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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 30, 2017March 31, 2021

SITESTAR CORPORATIONENTERPRISE DIVERSIFIED, INC.

(Exact Name of Registrant as Specified in Its Charter)

Commission file number 000-27763

(434) 382-7366336-7737

(Issuer’sRegistrant’s telephone number, including area code)

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

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 pastpreceding 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.

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, 2017May 12, 2021 is 282,830,163.2,647,383.

Table of Contents

CAUTIONARY STATEMENT REGARDINGREGARDING 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'sCompany’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. FINANCIALFINANCIAL INFORMATION

SITESTAR CORPORATION

ENTERPRISE DIVERSIFIED, INC.

And Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

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 restatedamended 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 CorporationEnterprise Diversified, Inc. and its subsidiaries.

The

During the three-month period ended March 31, 2021, the Company operatesoperated through fivefour reportable segments: Corporate, Internet Operations, HVACAsset Management Operations, Real Estate Operations, Internet Operations, and Asset ManagementOther 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, for the three-month period ended March 31, 2021, and for all prior periods presented, Home Services Operations are reported as discontinued operations. The management of the Company also continually reviews various investmentbusiness 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”), Willow Oak Capital Management, LLC, Willow Oak Asset Management Affiliate Management Services, LLC (“Willow Oak AMS”) and Willow Oak Asset Management Fund Management Services, LLC (“Willow Oak FMS”).

In 2016, the Company made 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 a special limited partner, Willow Oak earns a share of management and performance fees earned. As of March 31, 2021, Willow Oak continues to hold its 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 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. Additionally, Willow Oak FMS earns a direct fee from the private limited partnership for the administrative, compliance, and tax and audit liaison services it renders.

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: strategic planning, investor relations, marketing, operations, compliance and legal coordination, accounting and bookkeeping, annual audit coordination, and liaison to third-party service providers. On November 1, 2020, this agreement was renewed with revised terms that include an exchange of services between Willow Oak and Arquitos. Willow Oak earns monthly and annual fees as consideration for these services.

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% beneficial owner, manages capital through separately managed accounts and a private investment fund launched January 1, 2020. Willow Oak 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. Additionally, Willow Oak FMS earns a direct fee from the private limited partnership for the administrative, compliance, and tax and audit liaison services it renders.

On September 29, 2020, Willow Oak, through Willow Oak AMS, executed a strategic relationship agreement with SVN Capital, LLC to become a 20% beneficial owner of the firm in exchange for the provision of certain ongoing FMS and operational services offered through Willow Oak FMS. As a beneficial owner of SVN Capital, LLC, Willow Oak is entitled to 20% of gross management and performance fees earned by the firm. Additionally, Willow Oak FMS earns a direct fee from SVN Capital Fund, LP, a private investment fund launched by the firm’s managing member, for the administrative, compliance, and tax and audit liaison services it renders.

Real Estate Operations

As has been previously reported, 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 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 New Mt Melrose and its real estate portfolio. 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.

As has been previously reported, 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 March 31, 2021, through EDI Real Estate, LLC, ENDI owns a legacy real estate investment portfolio that includes four residential properties and vacant land. Subsequent to March 31, 2021, one residential property has been sold. 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.

Other Operations

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

Financing Arrangement Regarding Triad Guaranty, Inc.

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 December 31, 2020, the Company accepted a revision of terms to the original promissory note which include, among other things, an extension of the loan maturity date to December 31, 2022, an increase of interest to the amount of 12% annually, and a provision to settle all currently accrued interest through the issuance of Triad Guaranty, Inc. common shares. In line with the revision of note terms, during the three-month period ended March 31, 2021, the Company was issued 454,097 shares of Triad Guaranty, Inc. in lieu of interest accrued on the note receivable as of December 31, 2020.

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

Discontinued Operations - Home Services Operations

The

Prior to May 24, 2019, the Company operates its internetoperated a home services operations segment through Sitestar.net, a wholly-ownedits former 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 throughSpecialty Contracting Group, LLC (formerly known as HVAC Value Fund, LLC. HVAC Value Fund isLLC). The Company had organized and launched this subsidiary in June 2016, initially with an unaffiliated third party. Specialty Contracting Group was focused on the acquisition and management of HVAC and plumbing companies in Arizona and throughout the Southwest United States. Arizona.

As has been previously reported, in our Current Report on Form 8-K filed with the SEC on June 14, 2016,May 24, 2019, 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 hascompleted 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.

10

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 datedivestiture 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 committedhome services operations 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.Rooter Hero. See Note 3 for more information.

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, its wholly owned subsidiaries, and its wholly-owned subsidiariesthose 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, Willow Oak Asset Management Affiliate Management Services, LLC, Willow Oak Asset Management Fund Management Services, LLC, Bonhoeffer Capital Management, LLC, 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 condensedinterim consolidated financial statements have been prepared by Sitestar Corporation, pursuant toin 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 furnishedDecember 31, 2020, consolidated balance sheet included herein reflects all adjustments (consistingwas 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 disclosuresdisclosure normally presentincluded in annual consolidated financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP)GAAP have been omitted pursuant to suchinstructions, rules, and regulations. Theseregulations 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 beare 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 in2020. 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 withfinancial position as of March 31, 2021, and the SEC on March 24, 2017 (the “2016 Form 10-K”). The results of operations for the ninethree months ended September 30, 2017 are not necessarily indicative of the results to be expected for the full year ending DecemberMarch 31, 2017.2021, and 2020.

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.

11

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 accountsnotes receivable. The Company places its cash with high qualityhigh-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-currentoperations 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 qualifyhave 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-currentare either not publicly traded, do not have published sales records, or do not routinely make current financial information available. These investments are remeasured to fair value on a recurring basis. See Note 5 for more information.

As of March 31, 2021, and December 31, 2020, 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’s asset management operations segment records receivable amounts for fee shares and fund management services revenue earned on a monthly basis. Performance fee shares crystalize and are collected on an annual basis while management fee shares crystalize and are collected on either a monthly or quarterly basis as dictated by the respective partnership agreement. Fund management services receivables are collected monthly in line with ongoing performance. The Company historically has had no collection issues with fee share and fund management receivables, and the overall possibility for non-collection is extremely low. For these reasons, management has determined that it is not necessary to record an allowance against these receivables.

The Company also grants credit in the form of unsecured accounts receivable to its customers. The estimate of the allowance for doubtful accounts, which is charged off tothe 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 chargedwritten 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, whichthe 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 cardprovided 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 beenvacate 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 Companyinternet operations segment attempts to reduce thisthe risk of non-collection by including a late paymentlate-payment fee and a manual processing paymentmanual-processing-payment fee to customer accounts. Receivables more than ninety90 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 are typically paid via credit card or check upon completion of service. Sales that are not collected upon completion are generally to existingMarch 31, 2021, and repeat customers who have established a track record of timely payments. Historically, HVAC has not encountered issues with collectability of customer accounts. AccountsDecember 31, 2020, allowances offsetting gross accounts receivable more than 60 days are considered past due.on the accompanying condensed consolidated balance sheets totaled $509 and $421, respectively. For the quarterly periods ended March 31, 2021, and 2020, bad debt expense from continuing operations was $89 and $405, respectively.

Note

Notes Receivable

The Company currently holdsdoes not routinely issue notes receivable in the ordinary course of business, but when a business opportunity arises, a subsidiary may issue 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 assetsif it appears to be heldfavorable to the Company. Notes receivable are recorded at their principal amount and usedinterest is accrued quarterly based on the applicable interest rate. The Company makes an assessment of the ultimate collectability of each note receivable on an annual basis based upon the financial condition of the borrower.

Property and Equipment

Property and equipment are analyzedrecorded at cost. Expenditures for impairment whenever events or changesmaintenance and repairs are charged to operations as incurred, while renewals and betterments are capitalized. Gains and losses on disposals are included in circumstances indicate that the related carrying amounts may not be recoverable.results of operations. Depreciation is computed using the straight-line method based on the estimated useful lives for each of the following asset classifications:

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 assetsProperty and equipment to be disposed are reported at the lower of carrying amount or fair value of the asset less cost to sell.

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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 quarteras of its fiscal yearDecember 31, or whenmore often if events and circumstances indicate that those assets might not be recoverable.

Impairment testing of goodwill is required at the reporting unitreporting-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 wasadjustments were recorded in 2016. Duringduring the quarterthree-month periods 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.March 31, 2021, and 2020.

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 analysisinternal 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 107impairment, 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 domainsrecoverable. 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.

No impairment adjustments were recorded during the three-month periods ended March 31, 2021, and 2020.

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-month periods ended March 31, 2021, and 2020.

Real estate properties held for investment are carried at the cost basis plus additional expensescosts where the expensecost extended the life of or added value to the property. Otherwise, the expensecost 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-month periods ended March 31, 2021, and 2020, $169,181 and $43,917, respectively, of real estate held for investment was transferred to real estate held for resale. No improvements were made to existing real estate held for investment during the three-month periods ended March 31, 2021, and 2020.

Accrued bonuses represent performance basedCompensation

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 bonuscompensation amounts are accrued when earned and able to be estimated and are paid or issued annually after financial records are finalized.

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Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Other Accrued Expenses

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

Deferred Revenue

DeferredLeases

The Company records right-of-use (ROU) assets and lease liabilities arising from both financing and operating leases that contain terms extending longer than one year. The Company does not recognize ROU assets or lease liabilities for short-term leases (those with original terms of 12 months or less). In making our determinations, the Company combines lease and non-lease elements of our leases.

Revenue Recognition

Asset Management Operations and Other Investment Revenue

The Company earns revenue represents collections from customersinvestments and through various fee share and consulting agreements, including realized and unrealized gains and losses, which may result in advancenegative period or quarterly revenues. Management fees earned are recorded monthly and are included in revenue on the accompanying unaudited condensed consolidated statements of internet servicesoperations. 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 ismarket at the end of each reporting period. Realized and unrealized gains and losses are recognized as revenue in the period serviceof 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 the asset management operations segment for the three-month periods ended March 31, 2021, and 2020 is included below:

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 Recognitionfrom 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 OperationsRevenue

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 Company performs HVAC and plumbing service repairs and installs HVAC units for its customers.Deferred Revenue

Deferred revenue represents collections from customers in advance of services to be performed. Revenue is recognized at the time of the installation or service call. Sales are adjusted for any returns or allowances. A return or allowance situation would arise based on the two-year workmanship warranty that typically conveys with the installation of a new unit. There is also a two-year warranty on newly installed parts and equipment that is honored by the manufacturer. If an installation is performed over multiple days, it is accounted for using work in process (WIP) accounting in accordance with GAAP. If payment is not provided in advance or at the time of service or installation, the amount due is designated as an account receivable.

Real Estate Operations

Revenue from real estate held for resale 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 $192,088 at December 31, 2020, to $198,848 at March 31, 2021. During the three-month periods ended March 31, 2021, and 2020, $119,312 and $127,957, respectively, of adjustment.

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Notes to Unaudited Condensed Consolidated Financial Statements (Continued)revenue from continuing operations was recognized from prior-year contract liabilities (deferred revenue).

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 basesbasis 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 endingended December 31, 2016,2020, December 31, 2015,2019, and December 31, 2014,2018, 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 averageweighted-average number of shares outstanding plus the dilutive impact of all potentially dilutive common shares, consisting primarily of common shares outstanding. Diluted income perunderlying common share is computed similar to basic income per common share except that the denominator is increased to include thestock equity incentives.

The number of additionalpotentially dilutive shares for the three-month periods ended March 31, 2021. and 2020, consisting of common shares that would have been outstanding ifunderlying common stock equity incentives, was 668. None of the potential common shares had been issued and if the additional common shares were dilutive. The Company has no potentially dilutive securities.  securities had a dilutive impact during the three-month periods ended March 31, 2021, and 2020 after rounding was applied.

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 FebruaryJune 2016, the FASB issued ASU 2016-02, “Leases”No. 2016-13, “Financial Instruments - Credit Losses” (Topic 842)326). The guidance in ASU 2016-02 supersedeseliminates the leaseprobable initial recognition requirements in ASC Topic 842, Leases. ASU 2016-02 requiresthreshold that was previously required prior to 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 recognizeaccrued 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 option applied on an instrument-by-instrument basis for eligible financial instruments. In November 2019, the FASB issued further guidance on expected recoveries for purchased financial assets with credit deterioration, and liabilities arising from a leasetransition refiled for both financingtroubled debt restructurings, disclosures related to accrued interest receivables, and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02financial assets secured by collateral maintenance provisions. The guidance is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is required to adopt this standard in the first quarter of 2019. The Company is currently evaluating the effect this standard will have on its 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, and2022, including 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.fiscal years. 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 liabilitypermitted 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 2016, the FASB issued ASU No. 2016-01 "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.

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Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

In January 2017, the FASB issued ASU No. 2017-04 “Simplifying the Test for Goodwill Impairment”. The guidance eliminates the requirement to calculate “implied fair value of goodwill” (previously Step 2) from the goodwill impairment analysis. Companies are required 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. This guidance is required to be adopted in fiscal years beginning after December 15, 20192018, including interim periods within those fiscal years. The adoption of certain amendments of this guidance must be applied on a modified retrospective basis and earlythe adoption is permitted.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 consolidated financial statements. 

NOTE 3. BUSINESS CONBINATIONS OR ACQUISITIONSHOME SERVICES SUBSIDIARY ASSET SALE

As

On May 24, 2019, as has been previously reported, the Company completed a divestiture of June 17, 2016 and June 30, 2016,its Home Services Operations, via its subsidiary, Specialty Contracting Group, LLC (formerly known as HVAC Value Fund, completedLLC), to an unaffiliated third-party purchaser, Rooter Hero Plumbing, Inc. (“Rooter Hero”). In the 100% acquisitiontransaction, all of two HVAC subsidiaries.Specialty Contracting Group’s personal property and customer lists and records were conveyed to Rooter Hero, excluding stock inventory and other current assets. 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 resultpart of the acquisitions, HVAC Value Fund offers heating, ventilation, plumbing,transaction, Rooter Hero assumed Specialty Contracting Group’s obligations under lease and/or loan agreements for all outstanding vehicles and air conditioning servicesequipment, as well as the obligations to customersservice all of the subsidiary’s then-remaining customer accounts going forward. No cash consideration was exchanged in Arizonathe 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 actually received from the customer accounts transferred (7.5% of any monthly revenue generated from qualified sales during the first year, and 5% of any such monthly revenue during years two through five; in each case subject to reduction for pre-approved warranty-related costs concerning select customers).

The operations of Specialty Contracting Group, LLC had been considered a component of, and the surrounding southwestern states. As previously reported in our Current Report on Form 8-K filed with the SEC on June 14, 2016 and described further herein, the purpose of HVAC Value Fund is to acquire HVAC and plumbing businesses. Accordingly, these six acquisitions were madedivestiture reflected a strategic shift in, the ordinary courseCompany’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 businessfuture royalties is uncertain and consistent witha reasonable estimate could not be made. This approach requires that the customscontingent 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, and practices (including with respectmanagement’s inherent lack of control over the buyer’s operations, management determined it would not be reasonable to nature, scope, magnitude, quantity, frequency,attempt to value the contingent consideration. This resulted in assigning the contingent consideration a current valuation of zero. As and contemplated purpose)to the extent any royalties are deemed probable, they will be subsequently recognized as a “recovery from discontinued operations” on the statements of HVAC Value Fund,operations and in turn,will offset, or recover, 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 Fundinitial loss recorded. Accordingly, during the quarterthree-month periods ended September 30, 2017. The following unaudited pro forma summaries present consolidated informationMarch 31, 2021, and 2020, an offsetting $643 and $11,019, respectively, of HVAC Value Fund as ifroyalties on discontinued operations were recognized within the currentreported $643 and previous year business combinations had occurred on January 1$10,756 of each respective fiscal year. Somerecoveries from discontinued operations, respectively.

As of the pro forma information for the year ended December 31, 2016 was calculated using annualized,2020, discontinued assets reported on the face of the accompanying condensed consolidated balance sheets totaled $231. No discontinued liabilities were reported as of the year-ended December 31, 2020. This compares to the three-month period ended March 31, 2021, when no discontinued assets or discontinued liabilities are reported on the face of the accompanying condensed consolidated balance sheets.

A reconciliation of discontinued operations as reported on the accompanying unaudited 2015 financial information, and pro forma informationcondensed consolidated statements of operations for the periodthree-month periods ended September 30, 2017 was calculated using annualized, unaudited 2016 information,March 31, 2021, and 2020, is as informationfollows:

NOTE 4. SALE OF CONTROLLING INTEREST IN REAL ESTATE SUBSIDIARY

Transaction

As has been previously reported, 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 periodtransaction, 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. 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 has disputed this assertion and maintains that it has retained its 35% membership interest.

In connection with this transaction, the Company and Woodmont also 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, including as to any distributions of cash to the 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 was designated as the sole manager. In addition, the Company 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 was intended to allow the Company to maintain a passive management structure, while still owning a significant portion of the partnership.

While the operations of Mt Melrose, LLC have been considered a component of the Company’s business, the sale did not represent a major strategic shift in the Company’s business. While we deconsolidated the operations of Mt Melrose, LLC on June 27, 2019, as a result of no longer having a controlling financial interest, Mt Melrose, LLC’s historical operations continue to be reflected as “continuing operations” in the Company’s financial statements.

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 previously had consolidated Mt Melrose under the “voting interests” (VOE) consolidation model.

By virtue of the A&R LLC Agreement, and the aforementioned standstill agreement, however, Woodmont is the sole “manager” responsible for all management and operating decisions of Mt Melrose. Accordingly, management determined that as of June 27, 2019, the Company no longer has a “controlling financial interest” in Mt Melrose and no longer should 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 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. 

Accounting for Remaining Mt Melrose Investment

The Company adopted ASU 2016-01 effective January 1, 2016 through the applicable subsidiary closing date is unavailable.

As previously reported2018. ASU 2016-01 generally requires entities to measure equity investments at fair value and recognize any changes in our Current Report on Form 8-K filed with the SEC on June 14, 2016, Sitestarfair 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 a 100% voting interestdetermined that its equity investment 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.

HVAC Value FundMt Melrose did not have any material, nonrecurring pro forma adjustments directly attributablea readily determinable fair value at the time of deconsolidation. The Company’s inability to “exercise significant influence” due to the business combination included inpreviously mentioned standstill agreement, also supports the reported pro forma revenue and earnings.

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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.