II. ~~OTHE~~ROTHER INFORMATION

Item 1.

Legal Proceedings

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

On April 12, 2016, ~~Sitestar~~the 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 percent~~5% 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 Litigation~~Other: Mt Melrose-related Proceedings

~~From time~~Various disputes have arisen and are continuing between the Company and Woodmont Lexington, LLC (“Woodmont”), the entity to ~~time, we are subject~~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 ~~legal proceedings related~~partner with an operator who, in exchange for being granted a substantial equity interest at a significant discount to the ~~conduct~~amounts the Company had invested in Mt Melrose, would assume full responsibility for the management and operation of ~~our business. Based on~~Mt Melrose and its real estate portfolio and endeavor in good faith to generate favorable returns inuring to the ~~information available~~long-term best interests of the Company and its shareholders.

In addition, Woodmont, acting as the sole manager of Mt Melrose, purported to unilaterally amend and restate as of August 29, 2019 the ~~date~~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 believed 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 was 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 had engaged in settlement negotiations, although they had not been successful. On August 3, 2020, the Company voluntarily dismissed its Verified Counterclaims against Woodmont Lexington, LLC without prejudice, but may re-file them (whether in Kentucky or Delaware) at a later time. This dismissal likely terminates the Fayette Circuit Action.

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 ~~filing, we believe~~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 ~~ultimate outcome~~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. On April 6, 2020, Woodmont filed an answer to the complaint in the Delaware Action, along with verified counter-claims against the Company for Woodmont’s previously-asserted claims for indemnification under the parties’ purchase agreement. 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. On July 24, 2020, the Company filed its reply to the counterclaims asserted by Woodmont in which it denied Woodmont’s allegations. 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 ~~matters will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.~~Mt Melrose-related proceedings.

Item 1A.

Risk Factors

This item is not required byfor smaller reporting companies.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

As previously reported in our Current Report on Form 8-K filed with the SEC on February 6, 2017, the Company accepted and closed upon subscriptions from a private placement of shares of common stock of the Company (the “Private Placement”) in the amount of $4,625,000, and issued 92,500,000 shares of its common stock in connection therewith. Immediately following the Private Placement as of February 6, 2017, the Company had a total of 296,652,616 issued shares of common stock and 282,830,163 outstanding shares of common stock.

The issuance of shares of common stock of the Company pursuant to the Private Placement was a private placement to “accredited investors” (as that term is defined under Rule 501 of Regulation D), and was exempt from registration under the Securities Act of 1933 (“Securities Act”), in reliance upon Section 4(2) of the Securities Act and Regulation D Rule 506, as a transaction by an issuer not involving a public offering.None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Ot~~her~~Other Information

None.

The Company is not primarily engaged, and does not propose to primarily engage, in the business of investing, reinvesting or trading in securities, and does not propose to operate in a manner that would cause it to acquire ‘investment securities’ (as defined in the Investment Company Act), having a value exceeding 40 percent of the value of its total assets (exclusive of Government securities and cash items), calculated on an unconsolidated basis. The board of the Company has elected to eliminate any uncertainty in regard to the Company’s current status under the Act, and has confirmed pursuant to Rule 3a-2 adopted under the Act that the Company has a ~~bona fide~~ intent to be engaged primarily, as soon as is reasonably possible and in any event by the end of the one-year period beginning June 30, 2017, in various lines of business not constituting investment securities, including, but not necessarily limited to, internet services, HVAC and plumbing services and real estate. This ~~bona fide~~ intent is demonstrated by the Company’s internal operational plan (the ‘Plan’), prepared and submitted by the Company, which sets forth detailed and specific potential steps to use the Company’s capital and assets to grow certain operational lines of business. Pursuant to the Plan, the Company’s holdings of investment securities will constitute less than 40 percent of its total assets on an unconsolidated basis no later than one year from June 30, 2017.

Item 6.

Exhibits

Exhibit		Description
3.1		Certificate of Designation of Series A Preferred Stock*
4.1		Tax Benefit Preservation Plan, dated as of July 24, 2020, by and between Enterprise Diversified, Inc. and Colonial Stock Transfer Company, Inc., as rights agent**
31.1		Certification of ~~Chief~~Principal Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a)
31.2		Certification of ~~Chief~~Principal Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a)
32		Certification Pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101		Pursuant to Rule 405 of Regulation S-T, the following materials from ~~Sitestar Corporation’s~~Enterprise Diversified, Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2017,~~2020, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets ~~(unaudited)~~ as of ~~September~~June 30, ~~2017~~2020 (unaudited) and December 31, ~~2016;~~2019; (ii) Unaudited Condensed Consolidated Statements of ~~Income (unaudited)~~Operations for the ~~three~~Three and ~~nine months ended September~~Six Months Ended June 30, ~~2017~~2020 and ~~2016;~~2019; (iii) Unaudited Condensed Consolidated Statements of Comprehensive Income ~~(unaudited)~~ for the ~~three~~Three and ~~nine months ended September~~Six Months Ended June 30, ~~2017~~2020 and ~~2016;~~2019; (iv) Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity ~~(unaudited) as of September~~for the Three and Six Months Ended June 30, ~~2017~~2020 and ~~December 31, 2016;~~2019; (v) Unaudited Condensed Consolidated Statements of Cash Flows ~~(unaudited)~~ for the ~~nine months ended September~~Six Months Ended June 30, ~~2017~~2020 and ~~2016;~~2019; (vi) Notes to Unaudited Condensed Consolidated Financial Statements

*Filed as Exhibit 3.1 to Registrant’s Form 8-K filed with the Securities and Exchange Commission on July 29, 2020, and incorporated herein by reference.

**Filed as Exhibit 4.1 to Registrant’s Form 8-K filed with the Securities and Exchange Commission on July 29, 2020, and incorporated herein by reference.

~~SIGNATURES~~SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		~~SITESTAR CORPORATION~~ENTERPRISE DIVERSIFIED, INC.

Date: ~~November 9, 2017~~August 7, 2020		/s/Steven L. Kiel
		Steven L. Kiel
		~~President, Chief~~ Executive ~~Officer, and~~ Chairman
		(Principal Executive Officer)

Date: August 7, 2020		/s/ Alea A. Kleinhammer
		Alea A. Kleinhammer
		Chief Financial Officer
		(Principal ~~Executive Officer and Principal Accounting~~Financial Officer)

	For the three months ended September 30						For the nine months ended September 30
	2017			2016			2017			2016
Revenues - internet operations	$	314,202		$	355,384		$	977,629		$	1,068,283
Revenues - HVAC		1,332,239			906,910			3,526,913			939,932
Revenues - real estate		324,044			404,923			1,216,190			1,992,371
Revenues - asset management		715,598			—			1,320,808			—
Total revenues		2,686,083			1,667,217			7,041,540			4,000,586
Cost of revenues - internet operations		81,144			70,290			237,098			290,043
Cost of revenues - HVAC		875,991			619,881			2,307,902			633,053
Cost of revenues - real estate		306,537			402,285			1,264,602			1,918,603
Cost of revenues - asset management		—			—			—			—
Total cost of revenues		1,263,672			1,092,456			3,809,602			2,841,699
Gross profit - internet operations		233,058			285,094			740,531			778,240
Gross profit - HVAC		456,248			287,029			1,219,011			306,879
Gross profit (loss) - real estate		17,507			2,638			(48,412	)		73,768
Gross profit - asset management		715,598			—			1,320,808			—
Total gross profit		1,422,411			574,761			3,231,938			1,158,887
Selling, general and administrative expenses		606,378			634,338			1,909,650			1,152,715
Total operating expenses		606,378			634,338			1,909,650			1,152,715
Income from operations		816,033			(59,577	)		1,322,288			6,172
Other (expense) income, net		(8,877	)		93,779			120,760			98,350
Income before income taxes		807,156			34,202			1,443,048			104,522
Income tax benefit (expense)		—			—			—			—
Net income		807,156			34,202			1,443,048			104,522
Less: net income attributable to the noncontrolling interest		—			14,102			—			16,955
Net income attributable to Sitestar Corporation stockholders	$	807,156		$	20,100		$	1,443,048		$	87,567
Earnings per share, basic and diluted		0.00			0.00			0.01			0.00
Weighted average number of shares, basic and diluted		282,830,163			122,794,725			272,315,145			92,644,688

	2017			2016
Cash flows from operating activities:
Net income	$	1,443,048		$	104,522
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization		—			55
Depreciation		82,309			23,236
Loss (gain) on sale of real estate		42,938			(213,454	)
Gain on sale of available-for-sale securities		(76,935	)		—
Gain on non-current investments		(1,317,983	)		—
Loss on disposal of vehicle		8,110			—
Bad debt expense		15,281			4,383
Real estate valuation adjustment		58,742			—
(Increase) decrease in:
Accounts receivable, net		(283,653	)		(247,828	)
Other current assets		(80,387	)		(21,888	)
Increase (decrease) in:
Deferred revenue		24,850			(5,088	)
Accounts payable		102,774			47,037
Accrued expenses		94,907			94,313
Net cash flows from operating activities		114,001			(214,712	)
Cash flows from investing activities:
Proceeds from sale of real estate held for sale		683,832			1,568,699
Proceeds from sale of real estate held for investment		137,475			344,850
Improvements to real estate held for sale		(100,596	)		(180,708	)
Improvements to real estate held for investment		—			(17,542	)
Proceeds from sale of marketable securities		486,175			—
Purchases of marketable securities		—			(2,486,403	)
Proceeds from sale of domain names		200,000			—
Purchase of domain names		—			(56,250	)
Purchase of property and equipment		(34,392	)		—
Capitalized loan fees		(5,375	)		—
Subsidiary acquisitions		(8,711,772	)		(1,238,436	)
Net cash flows from investing activities		(7,344,653	)		(2,065,790	)
Cash flows from financing activities:
Principal payments on note payable		(277,088	)		(90,000	)
Proceeds from notes payable		427,237			—
Proceeds from issuance of common stock		4,625,000			3,854,719
Net cash flows from financing activities		4,775,149			3,764,719
Net increase (decrease) in cash		(2,455,503	)		1,484,217
Cash and cash equivalents at beginning of the period		2,607,370			184,731
Cash and cash equivalents at end of the period	$	151,867		$	1,668,948

	2017		2016
Non-cash supplemental information:
Unrealized loss (gain) on marketable securities reported as other comprehensive income	$	56,271	$	28,657
Issuance of note receivable on sale of real estate held for sale	$	226,000	$	—
Transfer of real estate held for resale to real estate held for investment	$	125,000	$	—
Transfer of real estate held for investment to real estate held for resale	$	—	$	152,003
Transfer of other current assets to investments	$	2,500,000	$	—
Adjustments to goodwill due to carryback obligations	$	29,504	$	—
HVAC equipment acquired through capital leases and debt obligations	$	172,990	$	—
HVAC acquisitions through notes payable	$	100,000	$	240,000

Pro forma nine months ended September 30, 2017 (unaudited)	With January 20, 2017 acquisition
Revenue	$	3,602,740
Earnings	$	104,179

June 2016 acquisitions (in aggregate)
	Fair value of consideration transferred:
Cash	$	160,000
Notes payable	$	65,000
	Fair value of assets acquired:
Vehicles	$	35,000
Equipment	$	13,700
Total identifiable assets	$	48,700
Goodwill	$	176,300
Subsequent adjustments	$	(15,000	)
Adjusted goodwill	$	161,300

July 8, 2016 acquisition
	Fair value of consideration transferred:
Cash	$	375,000
Notes payable	$	100,000
	Fair value of assets acquired:
Goodwill	$	475,000
Subsequent adjustments	$	3,276
Adjusted goodwill	$	478,276

July 15, 2016 acquisition
	Fair value of consideration transferred:
Cash	$	340,000
Notes payable	$	100,000
	Fair value of assets acquired:
Vehicles	$	40,000
Total identifiable assets	$	40,000
Goodwill	$	400,000
Subsequent adjustments	$	(17,780	)
Adjusted goodwill	$	382,220

October 1, 2016 acquisition
	Fair value of consideration transferred:
Cash	$	315,000
	Preliminary fair value of assets acquired:
Vehicles	$	20,000
Equipment	$	5,000
Total identifiable assets	$	25,000
Goodwill	$	290,000

January 20, 2017 acquisition
	Fair value of consideration transferred:
Cash	$	460,000
Notes payable	$	100,000
Assumed obligations	$	169,255
	Preliminary fair value of assets acquired:
Equipment	$	119,684
Leased Vehicles	$	143,590
Total identifiable assets	$	263,274
Goodwill	$	465,981

	Cost Basis		Unrealized Gain		Unrealized Loss			Fair Value
September 30, 2017 (unaudited)
Common Stock available for sale	$	153,970	$	—	$	(19,981	)	$	133,989

	Cost Basis		Accrued Fees		Unrealized Gain		Fair Value
September 30, 2017 (unaudited)
Alluvial Fund, LP	$	10,000,000	$	702	$	1,317,281	$	11,317,983
Huckleberry Real Estate Fund II, LLC		750,000		—		—		750,000
Total	$	10,750,000	$	702	$	1,317,281	$	12,067,983

	2017			2016
Interest bearing amount due on acquisition through HVAC Value Fund, LLC		25,000			250,000
Non-interest bearing amount due on acquisition through HVAC Value Fund, LLC		73,838			15,000
Interest bearing amount due on line of credit through HVAC Value Fund, LLC		289,637			—
Equipment and vehicle capital leases acquired by HVAC Value Fund, LLC		132,560
Interest bearing amount due on real estate held for investment through EDI Real Estate, LLC		137,600			—
Less current portion		(449,363	)		(240,000	)
Long-term portion	$	209,272		$	25,000

	2017			2016
Gross accounts receivable	$	483,123		$	213,624
Less allowance for doubtful accounts		(2,000	)		(873	)
Accounts receivable, net	$	481,123		$	212,751

	Corporate			Internet		HVAC		Real Estate		Asset Management		Consolidated
Three months ended September 30, 2017
Revenues	$	—		$	314,202	$	1,332,239	$	324,044	$	715,598	$	2,686,083
Cost of revenue	$	—		$	81,144	$	875,991	$	306,537	$	—	$	1,263,672
Net income (loss) before income taxes	$	(167,120	)	$	172,415	$	119,681	$	8,126	$	674,054	$	807,156
Goodwill	$	—		$	212,445	$	1,779,549	$	—	$	—	$	1,991,994
Identifiable assets	$	201,291		$	315,754	$	2,787,303	$	1,072,849	$	12,091,978	$	16,469,175