CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K, including, without limitation, Part I, Item 1, “Business” and Part II, Item 7, “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,” 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 business and prospects, including changes in economic and market conditions, acceptance of the Company’s products and services, maintenance of strategic alliances, and other factors discussed elsewhere in this Form 10-K, and that actual results may differ materially from those indicated in the forward-looking statements as a result of various factors.

PART I

Overview

Enterprise Diversified, Inc. (formerly White Dove Systems, Inc., Interfoods Consolidated, Inc., and then Sitestar Corporation, Inc.)Corporation) was incorporated in Nevada on December 17, 1992. On June 1, 2018, the Company amended its Articles of Incorporation to change the name of the Company to “Enterprise Diversified, Inc.” The name change became effective on July 23, 2018, upon FINRA’s declaration. The Company elected to retain its historical trading symbol of “SYTE.” Unless the context otherwise requires, and when used in this Report, the “Company,” “ENDI,” “we,” “our,” or “us” refers to Enterprise Diversified, Inc. and its subsidiaries.

TheDuring the year ended December 31, 2019, the Company operatesoperated through five reportable segments:

As of the year ended December 31, 2019, and for all prior periods presented, Home Services Operations and Other Operations. Other Operations include corporate, legacy real estate, and investment activity that is not considered to be one of our primary lines of business.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.

In previous periods, the Company reported under the following six business segments: Asset Management, Mt Melrose, HVAC, Internet, Real Estate, and Corporate. In an effort to highlight the direction of the Company and increase segment transparency, these historical segments were reorganized during the quarter ended June 30, 2018. TheAdditional reorganizations were made as of January 1, 2019, in order to appropriately reflect the similarities in the Company’s real estate operations. As a result, the “Mt Melrose” segment is nowand legacy “Real Estate” segments are referred to collectively as “Real Estate” andEstate,” with the “HVAC” segment is nowbeing referred to as “Home Services.” Legacy “Real Estate”, “Corporate”, and other additional investments now are combined under “Other Operations”.Operations.” The “Asset Management” and “Internet” segments remain unchanged. See below for additional information on the activity included in each respective segment report.

The asset management segment includes revenuesNote that as of May 24, 2019, as per 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 expenses derived from various investment opportunities and partnerships. The real estate segment includes revenue and expenses related to the property management and real estate rental activitiesconveyed all of the Mt Melrose portfolio of rental properties located in Lexington, Kentucky. The internet segment includes revenuesubsidiary’s personal property and expenses related to the sale of internet access, hosting, storage,customer lists and records, excluding stock inventory and other ancillary services. The home services segment includes revenuecurrent assets. As part of the transaction, Rooter Hero assumed the subsidiary’s obligations under lease and/or loan agreements for all outstanding vehicles and expenses derived from the acquisition and management of HVAC and plumbing companies in Arizona. The other segment includes revenue and expenses related to the management of legacy properties held for investment and held for resale through EDI Real Estate. The other segment also includes revenue and expenses from nonrecurring investment opportunities such as Huckleberry Real Estate Fund II, LLC. Lastly, the other segment includes any revenue or expenses derived from corporate office operations,equipment, as well as expenses relatedthe obligations to public company reporting,service all of the oversightsubsidiary’s remaining customer accounts going forward. No cash consideration was exchanged in the transaction. As consideration for the transaction, Rooter Hero will pay monthly royalties for the sixty (60) months following the closing, calculated on the basis of subsidiaries,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 other items that affect5% 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 per the overall Company.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

ENDI created a wholly owned asset managementwholly-owned subsidiary on October 10, 2016, named Willow Oak Asset Management, LLC (“Willow Oak”). The asset management segment has been a growth area for the Company since its inception. Capital reallocations continue to be made to the subsidiary with long-term investment strategies being the primary focus. Willow Oak is an asset management operational platform oriented to the value-investing community. Value investing and knowledge of the global value-investing community are core competencies of the Company.Willow Oak’s management. Willow Oak intends to apply its core competencies to bebecome a hub for the value-investing community, withoffering various forms of affiliations with respected value investment managers. Such affiliations to date include fund seeding and reinvestments, fund launching, portfolio management,investor relations, and fund management.management administrative support. The Company intends to actively expand its Willow Oak platform with additional affiliations and services that enhance the value of the Willow Oak platform to all affiliated funds. Willow Oak currently operates one internal fund, Willow Oak Select Fund, LP, and has contractual affiliations with seven other respected value-oriented funds and managers. 

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, a private partnership that was launched on January 1, 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, who is also an ENDI director. Under the Agreement, Willow Oak Asset Management 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. On August 1, 2018, Willow Oak, through a newly organized, wholly owned subsidiary, Willow Oak Capital Management, LLC (“Willow Oak Capital Management”), launched a newly organized private investment partnership, Willow Oak Select Fund, LP (“Select Fund”). Select Fund focuses on investing in securities worldwide based upon “best ideas” submitted by various third-party fund managers comprising the Willow Oak fund manager alliance, some of whom may be affiliated with Willow Oak and/or the Company.

Willow Oak launchedbegan offering its fund management services (“FMS”) offering to external funds on November 1, 2018, when it signed a consulting services agreement with Arquitos Capital, a domestic and an offshore private investment fund controlled by Steven Kiel, a Company director.director and our principal executive officer. Willow Oak also provides FMS to the Bonhoeffer Fund and Willow Oak Select Fund. FMS consists of services not typically provided by traditional third-party providers to the hedge fund industry, including: access to the Willow Oak network, investor relations and marketing, administration and compliance, interface to traditional service providers, standard tools and best practices repository, and access to Willow-Oak-vetted third-party service providers.

Willow Oak offers FMS in consideration forexpanded its affiliations on October 1, 2019, forming a combinationnew joint venture with Focused Compounding Capital Management, LLC (“Focused Compounding Capital Management”) through a wholly-owned Company subsidiary, Willow Oak Capital Management, LLC (“Willow Oak Capital Management”). Willow Oak Capital Management was made a 10% owner of fixedFocused Compounding Capital Management and is entitled to receive 10% of any and all gross fees (including management fees and incentive fees), before expenses, generated from any and all separately managed accounts and funds that are managed or advised, directly or indirectly, by Focused Compounding Capital Management, including a fee share. We believe we are uniquely situatednew private investment fund, Focused Compounding Fund, LP, that was launched by Focused Compounding Capital Management on January 1, 2020. Under the terms of the joint venture, Focused Compounding Capital Management’s principals, Geoff Gannon and Andrew Kuhn, agreed to bear sole responsibility for any and all investment advisory matters associated with the conduct of Focused Compounding Capital Management’s business, while Willow Oak Capital Management agreed to bear the organizational expenses of the fund launch and also to provide Willow Oak’s FMS to private hedge funds with a value-investing framework because our management and board of directors have extensive experience launching and managing value-orientated hedge funds. This experience enables us to focusFocused Compounding Capital Management on providing services that typically only the fund manager or in-house staff have the expertise to provide. FMS frees up managers to focus more time on the management of their investment portfolio. Joining the Willow Oak network also provides FMS customers with access to investment ideas from other Willow Oak network managers.an ongoing basis. 

Real Estate Operations

The Company operates its real estate operations through EDI Real Estate, LLC, a wholly-owned subsidiary, and, indirectly, through Mt Melrose, LLC, a wholly owned subsidiary that currentlyformerly consolidated subsidiary. Mt Melrose, LLC owns and operates a portfolio of residential and other income-producing real estate in Lexington, Kentucky, thatwhich was acquired pursuant to a certain Master Real Estate Asset Purchase Agreement entered into on December 10, 2017, with a like-named seller, MtMt. Melrose, LLC, a Kentucky limited liability company (“Old Mt. Melrose”). On January 10, 2018, Mt Melrose, LLC (“New Mt Melrose”) completed its first acquisition of 44 real properties under the agreement, and on June 29, 2018, Mt Melrose, LLCit completed its second acquisition of 69 additional real properties under the agreement. However, during the quarterly period then ended December 31, 2018, the parties mutually agreed to terminate the Master Real Estate Asset Purchase Agreement—Agreement and no further acquisitions were consummated. A third-party property manager has beenwas engaged as of November 1,during this quarterly period ended December 31, 2018, to manage certain of the real properties previously acquired. Management hasalso determined that it iswas necessary to right-size New Mt MelroseMelrose’s operations to reduce its level of high-interest debt. In an effort to expedite the optimization of the Mt Melrose portfolio, management further determined that a dedicated operator was necessary to manage the subsidiary. Accordingly, on June 27, 2019, the Company sold 65% of its membership interest in New Mt Melrose, has begunLLC to sell various properties with an emphasis on selling properties that have high-interest-rate loansWoodmont, who agreed to assume full responsibility for the management and do not produce income. Asoperation of December 31, 2018, approximately $1.8 million of debt is secured by properties intended for sale. Upon completion of its right-sizing efforts, management expects New Mt Melrose to continue to own a sizable portfolioand its real estate portfolio. The general terms and conditions governing the arrangement between the Company and Woodmont are set forth in an Amended and Restated Limited Liability Company Agreement of income-producing properties in Lexington, Kentucky. 

Internet OperationsMt Melrose, LLC.

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.

Home Services Operations

The Company operates its home services operations through HVAC Value Fund, LLC, a wholly owned subsidiary focused on the acquisition and management of HVAC and plumbing companies in Arizona. As of December 31, 2017, HVAC Value Fund had closed on six acquisitions for an aggregate purchase price of approximately $2.02 million, which included earn-outs of approximately $325,000. For all six acquisitions, all asset allocations made by management are final and all earn-outs have been paid in full as of December 31, 2018.

Other Operations

Other operations include legacy real estate, investment activity, and corporate activity that is not considered to be one of the Company’s primary lines of business.

LegacyOur other real estate operations include activity from a legacy real estate investment portfolio held through EDI Real Estate, LLC. The portfolio, primarily located in the Roanoke and Lynchburg areasarea of Virginia, includes residential properties and vacant land. The portfolio includes single-family homes that are currently rented and managed through a third-party property manager, as well as vacantother properties being prepared or currently listed for sale.

Internet Operations

InvestmentThe 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, third-party software as a reseller, and various ancillary services. Sitestar.net provides services and support to customers in the United States and Canada.

Discontinued Operations - Home Services Operations

The Company operated its home services operations through Specialty Contracting Group, LLC (formerly known as HVAC Value Fund, LLC), formerly a wholly-owned subsidiary focused on the management of HVAC and plumbing companies in Arizona. As of December 31, 2017, the subsidiary had closed on six acquisitions for an aggregate purchase price of approximately $2.02 million, which included earn-outs of approximately $325,000. For all six acquisitions, all earn-outs had been paid in full as of December 31, 2018. On May 24, 2019, the Company completed its divestiture of the home services operations to Rooter Hero. As of the year ended December 31, 2019, and for all prior periods presented, all revenue and expenses related to home services operations have been reported as discontinued operations on the accompanying consolidated statements of operations.

Other Operations

Other operations include corporate activity includesand nonrecurring or one-time strategic funding or similar activity, from various nonrecurring investmentpreviously undertaken, that is not considered to be one of the Company’s primary lines of business.This activity includes opportunities such as the Company’s investment in Huckleberry Real Estate Fund II, LLC and its financing arrangement with Triad Guaranty, Inc.

Corporate operations includeThis also includes 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. ENDI may also invest in marketable securities through the corporate segment.

Products and Services

Asset Management Operations

The Company operates its asset management operations business through a wholly owned subsidiary, Willow Oak Asset Management, LLC. This subsidiary was formed on October 10, 2016. Asset management is a core competency of the Company with many members of management and the board having asset-management backgrounds. The asset management segment has been a growth area for the Company since its inception. Capital reallocations continue to be made to the subsidiary as we believe asset management funds and services present the highest potential for future revenue and income growth.Oak.

As ofIn 2016, the year ended December 31, 2018,Company made a strategic determination to fund a seed investment totaling $10 million through Willow Oak holdsto assist in the launch of Alluvial Fund, LP, a private investment partnership that was launched on January 1, 2017 by 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. Under a side letter agreement with Alluvial Fund’s general partner, Willow Oak agreed not to fully withdraw its capital account prior to a date five years after the effective date of the side letter agreement. However, on December 31, 2017, pursuant to an amendment to the side letter agreement dated December 15, 2017, the Company caused $3.0 million to be withdrawn from Alluvial Fund in order to partially fund the Company’s acquisitions of real estate in the 2018 Mt Melrose transactions. As of December 31, 2019, Willow Oak continues to hold its remaining direct investment in Alluvial Fund. In accordance with GAAP, for financial reporting purposes, these investmentInvestment gains and losses are reported as revenue on the accompanying consolidated statementstatements of income. This treatment can result in reporting negative revenue numbers.operations.

In furtherance of establishing the asset management operations business, Willow Oak also continues to earn revenue throughsigned a fee share arrangements through both Alluvial Fund andagreement on June 13, 2017, with Coolidge Capital Management, LLC (“Coolidge”), whose sole member is Keith D. Smith, who is also an ENDI director. Willow Oak is the sole member of Bonhoeffer Capital Management, LLC, the general partner to Bonhoeffer Fund.Fund, LP, a private investment partnership. Under their agreement, Willow Oak paid all start-up expenses and pays agreed-upon operating expenses that are not partnership expenses, and Willow Oak receives 50% of all performance and management fees earned by the general partner.

On August 1, 2018, Willow Oak, through a newly organized, wholly ownedwholly-owned Company subsidiary, Willow Oak Capital Management, LLC (“Willow Oak Capital Management”), launched a newly organized private investment partnership, Willow Oak Select Fund, LP (“Select Fund”). Willow Oak Capital Management servesserved as the general partner of Select Fund. Select Fund focuses on investingultimately dissolved in securities worldwide based upon “best ideas” submitted by various third-party fund managers comprising theJune 2019 so that other joint ventures and partnerships could be pursued.

On November 1, 2018, Willow Oak also entered into a fund manager alliance, some of whom may be affiliatedmanagement services agreement with Arquitos Investment Manager, LP, which is managed by our 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 and/or the Company. Fund managers who have signed a fixed fee share agreementand a 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 new joint venture, of which Willow Oak Capital Management, LLC is a 10% owner, manages capital through separately managed accounts and who have had their investment ideas selected by Select Fund’s investment managera private partnership launched January 1, 2020. As a member of the general partner, Willow Oak provides ongoing FMS and operational support in addition to covering all one-time expenses associated with the launch of Focused Compounding Fund, LP. As consideration for inclusion in the Select Fund portfolio share in a poolarrangement, Willow Oak is entitled to 10% of gross management and receive allocations of, any performance fees Willow Oak Capital Management receives from limited partners in Select Fund (as determined afterearned by Focused Compounding. In addition to hosting a popular investing podcast, the endindividual principals of each fiscal year of Select Fund), with such allocations being awarded toFocused Compounding share investment news and advice through a fund manager in the form of equity interest in Select Fund (unless the parties mutually agree to a cash payment in lieu thereof), all in accordance with the terms and conditions of the respective fee share agreements. As of December 31, 2018, Willow Oak Capital Management has entered into fee share agreements with seven funds and managers.subscription-based service. 

Real Estate Operations

As previously reported in our Current Reports on Form 8-K filed with the SEC on December 11, 2017, January 17, 2018, March 2, 2018, March 28, 2018, and July 12, 2018, respectively, ENDI created a wholly ownedwholly-owned subsidiary named Mt Melrose, LLC, a Delaware limited liability company (“New Mt Melrose”), on January 10, 2018, which has acquiredDecember 14, 2017, 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 on December 10, 2017, with a like-named seller, Mt. Melrose, LLC (“Old Mt. Melrose”), a Kentucky limited liability company owned by Jeff Moore, a formerthen an ENDI director. As set forth in our Form 8-K filed on January 17, 2018, onOn January 10, 2018, New Mt Melrose, consistent with the terms of the purchase agreement, completed a first acquisition from Old Mt. Melrose of 44 residential and other income-producing real properties located in Lexington, Kentucky. As further set forth in our Form 8-K filed on July 12, 2018, onOn June 29, 2018, New Mt Melrose, consistent with the terms of the purchase agreement, completed a second acquisition from Old Mt. Melrose of an additional 69 residential and other income-producing real properties located in Lexington, Kentucky.

The Company accounted for the first and second purchases of properties as an asset acquisition (consisting of a concentrated group of similar identifiable assets, including land, buildings, improvements, and in-place leases). As previouslyhas been reported, in our Current Report on Form 8-K filed with the SEC on November 5, 2018, pursuant to that certain Termination of Master Real Estate Asset Purchase Agreement entered into effective November 1, 2018, betweenJune 27, 2019 the Company and Old Mt. Melrose, the parties mutually agreed to terminate the Master Real Estate Asset Purchase Agreement assold 65% of November 1, 2018. Accordingly, neither the Company norits membership interest in New Mt Melrose, have any further rights or obligations concerning additional acquisitionsLLC to Woodmont. The Company deconsolidated the operations of real properties from Old Mt. Melrose under the Master Real Estate Asset Purchase Agreement. A third-party property manager has been engaged as of November 1, 2018, to manage certain of the real properties previously acquired. Management has determined that it is necessary to right-size New Mt Melrose, operationsLLC on June 27, 2019, as a result of no longer having a controlling financial interest.

ENDI created a wholly-owned real estate subsidiary on July 10, 2017, named EDI Real Estate, LLC, to reduce its levelhold ENDI’s legacy portfolio of high-interest debt. Accordingly, New Mt Melrose has begun to sell various properties with an emphasis on selling properties that have high-interest-rate loans and do not produce income.real estate. As of December 31, 2018, approximately $1.8 million of debt is secured by properties intended for sale. Upon completion of its right-sizing efforts, management expects New Mt Melrose to continue to own a sizable portfolio of income producing properties in Lexington, Kentucky. 

Through New Mt Melrose, as of December 31, 2018, the Company2019, through EDI Real Estate, LLC, ENDI owns a totallegacy real estate investment portfolio that includes eight residential properties and vacant land. Our real estate portfolio under EDI Real Estate, LLC is primarily focused in the Roanoke area of 159 units consisting of 97 units held for investmentVirginia. The portfolio includes single-family homes, both rented and 62 units held for sale. Units held for investment consist of single-family and multi-family residential rental units. Of the 97 units held for investment, 87 of the unitsvacant, that are occupied or available to rent, and 10 of the units are vacant units being prepared to market to tenants.managed by a third-party property management company. The leases in effect as of the year ended December 31, 2018,2019, are based on either annual or multi-year time periods. Month-to-month leases are reserved for special circumstances. Units held for sale consistperiods and include month-to-month provisions after the completion of single-family units, multi-family units, commercialthe 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 undeveloped lots of land. As of December 31, 2018, New Mt Melrose holds 62 units as held for sale, ten of these units being undeveloped lots.also do not vary significantly throughout our real estate holding areas.

Internet Operations

Sitestar.net is an Internet Service Provider (ISP) that offers consumer and business-grade internet access, wholesale managed modem services for downstream ISPs, 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 fiber-optic, and wireless)fiber-optic). Additionally, we market and sell web hosting and related services to consumers and businesses. We also offer broadband services within our regional and national footprint.

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 December 31, 2018,2019, the focus of our internet segment is to generate cash flow, work to make our costs variable, and reinvest in our operations when an acceptable return is available. We did not make significant reinvestments into the internet segment during 2018; however, subsequent to December 31, 2018, management has begun working with outside consultants to establish a new business plan for the segment. The business plan is expected to include a formal marketing strategy with new products and services offerings in geographic areas that were previously unavailable to the segment. Management’s intent with this new business plan is to stop the decline of internet revenue by the end of 2019.

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

ThePrior to May 24, 2019, the Company operatesoperated its home services operationssegment through its wholly-owned subsidiary, Specialty Contracting Group, LLC (formerly known as HVAC Value Fund, LLC, a wholly owned subsidiary focused on the acquisition and management of HVAC and plumbing companies in Arizona. After gaining experience with HVAC acquisitions, management noted the complementary nature of plumbing providers and completed two acquisitions where a significant amount of their revenue originated from plumbing services. As previously reported in our Current Report on Form 8-K filed with the SEC on June 14, 2016, we,LLC). The Company, along with JNJ Investments, LLC, an unaffiliated third-party and former member of HVAC Value Fund, LLC,third party, organized and launched this subsidiarySpecialty Contracting Group, LLC on June 13, 2016. On May 18, 2018, the Company terminated its operating agreement with JNJ Investments, LLC, dated June 13, 2016. ENDI has a 100% voting interest in HVAC Value Fund. AlthoughSpecialty Contracting Group was focused on the operating agreement provided JNJ Investments with the opportunity to earn non voting profit interests, the Company does not believe JNJ Investments earned any non voting profit interests during the termmanagement of the operating agreement because HVAC Value Fund did not exceed the profit thresholds under the operating agreement necessary for JNJ Investments to earn non voting profit interests.

HVAC Value Fund closed on five acquisitions totaling $1,455,000 during the year ended December 31, 2016, and one acquisition during the year ended December 31, 2017, 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 initial purpose of HVAC Value Fund was to acquire HVAC and plumbing businesses. Accordingly, all of our acquisitions were madecompanies 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 customer base consists of apartment communities, single family homes, condos, and property management companies, with a small portion of our work falling into the commercial category.Arizona.

The

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.

EDIHuckleberry Real Estate OperationsFund

ENDI createdOn January 30, 2017, the Company, through Willow Oak, committed to make a wholly owned real estate subsidiary on July 10, 2017, namedcapital contribution to Huckleberry Real Estate Fund II, LLC, a private investment fund, in the aggregate amount of $750,000. On May 14, 2018, Willow Oak transferred the Huckleberry investment to EDI Real Estate, LLC, another wholly-owned subsidiary of the Company. Under the fund’s operating agreement, the fund’s managing member has sole discretion regarding the amounts and timing of any distributions to hold ENDI’s legacy portfoliothe members of real estate.the fund. As of December 31, 2018, we owned nine residential properties and interests in several undeveloped lots. This compares to December 31,2019, a full redemption has been made, with the related gain included on the consolidated statements of operations under the other operations segment.

Triad DIP Investors

On August 24, 2017, when we owned ten residential properties, one commercial property, and interests in several undeveloped lots. In 2008, the Company had implementedentered 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 on April 27, 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 on May 18, 2018. The terms of the promissory note provide for interest in the amount of 10% annually, a programrepayment date no later than April 29, 2020, and the issuance of warrants in Triad Guaranty, Inc. equal to redirect cash generated from2.5% of the internet operations intocompany. Accordingly, on April 28, 2018, the Company was issued warrants to purchase 450,000 shares for $0.01 per share. On November 12, 2019, the Company exercised its warrants and renovationpurchased 450,000 shares of real estate. This program was terminated with the change in managementTriad Guaranty, Inc. Subsequently, on December 14, 2015. As30, 2019 the Company sold all 450,000 shares at a price of December 14, 2015, several real estate agents and investors were engaged to determine the marketability of our properties. Repair work ceased until a more thorough review for each property could be completed to determine the most profitable course forward. Prior to year-end 2015, a list of properties was assigned to a real estate agent. Additionally, during 2016 and 2017, we entered into negotiations with several investors to sell various properties. Many of these properties were held for resale by prior management, but prior marketing activity was poor. As of December 31, 2018, nearly all of these properties have been successfully sold. 

Through EDI Real Estate, we own nine rental properties managed by a third-party property management company. As of December 31, 2018, we had six properties available for rent, with five properties being occupied. The unoccupied unit is in the process of being turned over for new tenants. Three additional properties are undergoing renovations with the intention to have them ready for rent during 2019. The leases in effect as of the year ended December 31, 2018, are based on either annual or multi-year time periods and include month-to-month provisions after the completion of the initial term. The property management company has introduced updated and renewed leases for existing rental properties.

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.$0.18/share.

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 the subsidiaries, and other items that affect the overall Company. ENDI may also invest in marketable securities or enter into investment partnerships through the corporate segment..

Employees

As of March 28, 2018,December 31, 2019, we employed seven full-time individuals through the asset management, real estate, internet, home services, and other segments, and12 full-time employees and one part-time employee through the home services segment.segments. We also utilize outside contractors as necessary to assist with financial reporting, technical support, and customer service. Our employees are not unionized, and we consider relations with employees to be favorable.

Available Information

Enterprise Diversified, Inc. files annual, quarterly, and current reports and other documents with the Securities and Exchange Commission (SEC) under the Securities Exchange Act. Also, the SEC maintains an internet website that contains reports, proxy and information statements, and other information regarding issuers, including the Company, that file electronically with the SEC. The public can obtain any documents that the Company files with the SEC at http://www.sec.gov. The Company also makes available free of charge on or through the Company’s website, http://www.enterprisediversified.com, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC.

This item is not required for smaller reporting companies.

None.

The Company operates its Real Estate, Internet, and Other Operationsoperations remotely–that is, without dedicated office space. The principal office for our Asset Management Operations is office space leased by the Company located in New York, New York. The principal office of our Home Services Operations, isprior to being discontinued, was a mix of office and industrial warehouse space previously leased by HVAC Value Fund,Specialty Contracting Group, LLC located in Scottsdale, Arizona. The home services segment no longer operates in Tucson, Arizona, and is actively looking to sub lease that property.

As of December 31, 2018, through Mt Melrose, LLC, the Company owns various real estate properties, commercial properties and interests in several undeveloped lots. Subsequent to December 31, 2018, five properties held for sale have been sold.

As of December 31, 2018,2019, through EDI Real Estate, LLC, the Company owns various real estate properties including nineeight residential properties and interests in several undeveloped lots. Subsequent to December 31, 2019, two properties held for resale have been sold.

On December 24, 2019, the Company completed the sale of its commercial warehouse space located in Lexington, Kentucky. The property was sold at its carrying value of $850,000.

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

Other: Mt Melrose-related Proceedings

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

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

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

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

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

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

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

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

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

Not applicable.

PART II

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

Record Holders

As of March 28, 2019,27, 2020, we had approximately 126119 shareholders of record. This number does not reflect the number of individuals or institutional investors holding stock in nominee name through banks, brokerage firms, and others.

Equity Compensation Plans

We do not have any plans underOn November 7, 2019, Enterprise Diversified’s Governance, Compensation, and Nomination Committee of the Board of Directors approved the creation of an equity incentive program for board members as well as eligible senior management. The Committee determined that it was advisable, and in the best interests of the Company and its stockholders, to provide guidelines for the issuance of equity incentive awards, such as restricted stock and restricted stock units, to attract, retain, and motivate eligible persons whose present and potential contributions are important to the long-term success of the Company and its subsidiaries and to align their interests with those of the Company’s stockholders. Consistent with this and the Company’s intention to retain its cash, it was also determined that such a program would provide for a more-formal process by which options, warrants, or other rightsamounts of director’s fees and annual management bonuses accrued from time to subscribe for or acquiretime could be paid, at the direction of the Committee, in shares of our common stockCommon Stock in lieu of cash. The provisions of the program were memorialized as the Enterprise Diversified, Inc. 2020 Equity Incentive Plan (the “2020 EIP”), which was approved and adopted by the Board effective as of January 31, 2020. The 2020 EIP may be granted and there are no outstanding options, warrants,amended or other rights to subscribe forterminated at any time by the Board or acquire sharesthe Committee. A copy of our common stock.the 2020 EIP accompanies this Report as Exhibit 99.1.

Dividends

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

Issuances of Unregistered Shares of Common Stock

On December 20, 2019, the Company issued 21,870 unregistered shares of its Common Stock to Steven L. Kiel, the Company’s Executive Chairman, as its repayment of an outstanding $100,000 promissory note owed to Mr. Kiel. The number of shares issued in lieu of cash payment of the obligation was determined by the Governance, Compensation, and Nomination Committee of the Board of Directors using the volume weighted average price of a share of Common Stock for the immediately preceding ninety (90) days, which equaled $4.57. To the extent this issuance constituted an offer or sale of securities under the Securities Act, it was exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act and Regulation D Rule 506, as a transaction by an issuer not involving a public offering.

On February 14, 2020, the Company issued a total of 35,594 unregistered shares of its Common Stock to members of the Board of Directors and select senior management in lieu of cash payment of certain accrued director’s fees and annual management bonuses, in line with the 2020 EIP described above. The number of shares issued was determined by the Governance, Compensation, and Nomination Committee of the Board of Directors using the volume weighted average price of a share of Common Stock for the ninety (90) days immediately preceding January 31, 2020, which equaled $3.6537. To the extent this issuance constituted an offer or sale of securities under the Securities Act, it was exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act and Regulation D Rule 506, as a transaction by an issuer not involving a public offering.

Not applicable.

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 accompanying consolidated financial statements and accompanying notes as of and for the yearyears ended December 31, 2019 and 2018. The discussion of results, causes, and trends should not be construed to imply any conclusion that such results or trends will necessarily continue in the future. Additionally, it should be noted that a uniform comparative analysis cannot be performed for all segments, as a segment’s limited financial history or recent restructuring results in less comparable financial performance.

Summary of Financial Performance

Common stockholders’ equity increaseddecreased from $15,890,655 at December 31, 2017, to $15,915,651 at December 31, 2018. The change was mostly attributable2018, to $4,065,835 of additional common stock issued in association with our two closings of acquisitions under the Master Real Estate Asset Purchase Agreement with Old Mt. Melrose.$10,633,958 at December 31, 2019. This change was also partially attributable to $637,604$4,998,487 of comprehensive income in the internet segment and was partially offset by $1,019,900 of comprehensive loss in the asset management segment, $2,008,768 of comprehensivenet loss in the real estate segment, $915,163$1,510,475 of comprehensive loss inresulting from discontinued operations under the home services segment, and $914,895$791,916 of comprehensivenet loss in other segments.segments, and was partially offset by $1,399,615 of net income in the asset management segment and $522,626 of net income in the internet segment. Corporate expenses for the year ended December 31, 2019, included in the net loss from other operations, totaled $1,101,098. Total comprehensive net loss (all attributable to Enterprise Diversified, Inc. stockholders) for the year ended December 31, 2019 equaled $5,381,691, which includes $3,054 of accumulated other comprehensive loss attributable to the internet segment.

Historical Variable Interests

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

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

Balance Sheet Analysis

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

Financial Condition, Liquidity, and Capital Resources

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

Cash and equivalents totaled $459,680$666,810 at the year ended December 31, 2019, compared to $435,726 at year-end December 31, 2018, compared2018. The Company intends to $3,297,059 at year-end December 31, 2017. This decrease incontinue to build up cash and equivalents is the result of our investment in Mt Melrose, LLC.reserves moving forward. Real estate held for investment increaseddecreased to $380,515 at the year ended December 31, 2019, compared to $9,492,877 at year-end December 31, 2018, compared to $616,374 at year-end December 31, 2017, and real estate held for sale increasedresale decreased to $98,910 at the year ended December 31, 2019, compared to $2,318,912 at year-end December 31, 2018, compared2018. Property and equipment also decreased to $199,117$17,753 at the year ended December 31, 2019, from $1,019,742 at year-end December 31, 2017. Property2018. The decreases in real estate and property and equipment also increasedare primarily due to $1,290,345the equity sale and subsequent deconsolidation under the real estate segment. The Company does not expect to make significant reinvestments into property and equipment used in operating activities at year-end December 31, 2018, from $331,299 at year-end December 31, 2017.this time. Total notes payable increaseddecreased to $7,865,878$511,025 from $564,876$7,521,819 during the same time period. The increases in these accounts areThis decrease was also dueprimarily related to the acquisition of Mt. Melrose, LLC properties.equity sale and deconsolidation under the real estate segment.

The Company currently believes that our existing balances of cash, cash equivalents, and cash generated from operations proceeds from our Huckleberry investment and from the sale of portions 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 did acquire long-term debt with the Mt Melrose acquisitions; however, the debt is collateralized by the real properties that were also acquired. months.

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

We have no material capital expenditure requirements.

Home services typically structures acquisitions where a portion of the purchase price is held back and is subject to certain conditions. These notes payable may or may not bear interest. Of the six acquisitions made by HVAC Value Fund during 2016 and 2017, five resulted in notes payable to the seller. As of December 31, 2018, all of these notes have been paid in full. As of December 31, 2018, one line2019, no lines of credit remainsremain open through the home services segment. ThisThe line of credit isthat existed as of December 31, 2018 through the home services segment, was held with Steven L. Kiel, an ENDI director.director and our principal executive officer. The Company assumed this debt, which was paid off during the current year through the issuance of Company stock. Additional debt held through the home services segment includesas of December 31, 2018, included loans and leases for various vehicles and equipment. Two vehicle loans were entered into during the quarter ended March 31, 2018. These loans requirerequired monthly payments through May 2023 and holdheld annual interest rates of 5.99%. As of December 31, 2019, all of these loans have been assumed by Rooter Hero, as a result of our divestiture of the home services segment. See Note 3 for more information.

During last year’sthe quarter ended September 30, 2017, EDI Real Estate, LLC, 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. Subsequent to the year ended December 31, 2019, one of these notes has been paid off. Additionally, during the quarter ended September 30, 2018, EDI Real Estate, LLC issued a promissory note secured by additional properties held for investment. This note carries an annual interest rate of 5.6% and fully matures on September 1, 2033, with early payoff permitted. The interest rate on this note is subject to change once each five yearfive-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.

Under the Cash Flow Agreement described under Note 3

With respect to the Accompanying Consolidated Financial Statements for the year ended December 31, 2018, the Company’s wholly owned subsidiary, Mt Melrose, LLC, assumed responsibility for Old Mt. Melrose’s (as defined in Note 3) monthly payments of interest and/or principal under the outstanding debt secured by the real properties acquired under the above-described Master Real Estate Asset Purchase Agreement, among other operating expenses. Theseby Mt Melrose, LLC, these notes beginbegan to mature as early as March 2019,during the year ended December 31, 2018, with the last note extending until January 2042. Some of these loans arewere interest only while others accrueaccrued interest that is due in full with a final balloon payment. TheAs of December 31, 2018, the debt secured by the real properties hashad varying annual interest rates from 4.375% to 13%. Additionally,As the Company no longer has a controlling financial interest rates on $2,995,266 of the debt secured by the real properties are subject to change not more than once each year or once each five year period (based on the individual debt agreement) based on an index rate plus a margin ranging from 0.25 to 3.25 percentage points. For annually adjusted interest rates, the index rate is calculated as the highest or the lenders' Prime Rate as published in the Wall Street Journal. For rates adjusted each five year period, the index rate is calculated as the average yield of the five year U.S. Treasury Securities adjusted to a constant maturity as published in the Federal Reserve Statistical Release. As of the year ended December 31, 2018, a total of $6,884,990 of debt is secured by real properties through Mt Melrose.

As previously reported in our Current Report on Form 8-K filed with the SEC on November 5, 2018, pursuant to that certain Termination of Cash Flow Agreement entered into effective November 1, 2018, between Mt Melrose, LLC and Old Mt. Melrose, the parties mutually agreed to terminate the above-discussed Cash Flow Agreement as of November 1, 2018. Accordingly, neither the Company nor Mt Melrose, LLC have any further rights or obligations under the Cash Flow Agreement. However, termination of the Cash Flow Agreement does not affectit no longer consolidates Mt Melrose, LLC’s obligations with respect to debt secured by the real properties it has already acquired, where such debt was assumed at the timeassets, liabilities (including notes payable), or results of acquisition.operations.

The remaining notes payable as of December 31, 2018,2019, consisted of the following:

To further summarize, the remaining notes payable amounts held as of December 31, 2018 were subject to the below interest rates:

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

Off-Balance Sheet Arrangements

We are not a party to any material off-balance sheet arrangements as of December 31, 2018,2019, nor at any time from January 1, 2018,2019, through December 31, 2018.2019.

Other Contractual Obligations

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

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

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

Through the home services segment, multiple capitalan operating lease obligations were acquiredon warehouse and office space in Scottsdale, Arizona, commenced on May 1, 2018. This lease extends through May 31, 2021. This lease was not conveyed with the divestiture on May 24, 2019. Specialty Contracting Group, LLC (formerly known as partHVAC Value Fund, LLC) was the lessee party to the lease. Specialty Contracting Group, in connection with its dissolution and winding up, surrendered possession of the most recent acquisition that occurred duringpremises to the quarter ended March 31, 2017. These obligations include leases on various vehicles and equipment that extend through 2020.landlord, in default of this lease.

As previously reported in our Current Reports on Form 8-K filed withOn June 27, 2019, as per the SEC on December 11, 2017, January 17, 2018, March 2, 2018, March 28, 2018, and July 12, 2018, respectively, ENDI created a wholly owned subsidiary named Mt Melrose, LLC (“New Mt Melrose”) on January 10, 2018, which has acquired a portfolio of residential and other income-producing real estate in Lexington, Kentucky, pursuant to a certain Master Real Estate Asset Purchase Agreement entered into on December 10, 2017, with a like-named seller, Mt. Melrose, LLC (“Old Mt. Melrose”), a Kentucky limited liability company owned by Jeff Moore, a former ENDI director.

As set forth in our Form 8-K filed on January 17, 2018, on January 10, 2018, New Mt Melrose, consistent with the terms of the purchase agreement, completed a first acquisition from Old Mt. Melrose of 44 residential and other income-producing real properties located in Lexington, Kentucky, pursuant to the purchase agreement. This first tranche of real properties was acquired for total consideration of $3,956,389, which was payable as follows:

As further set forth in our Form 8-K filed on July 12, 2018, on June 29, 2018, New Mt Melrose, consistent with the terms of the purchase agreement, completed a second acquisition from Old Mt. Melrose of an additional 69 residential and other income-producing real properties located in Lexington, Kentucky, pursuant to the purchase agreement. This second tranche of real properties was acquired for total consideration of $5,174,722, which was payable as follows:

As previously reported in our Current Report on Form 8-K filed with the SEC on November 5, 2018, pursuantJuly 3, 2019, the Company sold 65% of its membership interest in Mt Melrose, LLC to that certain Terminationan unaffiliated third-party purchaser, Woodmont Lexington, LLC (“Woodmont”). Under the terms of Master Real Estate Asset Purchase Agreement entered into effective November 1, 2018, betweenthe 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. Also, in connection with the transaction, the Company and Old Mt. Melrose, the parties mutually agreed to terminate the above-discussed purchase agreement as of November 1, 2018. Accordingly, neither the Company nor New Mt Melrose have any further rights or obligations concerning additional acquisitions of real properties from Old Mt. Melrose under the purchase agreement.

On January 10, 2018, New Mt Melrose and Old Mt. MelroseWoodmont entered into a certain Cash FlowAmended and Restated Limited Liability Company Agreement of Mt Melrose, LLC (the “Cash Flow“A&R LLC Agreement”), pursuant. 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 time the Company will not in connectionany way participate, directly or indirectly, in the management or control of Mt Melrose; and with the parties’ anticipated consummation of allrespect to any matters requiring a vote of the real property purchase transactions undermembers, the purchase agreement described above,Company will vote with (i.e., the parties agreed that as of and from and after January 10, 2018, until such timesame as) Woodmont. Subsequent to the transaction, Woodmont, as the parties consummate the relevant closing as to each real property under the purchase agreement, Old Mt. Melrose would assign to Newmanager of Mt Melrose, all ofhas purported that the income, rents, receivables, and revenues arising from or issuing out of such real property, and New Mt Melrose would assume Old Mt. Melrose’s responsibility for payment of certain of the costs and expenses attributable to such real property.

Under the Cash Flow Agreement, NewCompany’s membership interest in Mt Melrose has been responsible for Old Mt. Melrose’s monthly payments of interest and/or principal under the outstanding debt secured by the real properties; Old Mt. Melrose’s real property taxes with respectdiluted to the real properties due20.8%. The Company disputes this assertion and attributable to the periods from and after the effective date; and Old Mt. Melrose’s ordinary expenses of operating the real properties, actually incurred, to the extent attributable to de minimis repairs, recurring maintenance services, and/or water, electricity, sewer, gas, telephone, or other similar utility charges. However, the risk of loss and casualty damage with respect to all or any portion of the real propertiesmaintains that it has continued to be borne by Old Mt. Melrose up to and including the actual time of the relevant closing respecting such real property.

Based on the number of properties then outstanding for purchase under the purchase agreement at September 30, 2018, New Mt Melrose was obligated under the Cash Flow Agreement as of September 30, 2018, for (i) monthly payments of interest and/or principal under the outstanding debt secured by such real properties in the aggregate amount of $10,568 per month, (ii) insurance of $1,073 per month, (iii) estimated annualized obligations for real property taxes with respect to such real properties in the aggregate amount of approximately $7,461 per year, and (iv) ordinary recurring expenses of operating such real properties that are expected to be immaterial in aggregate. However, as previously reported in our Current Report on Form 8-K filed with the SEC on November 5, 2018, pursuant to that certain Termination of Cash Flow Agreement entered into effective November 1, 2018, between New Mt Melrose and Old Mt. Melrose, the parties mutually agreed to terminate the above-discussed Cash Flow Agreement as of November 1, 2018. Accordingly, neither the Company nor New Mt Melrose have any further rights or obligations under the Cash Flow Agreement.

We have no other meaningful long-term debt obligations, purchase obligations, or other long-term liabilities as of December 31, 2018, other than those previously mentioned related to the asset management segment, home services, and real estate segments. The only operating lease obligations are agreements for leased office and warehouse space for HVAC Value Fund, LLC, which extend through May 2021, and for leased office space for Willow Oak Asset Management, LLC, which extends through September 30, 2020.

retained its 35% membership interest.

Results of Operations

Asset Management Operations

The Company operates its asset management businessoperations business through a wholly owned subsidiary,two wholly-owned subsidiaries, Willow Oak Asset Management, LLC and Willow Oak Capital Management, LLC. This subsidiary wasThese subsidiaries were formed on October 10, 2016. As of December 31, 2016 this subsidiary did not have material operations. Effective January 1, 2017, Willow Oak Asset Management made its first investment and was subsequently allocated all related expenses.May 24, 2018, respectively. During the segment’s first year of operations, Willow Oak entered into three fee share agreements with multiple private investment partnerships and made an additional investment through another partnership arrangement. During the year ended December 31, 2018, two new partnerships were formed, multiple fee share agreements were entered into, and a new service offering, Fund Management Services, was launched.

As of During the year ended December 31, 2018,2019, one new joint venture was formed in which Willow Oak Capital Management is a non-managing owner.

As of December 31, 2019, Willow Oak holds a direct investment in the Alluvial Fund, LP. In accordance with GAAP, for financial reporting purposes, theseThe realized and unrealized investment gains and losses are reported as revenue on the accompanying consolidated statements of income.operations. This treatment can result in reporting negative revenue numbers.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 year ended December 31, 2018,2019, the asset management operations segment produced negative $775,249$1,773,276 of revenue. Cost of revenue was $0 and operating expenses totaled $286,283.$410,226. Other income attributable to the asset management operations segment totaled $41,632. Other$36,565. Net income for the year ended December 31, 2019, totaled $1,399,615. This compares to the year ended December 31, 2018, when the asset management operations segment produced negative $775,249 of revenue, cost of revenue was primarily attributable to a sub lease arrangement$0, and operating expenses totaled $286,283. Additionally, other income for shared office space in New York City. The comprehensivethe year ended December 31, 2018, was $41,632, and total net loss for the year ended December 31, 2018, totaledwas $1,019,900. This compares to the year ended December 31, 2017, when the segment produced $2,271,747 ofThe increase in revenue cost of revenue was $0, operating expenses totaled $118,701, other income totaled $11,075, and comprehensive income totaled $2,164,121. The decrease in revenue2019 is due to market volatility and the application of specific GAAP revenue recognition rules as noted above. The increase in operating expenses is primarily due to additional marketinghigher payroll and salary expenses incurred as part ofevent expenses. Other income for the segment is primarily due to sub-lease rental income earned through the Company’s efforts to build and expand this subsidiary.New York office space.

As of the year ended December 31, 2018,2019, the fair value of non currentlong-term investments held through the asset management operations segment totaled $8,915,238.$10,072,358. This compares to the fair value of non currentlong-term investments held at December 31, 2017,2018, which totaled $10,008,902.$8,446,488. This decreaseincrease in investments is attributable to thepositive Alluvial Fund withdrawal that occurred on January 1, 2018, as noted previously. Additionally, as ofperformance during the year ended December 31, 2017, investments were held through both the asset management and corporate segments. Currently, the Alluvial Fund investment is held through the asset management segment, with additional investments being held through other company segments.2019. 

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

Real Estate Operations

Through New Mt Melrose, as ofEDI Real Estate Operations

For the year ended December 31, 2018,2019, the Company owns a totalEDI Real Estate portfolio generated rental revenue of 159 units consisting$76,792. The cost of 97 units heldrental revenue totaled $104,279. Operating expenses for investmentthe year ended December 31, 2019, were $42,080. Other expenses totaled $75,359 and 62 units heldthe net loss for sale. Units held for investment consist of single-family and multi-family residential rental units. Of the 97 units held for investment, 87 of the units are occupied or availableyear ended December 31, 2019, totaled $155,057. This compares to rent, and ten of the units are vacant units being prepared to market to tenants. The leases in effect as of the year ended December 31, 2018, are basedwhen the EDI Real Estate portfolio generated rental revenue of $77,391, cost of rental revenue totaled $43,063, operating expenses were $17,200, other expenses totaled $13,591, and net rental income was $3,537. Other expenses incurred during the years ended December 31, 2019 and 2018, were primarily interest-related expenses. The 2019 increases in cost of rental revenue and operating expenses were due to significant deferred maintenance expenses and newly allocated payroll expenses, respectively.

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

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

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

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

Mt Melrose Operations

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

For the period ended June 27, 2019, the Mt Melrose portfolio generated rental revenue of $778,657.$365,971. The cost of rental revenue totaled $450,859.$276,049. Operating expenses for the period ended June 27, 2019, were $295,945. Other expenses totaled $4,580,940 and the net loss for the period ended June 27, 2019, totaled $4,786,963. This compares to the year ended December 31, 2018, when the Mt Melrose portfolio generated rental revenue of $778,657, cost of rental revenue totaled $450,859, operating expenses were $920,309, other expenses totaled $1,416,257, and total net loss was $2,008,768. The other expenses for the year ended December 31, 2018, were $920,309.2019 are primarily related to the loss recognized on the equity sale of the Mt Melrose entity mentioned previously, which totaled $4,157,809. Other expenses totaled $1,416,257 and comprehensive loss forincurred during the year ended December 31, 2018, totaled $2,008,768. No comparable figures for 2017 exist.were primarily impairment and interest-related expenses.

As of December 31, 2018,

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

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

Additionally, during the year ended December 31, 2019, a commercial warehouse was sold for gross proceeds of $850,000. Net proceeds after closing costs and a promissory note payoff were $487,944. This resulted in a loss on the sale in the amount of $56,467. This loss is included in other expenses under the real estate segment for the year ended December 31, 2019.

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

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

Internet Operations

As of December 31, 2018,2019, the focus of our internet segment is to generate cash flow, work to make our costs variable, and reinvest in our operations when an acceptable return is available. We did not make significant reinvestments into the internet segment during 2018, however, subsequent tothe year ended December 31, 2018, management has begun working with outside consultants to establish a new business plan for the segment. The business plan is expected to include a formal marketing strategy with new products and services offerings in geographic areas that were previously unavailable to the segment. Management’s intent with this new business plan is to stop the decline of internet revenue by the end of 2019.

Revenue attributed to the internet segment during the year ended December 31, 2018,2019, totaled $1,168,843$1,066,229 and cost of revenue totaled $325,234.$330,654. Operating expenses for the segment totaled $241,654$223,118 for the year ended December 31, 2018,2019, and other income totaled $35,649.$10,169. Accumulated other comprehensive loss related to the recognition of foreign currency translation adjustments totaled $3,054. Total comprehensive income for the internet segment was $637,604$519,572 for the year ended December 31, 2018.2019. This compares to the year ended December 31, 2017,2018, when revenue totaled $1,287,408,$1,168,843, cost of revenues totaled $304,719,$325,234, operating expenses were $274,478,$241,654, other income was $74,202,$35,649, and comprehensive income was $782,413.$637,604. Other income in 2018 for the segment is the result of the sale of various blocks of IP addresses.

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

As of December 31, 2018,2019, we have a total of 8,0587,466 customer accounts across the U.S. and Canada. This compares to the year ended December 31, 2017,2018, when we had a total of 8,8028,058 customer accounts. As of December 31, 2018, approximately 65%2019, approximately 64% of ourour internet segment revenue is driven throughby internet access services, with the remaining 35% beingremaining 36% being earned though web hosting and other web-based storage services.

Approximately 91%92% of our customer accounts are U.S. based,U.S.-based, while 9%8% are Canada based.Canada-based. Revenue generated by our U.S. customers totaled $1,101,999$1,011,407 and revenue generated by our Canadian customers totaled $66,844$54,822 during the year ended December 31, 2018.2019. This compares to revenue generated by our U.S. customers of $1,205,281$1,101,999 and revenue generated by our Canadian customers of $82,127$66,844 during the year ended December 31, 2017.

We closed our Canada office on February 29, 2016, and as of the quarter ended September 30, 2018, we service all of our Canadian customers remotely from the United States.

2018.

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

Discontinued Operations - Home Services Operations

DuringAs 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. The net loss reported from discontinued operations related to the home services segment, as of the year ended December 31, 2018, our2019, was $1,510,475. Included in this amount is an offsetting $21,629 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 $915,163 reported from discontinued operations related to the home services operations generated revenue of $3,077,631, cost of revenue totaled $2,003,876, and operating expenses totaled $1,235,346. Other expensessegment for the year ended December 31, 2018, totaled $753,572. The comprehensive loss for our home services operations for the year ended December 31, 2018, totaled $915,163. This compares to the year ended December 31, 2017, when the segment generated revenue of $4,294,904, cost of revenue totaled $2,961,874, operating expenses totaled $1,415,209, other expenses were $24,522, and the comprehensive loss for the year was $106,701.

Included in other expenses for the year ended December 31, 2018, is a goodwill impairment expense of $754,958. The impairment is the result of lost revenues and a general under-performance of previously acquired HVAC and plumbing businesses.

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

2018.

Other Operations

The tables below provide a condensed summary of income statement amounts over time. These figures are specific to other business segments, including EDI Real Estate, Corporate,corporate and various other investments, and are presented for the annual and quarterly periods designated below.

This item is not required by smaller reporting companies.

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

As previously reported in our Current Report on Form 8-K filed with the SEC on July 15, 2019, on July 10, 2019, the Company formally engaged Brown Edwards & Company, LLP to serve as the Company’s independent registered public accounting firm for the year ending December 31, 2019. Prior to this time, Cherry Bekaert, LLP had been appointed as the Company’s independent registered public accounting firm for the year ending December 31, 2019, having served as the Company’s independent registered public accounting firm since 2016. There has been no other change in the independent accountants engaged to audit the financial statements of the Company and its subsidiaries during the last two fiscal years ended December 31, 2018. There2019, and there have been no disagreements with such independent accountants during the last two fiscal years ended December 31, 2018,2019, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of our principal executive officer and principal financial officer, have evaluated the effectiveness of the design and operation of our “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of December 31, 2018.2019. Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and 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 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 principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of December 31, 2018. Management is aware of these deficiencies and is working diligently to improve the relevant controls and procedures; provided, however, there can be no assurance that such relevant controls and procedures will be improved or, even if improved, that such improved controls and procedures will be effective.2019.

Management’s Report on Internal Control over Financial Reporting

The management of Enterprise Diversified, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of our consolidated financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the consolidated financial statements. Under the supervision and with the participation of our management, including our Chief Executive OfficerChairman and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. Based on this evaluation, our management concluded that, as of December 31, 2018,2019, our internal control over financial reporting was not effective based on such criteria. We have reviewed the results of management’s assessment with our Board of Directors. In addition, we will evaluate any changes to our internal control on a quarterly basis to determine if a material change occurred.

Material Weaknesses in Internal Controls

As defined by the Public Company Accounting Oversight Board’s Auditing Standard No. 5, aA material weakness is a significant control deficiency, or a combination of significantdeficiencies, in internal control deficiencies,over financial reporting such that results in there being more thanis a remote likelihoodreasonable possibility that a material misstatement of the annual or interimour financial statements willwould not be prevented or detected.detected on a timely basis.

As a result of our evaluations, we identified the following material weakness in our internal control over financial reporting as of December 31, 2018:2019:

We have not properly designed internal controls over the application and preparation of our financial statements. We have incorporated consultants, new hires, and review processes to alleviate some of the associated risks of segregation of duties and financial reporting matters; however, formal and consistent policies and procedures, as well as complete control documentation for all significant financial reporting areas, have not been prepared or implemented.

Changes in Our Internal Controls

During the year ended December 31, 2019, the Company hired a new Vice President of Operations in order to build out new company processes and optimize existing company procedures. Additionally, this role is intended to create a dedicated operational manager across each of the business segments. As a result, corporate management has greater visibility over financial transactions and internal control processes.

During the previous year ended December 31, 2018, the Company had separated the Chief Executive Officer and Chief Financial Officer roles to allow for more specific focus on the Company’s operational and financial needs. Additionally, the Company had hired a new Vice President and Chief of Staff to enhance management’s oversight and further segregate management roles and responsibilities. The Company also had hired an additional accountant at the corporate level in order to add additional layers of internal review and provide segregation of accounting and financial reporting roles and responsibilities.

During the previous year ended December 31, 2017, the Company had hired an administrative assistant to assist with general accounting and record keeping functions. The addition of the administrative assistant adds an additional layer of review and provides backup functionality for a wide range of accounting functions.

Investment Company Act of 1940 MattersSpecialty Contracting Group, LLC

As previously reportedOn October 22, 2019, the Company, as and being the sole and managing member of Specialty Contracting Group, LLC, resolved to dissolve and wind up Specialty Contracting Group and proceed with distributing its assets in our periodic reports beginningaccordance with our Form 10-Q§18-804 of the Delaware Limited Liability Company Act. Management had determined that Specialty Contracting Group’s continued existence was not reasonably practicable or financially feasible; the entity having no operational capabilities, no significant assets, and no prospects for the quarter ended June 30, 2017, ascarrying on of June 30, 2017,any business or receipt of revenue. All of Specialty Contracting Group’s cash on hand was paid out ratably to its creditors and claimants; however, its assets were not sufficient to satisfy in full its known liabilities. After making such payments out of and to the Company’s “investment securities” (as defined inextent of its assets, Specialty Contracting Group filed a Certificate of Cancellation with the Investment Company ActSecretary of 1940, “1940 Act”) exceeded 40%State of the valueState of its total assets (exclusive of government securitiesDelaware on November 15, 2019, thereby effecting the cancellation and cash items). The Company is not primarily engaged, and does not presently propose to primarily engage, in the business of investing, reinvesting, or trading in securities. As has been previously reported, the Board of Directorstermination of the Company elected to eliminate any uncertainty in regard to the Company’s status under the 1940 Act, and confirmed pursuant to Rule 3a-2 adopted under the 1940 Act that the Company had a bona fide intent to be engaged primarily, as soon as was 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, home services, and real estate. As has been previously reported, the Company developed an internal operational plan (the “Plan”) setting forth detailed and specific potential steps to use the Company’s capital and assets to grow certain operational lines of business. The Plan also encompassed the Company’s previously-reported acquisitions of a portfolio of residential and other income-producing real estate from Mt. Melrose, LLC (for further information about our real estate acquisitions, see Note 3 to the accompanying Accompanying Consolidated Financial Statements for the period ended December 31, 2018). As previously reported in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, our completion of a second acquisition of such real estate properties on June 29, 2018, resulted in investment securities falling below 40% of our total assets as of such time, prior to the end of the one-year “safe harbor period” noted in the 1940 Act. The Company’s investment securities continued not to exceed 40% of the value of its total assets as of December 31, 2018.entity.

Reverse Stock Split

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

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

Split Adjustment

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

Ownership Unchanged

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

Capitalization

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

CUSIP Number and Trading Symbol

The Company’s CUSIP number changed on the FINRA Effective Date as a result of the Reverse Stock Split. The new CUSIP number is 293706 107. For the 20-business-day period immediately following the FINRA Effective Date, the Company’s trading symbol was “SYTED.” After such 20-day period, however, the Company’s trading symbol reverted to “SYTE.” 

PART III

We expect to file with the SEC in April 2019 2020 (and, in any event, not later than 120 days after the close of our last fiscal year), a definitive Proxy Statement, pursuant to SEC Regulation 14A in connection with our Annual Meetingannual meeting of Shareholdersstockholders scheduled to be held on May 21, 2019.28, 2020.

The information required by this item is incorporated herein by reference from the Company’s definitive Proxy Statement for the 20192020 annual meeting of stockholders under the sections entitled “Information with Respect to Nominees,” “Management,” and “Corporate Governance.”

The information required by this item is incorporated herein by reference from the Company’s definitive Proxy Statement for the 20192020 annual meeting of stockholders under the section entitled “Executive Compensation.”

The information required by this item is incorporated herein by reference from the Company’s definitive Proxy Statement for the 20192020 annual meeting of stockholders under the sections entitled “Security Ownership of Directors and Executive Officers” and “Information as to Certain Stockholders.”

The information required by this item is incorporated herein by reference from the Company’s definitive Proxy Statement for the 20192020 annual meeting of stockholders under the sections entitled “Determinations Regarding Independence” and “Transactions with Related Persons.”

The information required by this item is incorporated herein by reference from the Company’s definitive Proxy Statement for the 20192020 annual meeting of stockholders under the section entitled “Proposal 4. Ratification of the Selection of Independent Registered Public Accounting Firm.”

PART IV

(a) Filed as an exhibit to the Registrant’s Form-10SB, as amended, initially filed with the Securities and Exchange Commission on October 22, 1999, and incorporated herein by reference.

(b) Filed as an exhibit to Registrant’s Form 8-K filed with the Securities and Exchange Commission on January 28, 2015, and incorporated herein by reference.

(c) Filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the Securities and Exchange Commission on December 30, 2016, and incorporated herein by reference.

(d) Filed as Exhibit 10.2 to Registrant’s Form 8-K filed with the Securities and Exchange Commission on December 30, 2016, and incorporated herein by reference.

(e) Filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the Securities and Exchange Commission on November 9, 2016, and incorporated herein by reference.

(f) Filed as Exhibit 3.1 to Registrant’s Form 8-K Amendment No. 1 filed with the Securities and Exchange Commission on January 24, 2018, and incorporated herein by reference.

(g) Filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the Securities and Exchange Commission on February 6, 2017, and incorporated herein by reference.

(h) Filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the Securities and Exchange Commission on January 30, 2017, and incorporated herein by reference.

(i) Filed as Exhibit 10.2 to Registrant’s Form 8-K filed with the Securities and Exchange Commission on January 30, 2017, and incorporated herein by reference.

(j) Filed as Exhibit 10.2 to Registrant’s Form 8-K filed with the Securities and Exchange Commission on January 26, 2017, and incorporated herein by reference.

(k) Filed as Exhibit 10.13 to Registrant'sRegistrant’s Form 10-K for the fiscal year ended December 31, 2017, filed with the Securities and Exchange Commission on March 30, 2018, and incorporated herein by reference.

(l) Filed as Exhibit 3.1 to Registrant'sRegistrant’s Form 8-K filed with the Securities and Exchange Commission on June 7, 2018, and incorporated herein by reference.

(m) Filed as Exhibit 3.2 to Registrant'sRegistrant’s Form 8-K filed with the Securities and Exchange Commission on June 7, 2018, and incorporated herein by reference.

(n) Filed as Exhibit 10.12 to Registrant’s Form 10-K for the fiscal year ended December 31, 2018, filed with the Securities and Exchange Commission on April 1, 2019, and incorporated herein by reference.

(o) Filed as Exhibit 10.6 to Registrant’s Form 10-K for the fiscal year ended December 31, 2017, filed with the Securities and Exchange Commission on March 30, 2018, and incorporated herein by reference.

(p) Filed as Exhibit 10.5 to Registrant’s Form 10-K for the fiscal year ended December 31, 2017 filed with the Securities and Exchange Commission on March 30, 2018, and incorporated herein by reference.

(q) Filed as Exhibit 16.1 to Registrant’s Form 8-K filed with the Securities and Exchange Commission on July 15, 2019, and incorporated herein by reference.

(r) Filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the Securities and Exchange Commission on July 3, 2019, and incorporated herein by reference.

* Pursuant to a request for confidential treatment, portions of this Exhibit have been redacted from the publicly filed document and have been furnished separately to the Securities and Exchange Commission as required by Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

** Filed herewith

None.

SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) 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.

ENTERPRISE DIVERSIFIED, INC.

(REGISTRANT)

Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of

Enterprise Diversified, Inc.

Richmond, Virginia

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheetssheet of Enterprise Diversified, Inc. and subsidiaries (the “Company”) as of December 31, 2019, and the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows for the year ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Emphasis of Matters

As discussed in Note 3 of the Notes to Consolidated Financial Statements, the Company entered into a sales agreement to transfer all of the personal property and customer lists and records, and certain other assets and liabilities of Specialty Contracting Group, LLC (formerly known as HVAC Value Fund, LLC) to a third party. The total loss on disposal of $1,158,732, and associated current operating results, has been reported on the Income (loss) from discontinued operations line of the Company’s consolidated statements of operations for the year ended December 31, 2019. In addition, the current and non-current assets and liabilities previously related to Specialty Contracting Group, LLC have been reclassified to the appropriate held for sale categories on the Company’s consolidated balance sheets. Our opinion is not modified with respect to this matter.

As discussed in Note 4 of the Notes to Consolidated Financial Statements, the Company sold 65% of its membership interest in Mt Melrose, LLC to a third party. The total loss on the sale of Mt Melrose LLC of $4,157,809 has been reported on the Loss on sale of subsidiary line of the Company’s consolidated statements of operations for the year ended December 31, 2019. Our opinion is not modified with respect to this matter.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ Brown, Edwards & Company, L.L.P.

We have served as the Company’s auditor since 2019.

Lynchburg, Virginia

March 30, 2020

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of Enterprise Diversified, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Enterprise Diversified, Inc. (the “Company”) as of December 31, 2018, and 2017, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the two-year periodyear then ended, December 31, 2018, and the related notes, (collectively referred to as the financial statements)“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and 2017, and the results of its operations and its cash flows for each of the years in the two-year periodyear then ended, December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits.audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our auditsaudit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits,audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our auditsaudit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our auditsaudit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our auditsaudit provide a reasonable basis for our opinion.

/s/ Cherry Bekaert LLP

We have served as the Company’s auditor since 2016.from 2016 through 2018.

Roanoke, Virginia

Charlotte, North Carolina

April 1, 2019

ENTERPRISE DIVERSIFIED, INC.

And Subsidiaries

CONSOLIDATED BALANCE SHEETS

Years Ended December 31, 20182019 and 20172018