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) 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.” 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.

During the year ended December 31, 2020,2021, the Company operated through four reportable segments:

During periods prior to the quarter ended June 30, 2019, the Company also operated through a fifth reportable segment, Home Services Operations, comprised of former subsidiary Specialty Contracting Group, LLC’s operation of HVAC and plumbing companies in Arizona. However, for the year ended December 31, 2020,2021, and for all prior periods presented, Home Services Operations are reported as discontinued operations.

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

Asset Management Operations

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

Willow Oak is an asset management platform focused on growing and enhancing the alternative investment landscape. Willow Oak seeks partnerships with alternative investment managers in the early stages of growth in order to build a network of unique investment opportunities for investors and scalable, professional operations for managers. Willow Oak offers affiliated managers strategic consulting, operational support, and growth opportunities through minority partnerships and other bespoke relationships. Affiliations to date include fund seeding and reinvestments, fund launching, investor relations, and fund management administrative support. The Company intends to actively expand its Willow Oak platform with additional offerings that enhance the value of the Willow Oak platform to managers and funds across the investing community. 

On August 21, 2020, Willow Oak created two wholly-owned entities, Willow Oak Asset Management Affiliate Management Services, LLC (“Willow Oak AMS”) and Willow Oak Asset Management Fund Management Services, LLC (“Willow Oak FMS”), to support this partnership model in perpetuity. Willow Oak AMS earns gross revenue shares commensurate with ownership stakes in investment management firms in exchange for the provision of benefits of affiliation and ongoing fund management services (“FMS”). Willow Oak FMS earns a direct fee from affiliated limited partnerships for rendering administrative, compliance program management, and tax and audit liaison services. 

Real Estate Operations

As has been previously reported, in December 2017, ENDI created a wholly-owned subsidiary named Mt Melrose, LLC, a Delaware limited liability company (“New Mt Melrose”), to acquire a portfolio of residential and other income-producing real estate in Lexington, Kentucky, pursuant to a certain Master Real Estate Asset Purchase Agreement entered into in December 2017 with a like-named seller, Mt. Melrose, LLC (“Old Mt. Melrose”), a Kentucky limited liability company owned by Jeff Moore, then an ENDI director. During January and June 2018, New Mt Melrose, consistent with the terms of the purchase agreement, completed two bundled acquisitions from Old Mt. Melrose of residential and other income-producing real properties located in Lexington, Kentucky. As has been previously reported, on June 27, 2019, the Company sold 65% of its membership interest in New Mt Melrose to an unaffiliated third-party purchaser, Woodmont Lexington, LLC (“Woodmont”). As consideration for the transaction, Woodmont paid the Company $100,000 and agreed to assume full responsibility for the management and operation of New Mt Melrose and its real estate portfolio. As a result of no longer having a controlling financial interest, the Company deconsolidated the operations of New Mt Melrose as of June 27, 2019. As was previously reported in the Company’s Current Report on Form 8-K filed with the SEC on May 20, 2021, on May 17, 2021, the Company entered into an agreement with Woodmont that terminated and effected a sale to Woodmont of the Company’s remaining membership interests in New Mt Melrose in conjunction with a cash payment to the Company. As of the quarterly period ended June 30, 2021, and subsequently the year ended December 31, 2021, the Company does not hold any remaining interests in the New Mt Melrose entity. See NoteNotes 4 and 11 for more information.

Our other real estate operations include activity from a legacy real estate investment portfolio held through EDI Real Estate, LLC, a wholly-owned subsidiary. The portfolio, primarily located in the Roanoke area of Virginia, includes a residential propertiesrental property and vacant land. The portfolio includesresidential property is a single-family homeshome that areis currently rented and managed through a third-party property manager, as well as other properties being listed for sale.manager.

Internet Operations

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

Other Operations

Other operations include nonrecurring or one-time strategic funding or similar activity that isare not considered to be one of the Company’s primary lines of business. This activity includes opportunities such as the Company’s former investment activity with Huckleberry Real Estate Fund II, LLC and its existing financing arrangement regarding Triad Guaranty, Inc.

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

Discontinued Operations - Home Services Operations

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

As has been previously reported, onin May 24, 2019, the Company, via Specialty Contracting Group, completed a divestiture of the home services operations to an unaffiliated third-parity purchaser, Rooter Hero Plumbing, Inc. (“Rooter Hero”). In the transaction, all of Specialty Contracting Group’s personal property and customer lists and records were conveyed to Rooter Hero, excluding stock inventory and other current assets. As part of the transaction, Rooter Hero assumed Specialty Contracting Group’s obligations under lease and/or loan agreements for all outstanding vehicles and equipment, as well as the obligations to service all of the subsidiary’s then-remaining customer accounts going forward. No cash consideration was exchanged in the transaction. Rather, as consideration for the transaction, Rooter Hero agreed to pay monthly royalties for the sixty (60) months following the closing calculated on the basis of any revenue actually received from the customer accounts transferred (7.5% of any monthly revenue generated from qualified sales during the first year, and 5% of any such monthly revenue during years two through five; in each case subject to reduction for pre-approved warranty-related costs concerning select customers). 

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

See Note 3 for more information.

Products and Services

Asset Management Operations

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

In 2016, the Company made a seed investment, through Willow Oak, to assist in the launch of Alluvial Fund, LP, a private investment fund that was launched on January 1, 2017, by an unaffiliated sponsor and general partner, Alluvial Capital Management, LLC. The Company had determined that Willow Oak’s support of Alluvial Capital Management, LLC and its direct investment in Alluvial Fund were both beneficial and necessary undertakings in conjunction with establishing an asset management operations business and gaining credibility within that industry. As a special limited partner, Willow Oak earnsearned a share of management and performance fees earned. As of DecemberOn May 31, 2020,2021, however, Willow Oak continues to holdinitiated a series of liquidating distributions of its direct investment in Alluvial Fund.Fund according to a mutually agreed upon cash distribution schedule with the general partner. On December 31, 2021, Willow Oak initiated its third and final liquidating cash distribution totaling $3,734,465 in respect of such withdrawal. This brings the total cash distribution amount to $17,772,369 for the year ended December 31, 2021. In accordance with the partnership terms of Alluvial Fund, a portion of Willow Oak’s capital account will be retained by the general partner until the fund’s activities for the year ended December 31, 2021, have been finalized through an independent audit. The retained amount will not be actively invested and will not be subject to investment gains or losses. The retained amount is represented by the investment redemption receivable amount on the accompanying consolidated balance sheets. Investment gains and losses for activity during the year ended December 31, 2021, and for prior periods presented, are reported as revenue on the accompanying consolidated statements of operations. As of December 31, 2021, Willow Oak no longer holds any remaining investment in Alluvial Fund.

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

On November 1, 2018, Willow Oak Asset Management, LLC entered into a fund management services agreement with Arquitos Investment Manager, LP, Arquitos Capital Management, LLC, and Arquitos Capital Offshore Master, Ltd. (collectively “Arquitos”), which isare managed by our Board chairman and principal executive officer, Steven L. Kiel, to provide Arquitos with Willow Oak’s Fund Management Services (“FMS”) consisting of the following services: strategic planning, investor relations, marketing, operations, compliance program management and legal coordination, accounting and bookkeeping, annual audit and tax coordination, and liaison to third-party service providers. Willow Oak earns monthly and annual fees as consideration for these services. On November 1, 2020, this arrangement was renewed with revised terms that include an exchange of services between Willow Oak and Arquitos. Steven Kiel, through Arquitos, has been contracted to perform ongoing consulting services for the benefit of Willow Oak in the following areas: strategic development, marketing, networking and fundraising. In exchange, Willow Oak continues to provide ongoing FMS services. Willow Oak continues to earn monthly and annual fees as consideration for these services.

On October 1, 2019, Willow Oak partnered with Geoff Gannon and Andrew Kuhn to form Focused Compounding Capital Management, LLC (“Focused Compounding”). This joint venture, of which Willow Oak Capital Management is a 10% beneficial owner, manages capital through separately managed accounts and a private investment fund launched January 1, 2020. Willow Oak provides ongoing FMS and operational support in addition to having covered all one-time expenses associated with the launch of Focused Compounding Fund, LP. As consideration for the arrangement, Willow Oak Capital Management is entitled to 10% of gross management and performance fees earned by Focused Compounding. Additionally, Willow Oak FMS earns a direct fee from the private limited partnership for the administrative, compliance program management, and tax and audit liaison services it renders.

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

Real Estate Operations

As has been previously reported, in December 2017, ENDI created New Mt Melrose, a wholly-owned subsidiary at that time, to acquire a portfolio of residential and other income-producing real estate in Lexington, Kentucky, pursuant to a certain Master Real Estate Asset Purchase Agreement entered into in December 2017 with the seller, Old Mt. Melrose. During January and June 2018, New Mt Melrose, consistent with the terms of the purchase agreement, completed two bundled acquisitions from Old Mt. Melrose of residential and other income-producing real properties located in Lexington, Kentucky. As has been previously reported, on June 27, 2019, the Company sold 65% of its membership interest in New Mt Melrose to Woodmont, which agreed to assume full responsibility for the management and operation of New Mt Melrose and its real estate portfolio. As a result of no longer having a controlling financial interest, the Company deconsolidated the operations of New Mt Melrose as of June 27, 2019. As was previously reported in the Company’s Current Report on Form 8-K filed with the SEC on May 20, 2021, on May 17, 2021, the Company entered into an agreement with Woodmont that terminated and effected a sale to Woodmont of the Company’s remaining membership interests in New Mt Melrose in conjunction with a cash payment to the Company. As of the quarterly period ended June 30, 2021, and subsequently the year ended December 31, 2021, the Company does not hold any remaining interests in the New Mt Melrose entity. See NoteNotes 4 and 11 for more information.

As has been previously reported, in July 2017, ENDI created a wholly-owned real estate subsidiary named EDI Real Estate, LLC, to hold ENDI’s legacy portfolio of real estate. As of December 31, 2020,2021, through EDI Real Estate, LLC, ENDI owns a legacy real estate investment portfolio that includes fourone residential propertiesproperty and vacant land. Our real estate portfolio under EDI Real Estate, LLC is primarily located in Roanoke, Virginia. The portfolio includes an occupied single-family homeshome that areis managed by a third-party property management company. The leaseslease in effect as of December 31, 2020, are2021, is based on a month-to-month provision, as the initial annual time periods and include month-to-month provisions after the completionterm of the initial term.lease has been completed. An outside property management company manages this rental property on behalf of the Company.

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

Internet Operations

The Company operates its internet operations segment through Sitestar.net, a wholly-owned subsidiary. Sitestar.net is an Internet Service Provider (ISP) that offers consumer and business-grade internet access, wholesale managed modem services, web hosting, third-party software as a reseller, 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 fiber-optic)wireless), as well as web hosting and related services to consumers and businesses.

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

The residential broadband internet access market is dominated by cable and telecommunications companies. These companies offer internet connectivity through the use of cable modems, Digital Subscriber Line (DSL) programs, and fiber. These competitors have extensive scale and significantly more resources than Sitestar.net. Competitors often offer incentives for customers to purchase internet access by offering discounts for bundled service offerings (i.e., phone, television, and 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, 2020,2021, the focus of our internet operations segment is to generate cash flow, work to make our costs variable, and reinvest in our operations when an acceptable return is available. We did not make significant reinvestments into the internet operations segment during the year ended December 31, 2020.2021.

Management routinely endeavors to identify 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.

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 recent activities comprising other operations.

Former Investment Activity with Huckleberry Real Estate Fund

In January 2017, the Company, through Willow Oak, committed to make a capital contribution to Huckleberry Real Estate Fund II, LLC, a private investment fund, in the aggregate amount of $750,000. In May 2018, Willow Oak transferred the Huckleberry investment to EDI Real Estate, LLC, another wholly-owned subsidiary of the Company. During the quarter ended March 31, 2019, all contributed capital was returned in full and a gain of $212,631 was recognized as revenue through the other operations segment on our consolidated statements of operations for the year ended December 31, 2019. Accordingly, this investment activity with Huckleberry Real Estate Fund II, LLC was completed prior to commencement of the fiscal year ended December 31, 2020.

Financing Arrangement Regarding Triad Guaranty, Inc.

In August 2017, the Company entered into an agreement with several independent third parties to provide debtor-in-possession financing to an unaffiliated third party, Triad Guaranty, Inc., through Triad DIP Investors, LLC. The Company initially contributed $100,000. Triad Guaranty, Inc. exited bankruptcy in April 2018, and the Company subsequently entered into an amended and restated promissory note. As part of the amended and restated promissory note, the Company provided an additional contribution in the amount of $55,000 in May 2018. The terms of the promissory note provided for interest in the amount of 10% annually and the issuance of warrants in Triad Guaranty, Inc. equal to 2.5% of the company. On November 12, 2019, the Company exercised its warrants and purchased 450,000 shares of Triad Guaranty, Inc. Subsequently, on December 30, 2019, the Company monetized all 450,000 shares and recognized a gain of $76,500 on the transaction. This gain is included in investment income on the accompanying consolidated statements of operations for the year ended December 31, 2019. On December 31, 2020, the Company accepted a revision of terms to the original promissory note, which include,includes, among other things, an extension of the loan maturity date to December 31, 2022, an increase of interest to the amount of 12% annually, and a provision to settle all currently accrued interest through the issuance of Triad Guaranty, Inc. common shares. In line with the revision of note terms, during the three-month period ended March 31, 2021, the Company was issued 454,097 shares of Triad Guaranty, Inc. in lieu of interest accrued on the note receivable as of December 31, 2020.

On December 27, 2021, the Company completed the purchase of a comparable investment consisting of (i) another Triad Guaranty, Inc. promissory note in the original principal sum of $155,000, having the same terms as the December 31, 2020, financing agreement, along with (ii) 393,750 common shares of Triad Guaranty, Inc., for $25,000 from a related party. The value of this purchase is reflective of the implied collectability of the promissory note and the relative illiquidity of Triad Guaranty, Inc. stock. The Company determined that the December 27, 2021, transaction represents an active market transaction of similar assets to the Company’s existing Triad Guaranty, Inc. assets. As a result, the Company recorded a total $189,515 impairment on December 31, 2021, to its existing Triad Guaranty, Inc. promissory note and common stock to reflect the market value implied by the December 27, 2021, transaction. As of December 31, 2021, the Company holds its interests in both promissory notes for $50,000 under notes receivable on the accompanying consolidated balance sheets and has attributed no value to its 847,847 aggregate shares of Triad Guaranty, Inc. common stock. See Note 6 for more information.

Corporate Operations

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

Employees

Human Capital

As of December 31, 20202021, we employed sevensix full-time individuals through the asset management, real estate, internet, and other operations segments. We also utilize outside contractors as necessary to assist with financial reporting,consulting, technical support, and customer service. Our employees are not unionized, and we consider relations with employees to be favorable.

Proposed Merger with CBA

As previously announced on December 29, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with ENDI Corp., a Delaware corporation (“ENDI”), Zelda Merger Sub 1, Inc., a Delaware corporation (“First Merger Sub”), Zelda Merger Sub 2, LLC, a Delaware limited liability company (“Second Merger Sub”), CrossingBridge Advisors, LLC, a Delaware limited liability company (“CrossingBridge”), and Cohanzick Management, L.L.C., a Delaware limited liability company (“Cohanzick” and, together with the Company, ENDI, First Merger Sub, Second Merger Sub and CrossingBridge, the “Parties”).

Pursuant to the terms of the Merger Agreement, the Company will merge with First Merger Sub, a wholly-owned subsidiary of ENDI, with the Company being the surviving entity (the “First Merger”), and CrossingBridge will merge with Second Merger Sub, also a wholly-owned subsidiary of ENDI, with CrossingBridge being the surviving entity (the “Second Merger” and, together with the First Merger, the “Merger”). In connection with the Merger, each share of common stock of the Company will be converted into the right to receive one (1) share of Class A common stock, par value $0.0001 per share, of ENDI (the “Class A Common Shares”), and Cohanzick, as the sole member of CrossingBridge, will receive 2,400,000 Class A Common Shares and 1,800,000 shares of Class B common stock, par value $0.0001 per share, of ENDI (the “Class B Common Shares”, and together with the Class A Common Shares, the “Common Shares”), a Class W-1 Warrant to purchase 1,800,000 Class A Common Shares and a Class W-2 Warrant to purchase 250,000 Class A Common Shares. The Class A Common Shares and Class B Common Shares are identical other than the Class B Common Shares have the right to designate directors (as described below) and that the Class B Common Shares shall not be entitled to participate in dividends or other distributions with respect to the Class A Common Shares and shall not receive any assets of ENDI in the event of a liquidation. The warrant to purchase 1,800,000 Class A Common Shares and the warrant to purchase 250,000 Class A Common Shares to be issued to Cohanzick may be exercised in whole or in part at any time prior to the date that is five (5) years after the date of the Merger closing, at an exercise price of $8.00 per Class A Common Share subject to certain customary adjustments. Each of the warrants may also be exercised on a “cashless” basis at any time at the election of the holder and if not fully exercised prior to the expiration date of the warrant, shall be automatically exercised on a “cashless” basis. In addition, Cohanzick or its designee has agreed to purchase an aggregate of 100,000 Class A Common Shares, and shall have the right, but not the obligation, to purchase an additional 250,000 Class A Common Shares (collectively the “Additional Shares”), not later than five (5) business days following the consummation of the Merger at a price equal to the lesser of $8.00 or the 60 day volume weighted average price of Enterprise Diversified’s common shares as of the Merger closing date (the “Closing”), excluding the highest and lowest trading days. Certain of our officers, directors and employees shall have the right, but not the obligation, to purchase up to a further 55,000 Class A Common Shares on the same terms as the purchase of the Additional Shares. During the year ended December 31, 2021, ENDI incurred $1,148,971 of transaction costs directly associated with due diligence, public reporting, and legal advice associated with the Merger Agreement.

The Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement have been approved by our board of directors and by the board of managers of Cohanzick and remains subject to the approval of our stockholders. Holders of our common shares shall have dissenters’ rights as provided by Section 92A of the Nevada Revised Statutes. The Company and ENDI have filed a draft registration statement on Form S-4, including a prospectus registering the issuance of the ENDI Class A Common Shares, Class B Common Shares, Warrants and Class A Common Shares underlying the Warrants and draft proxy statement of the Company relating to the meeting of stockholders of the Company to approve the Merger Agreement and the transactions contemplated thereby, including the Merger. Further, as discussed in more detail below, certain of the Company’s stockholders have entered into voting and support agreements pursuant to which such stockholders have agreed to vote their shares of capital stock of the Company in favor of the Merger.

The Merger Agreement contains customary representations and warranties of the Company, CrossingBridge, ENDI, Cohanzick and the merger subsidiaries, and certain of the parties to the Merger Agreement have agreed to customary covenants, including, among others, covenants relating to: (1) the conduct of their respective businesses during the interim period between the execution of the Merger Agreement and the consummation of the Merger; (2) the use of reasonable best efforts to obtain governmental and regulatory approvals; and (3) obligations of the Company to convene a meeting of its stockholders to approve the Merger Agreement and the transactions contemplated thereby, including the Merger.

Completion of the Merger is subject to various customary conditions, including, among others, (1) approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, by our stockholders, (2) the draft registration statement on Form S-4 being declared effective by the U.S. Securities and Exchange Commission (“SEC”), (3) the quotation of ENDI’s Class A Common Shares on the OTC Market, (4) the absence of any law, order or regulatory ruling prohibiting the consummation of the Merger and (5) the truth of each party’s representations and warranties, and the performance of each party’s covenants.

The Merger Agreement contains certain termination rights including upon: (1) the mutual written agreement of the Company and CrossingBridge to terminate the Merger Agreement, (2) the written notice of either the Company or CrossingBridge if the Merger has not closed by June 30, 2022, (3) a material breach of the Merger Agreement by us or CrossingBridge, which breach cannot be cured within thirty (30) days, (4) the failure to obtain any required regulatory or governmental approvals, (5) the failure to obtain the approval of the Company’s stockholders, or (6) the failure of our board of directors to make, or the withdrawal, amendment or qualification, in a manner adverse to CrossingBridge, of a recommendation in favor of the merger, or the failure of our board to include its recommendation in the proxy statement or the recommendation by the board of an alternative proposal or similar actions. In the event of the termination of the Merger Agreement pursuant to clause (6) of the preceding sentence, we shall pay a fee in the amount of $1,000,000 to CrossingBridge.

Pursuant to the Merger Agreement, ENDI has agreed that at the Closing, it will enter into a registration rights agreement with certain stockholders of ENDI following the Closing that are deemed to be affiliates of ENDI immediately following the Closing, under which such stockholders’ Class A Common Shares, including the Class A Common Shares underlying any warrants issued in connection with the Merger, will be registered for resale under the Securities Act of 1933, as amended. In addition, ENDI has agreed that at the Closing, it will amend and restate its certificate of incorporation to provide for, among other things, the rights of the holders of the Class B Common Shares to designate certain members of ENDI’s board of directors.

The amended and restated certificate of incorporation of ENDI will provide that so long as the holders of Class B Common Shares and their affiliates own at least 25% of the outstanding Common Shares, the holders of Class B Common Shares shall have the right to designate 60% of the authorized number of directors on ENDI’s board of directors (rounded up or down to the nearest whole number as necessary in light of the actual number of members of the board of directors). So long as the holders of Class B Common Shares and their affiliates own at least 15% but less than 25% of the outstanding Common Shares, the holders of Class B Common Shares shall have the right to designate 40% of the authorized number of directors on ENDI’s board of directors (rounded up or down to the nearest whole number as necessary in light of the actual number of members of the board of directors). So long as the holders of Class B Common Shares and their affiliates own at least 5% but less than 15% of the outstanding Common Shares, the holders of Class B Common Shares shall have the right to designate one (1) director on ENDI’s board of directors. At the closing, the Class B Common Shares shall be entitled to designate 3 of the 5 members of ENDI’s board of directors.

ENDI has also agreed at the Closing, it will enter into a stockholder agreement and separate voting agreement with Cohanzick and certain stockholders of ENDI pursuant to which, among other provisions, from and after the date that the holders of Class B Common Shares are no longer entitled to elect at least one (1) director to ENDI’s board of directors pursuant to the amended and restated certificate of incorporation as described above, so long as David Sherman and his affiliates, who will collectively beneficially own approximately 61.3% of the issued and outstanding voting stock of ENDI immediately following the Merger (assuming the Additional Shares are not issued), beneficially own at least 25% of the outstanding Common Shares, will have the right to nominate up to 60% of the authorized number of directors on the ENDI board, and the stockholders named therein have agreed to vote in support of such director nominees. David Sherman is the controlling member of Cohanzick and together with his affiliates has an economic interest of approximately 87% of Cohanzick. The number of directors David Sherman and his affiliates are permitted to nominate to ENDI’s board of directors decreases to 40% if David Sherman and his affiliates cease to beneficially own less than 25% but at least 15% of the outstanding Common Shares. So long as David Sherman and his affiliates own at least 5% but less than 15% of the outstanding Common Shares, David Sherman and his affiliates shall have the right to nominate one (1) director.

The Merger Agreement has been included as an Exhibit to this annual report and the description of the Merger Agreement and the transactions contemplated herein is qualified in its entirety by reference to the content of the Merger Agreement. It is not intended to provide factual information about the parties or any of their respective subsidiaries or affiliates. The Merger Agreement should not be read alone, but should instead be read in conjunction with the other information regarding the Merger Agreement, the Merger, the Company, CrossingBridge and the other parties to the Merger Agreement and their respective affiliates and their respective businesses, that will be contained in, or incorporated by reference into, the Registration Statement that will include a proxy statement of the Company and a prospectus of ENDI.

Voting and Support Agreement

In connection with the Merger Agreement we and certain of our stockholders holding an aggregate of approximately 34% of the issued and outstanding voting capital stock of the Company have entered into a voting and support agreement (the “Support Agreement”) pursuant to which such stockholders of the Company have agreed to vote their shares of capital stock of the Company in favor of the Merger Agreement and the transactions contemplated thereby, including the Merger, and against any action, agreement, transaction or proposal that would result in a breach of any covenant or other provision of the Merger Agreement or that would reasonably be expected to result in the transactions contemplated by the Merger Agreement from not being completed. Pursuant to the Support Agreement, the stockholders party thereto have also agreed to waive their dissenters rights under Nevada law with respect to the Merger, not to solicit or support any corporate transaction that constitutes or could reasonably be expected to constitute, an alternative to the Merger, and not to sell, transfer, assign or otherwise take any action that would have the effect of preventing or disabling the stockholder from voting its shares of the Company in accordance with its obligations under the Support Agreement. The Support Agreement automatically terminates upon the termination of the Merger Agreement or upon the mutual agreement of the parties to the Support Agreement. The Support Agreement is included as Exhibit 2.2 to this annual report. The description of the Support Agreement is qualified in its entirety by reference to the content of the Support Agreement, which is filed herewith as Exhibit 2.2.

Because of the material conditions to closing, including the approval of our stockholders of the Merger Agreement, we cannot assure you that the Merger will close as scheduled or at all, or on the terms described herein. If consummated, the Merger may result in significant changes to the business of the Company and the terms of an investment in shares of our common stock.

No Offer or Solicitation

This Annual Report on Form 10-K is not intended to and shall not constitute a proxy statement or the solicitation of a proxy, consent or authorization with respect to any securities in respect of the Proposed Merger and shall not constitute an offer to sell or the solicitation of an offer to buy or subscribe for any securities or a solicitation of any vote of approval, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

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 Asset Management, Real Estate, Internet, and Other operations remotely–that is, without any dedicated office space. The principal office for our Asset Management Operations is office space leased by the Company located in New York, New York.

As of December 31, 2020,2021, through EDI Real Estate, LLC, the Company owns various real estate properties including fourconsisting of one residential propertiesproperty and interests in severaltwo undeveloped lots. Subsequent to December 31, 2021, the last remaining residential property owned by EDI Real Estate, LLC was sold.

Pursuant to Item 103 of Regulation S-K, as amended, the information required by this Item 3 is provided by cross-reference to the Company’s legal proceedings disclosure located under the Litigation & Legal Proceedings heading in Note 11 to the accompanying consolidated financial statements (see page 41)40).

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 26, 2021,25, 2022, we had approximately 117 shareholders116 stockholders 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

On November 7, 2019, Enterprise Diversified’s Governance, Compensation, and Nomination Committee of the Board of Directors approved the creation of an equity incentive program for board members as well as eligible senior management. The Committee determined that it was advisable, and in the best interests of the Company and its stockholders, to provide guidelines for the issuance of equity incentive awards, such as restricted stock and restricted stock units, to attract, retain, and motivate eligible persons whose present and potential contributions are important to the long-term success of the Company and its subsidiaries and to align their interests with those of the Company’s stockholders. Consistent with this and the Company’s intention to retain its cash, it was also determined that such a program would provide for a more-formal process by which amounts of director’s fees and annual management bonuses accrued from time to time could be paid, at the direction of the Committee, in shares of Common 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 amended or terminated at any time by the Board or the Committee. Effective January 31, 2021, the Board adopted an amendment to the 2020 EIP solely to increase the stated number of shares available for issuance thereunder, so as to accommodate the Company’s February 3, 2021 issuance of shares noted below. A copy of such amendment accompanies this Report as Exhibit 10.8.

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 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.

On February 3, 2021, the Company issued a total of 45,143 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, 2021, which equaled $5.3166. 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 years ended December 31, 20202021 and 2019.2020. The discussion of results, causes, and trends should not be construed to imply any conclusion that such results or trends will necessarily continue in the future. Additionally, it should be noted that a uniform comparative analysis cannot be performed for all segments, as a segment’s limited financial history or recent restructuring results in less comparable financial performance.

Summary of Financial Performance

Common stockholders’ equity increased from $10,633,958$14,043,411 at December 31, 2019,2020, to $14,043,41117,105,760 at December 31, 2020.2021. This change was primarily attributable to $3,267,052$4,225,702 of net income in the asset management operations segment, $467,824 of net income in the internet operations segment, $202,676$824,284 of net income in the real estate operations segment, and $165,186$434,228 of net income resulting from discontinued operations underin the home servicesinternet operations segment, and was partially offset by $823,334$2,661,865 of net loss in the other operations segment. There was no reportable income attributed to discontinued operations for the year ended December 31, 2021. Corporate expenses for the year ended December 31, 2020,2021, included in the net loss from other operations, totaled $966,862.$2,148,641. Total comprehensive net income for the year ended December 31, 20202021 equaled $3,279,404.$2,822,349.

Balance Sheet Analysis

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

Financial Condition, Liquidity, and Capital Resources

During 2020,the year ended December 31, 2021, Enterprise Diversified carried out its business strategy in four operating segments: Asset Management Operations, Real Estate Operations, Internet Operations, and Other Operations. During periods prior to the quarter ended June 30, 2019, the Company also operated through a fifth reportable segment, Home Services Operations. However, as of the year ended December 31, 2020, and for all prior periods presented, home services operations are reported as discontinued operations. Our primary focus is on generating cash flow so that we have the flexibility to pursue opportunities as they present themselves. We will only invest cash in each segment if we believe that the return on this invested capital is appropriate for the risk associated with the investment. This consideration is measured against all investment opportunities available to us and is not limited to these particular segments or the Company’s historical operations.

Cash and equivalents totaled $341,007 at the year ended December 31, 2020, compared to $666,810$13,487,482 at year-end December 31, 2019.2021, compared to $341,007 at year-end December 31, 2020. Real estate held for investment decreased to $241,876 at the year ended December 31, 2020, compared to $380,515$26,911 at year-end December 31, 2019,2021, compared to $241,876 at year-end December 31, 2020, and real estate held for resalelong-term investments decreased to $0 at year-end December 31, 2021, compared to $13,574,462 at year-end December 31, 2020. Total accrued expenses increased to $645,798 at year-end December 31, 2021, compared to $306,063 at year-end December 31, 2020, and total notes payable decreased to $0 at the year ended December 31, 2020, compared to $98,9102021, from $250,094 at year-end December 31, 2019. Total notes payable also decreased2020. The increase in cash and equivalents and decrease in long-term investments are primarily attributed to $250,094 at the year ended December 31, 2020,series of liquidating distributions the Company initiated from $511,025 at year-end December 31, 2019.Alluvial Fund during the current year. The decreases in real estate and notes payable are primarily due to the opportunistic sales of certain EDI Real Estate rental properties. The increase in accrued expenses is largely a product of additional legal and professional fees incurred as part of the Business Combination, which is further described in Note 11. The Company does not expect to make significant reinvestments into property and equipment used in operating activities at this time.

The Company currently believes that our existing balances of cash, cash equivalents, and cash generated from operations will be sufficient to satisfy our currently anticipated cash requirements through at least the next 12 months.

The aging of accounts receivable as of December 31, 2020,2021, and December 31, 2019,2020, is as shown:

We have no material capital expenditure requirements.

During the quarterly period ended June 30, 2020, the Company received loan proceeds in the amount of $125,102 under the Paycheck Protection Program, as amended (the “PPP”), administered by the U.S. Small Business Administration. The PPP, established as part of the U.S. Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”), generally provided for economic assistance in the way of loans to qualifying business for amounts up to two-and-a-half times the average monthly payroll expenses of the qualifying business. Under the PPP, amounts of loan principal and accrued interest were eligible for forgiveness after a period, as selected by the borrower, of either eight or twenty-four weeks, provided the borrower used the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintained its payroll levels. The amount of loan forgiveness was subject to reduction if the borrower terminated employees or reduced salaries during the selected time period.

The Company applied for and was granted loan forgiveness by the Small Business Administration for the full value of its PPP loan in December 2020. The principal value of the loan, along with accrued interest, has been recognized as other income on the accompanying consolidated statements of operations for the year ended December 31, 2020.

During the quarterquarterly period ended September 30, 2017,2018, 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. During January 2020, one of these notes was paid off. Additionally, during the quarter ended September 30, 2018, EDI Real Estate, LLC issued a promissory note secured by additionalcertain properties held for investment. This note carriescarried an annual interest rate of 5.6% and fully maturesmatured on September 1, 2033, with early payoff permitted. The interest rate on this note iswas subject to change once each five-year period based on an index rate plus a margin of 2.750 percentage points. The index rate iswas calculated as a monthly average yield on U.S. Treasury Securities, adjusted to a constant maturity of five years. During the quarterly period ended September 30, 2021, the remaining loan balance was paid in full and no future payments are required.

During the quarterly period ended September 30, 2017, EDI Real Estate, LLC, as a borrower, issued a promissory note secured by a property held for investment. This note carried an annual interest rate of 6%, accrued interest quarterly, and was due September 15, 2022, with early payoff permitted. During the quarterly period ended June 30, 2021, the balance of this note was paid in full in conjunction with the sale of the property. No future payments are required.

Notes payable as of December 31, 20202021 and 2019,2020, consisted of the following:

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

Off-Balance Sheet Arrangements

We were not a party to any material off-balance sheet arrangements as of December 31, 2020, nor at any time from January 1, 2020 through December 31, 2020.

Other Contractual Obligations

In 2016, the Company made a strategic determination to fund a seed investment, through Willow Oak, to assist in the launch of Alluvial Fund, LP, a private investment fund that was launched on January 1, 2017, by an unaffiliated sponsor and general partner, Alluvial Capital Management, LLC. The Company had determined that Willow Oak’s support of Alluvial Capital Management, LLC and its direct investment in Alluvial Fund were both beneficial and necessary undertakings in conjunction with establishing an asset management operations business and gaining credibility within that industry. As of December 31, 2020, Willow Oak continues to hold its remaining direct investment in Alluvial Fund. Investment gains and losses are reported as revenue on the accompanying consolidated statements of operations. During the year ended December 31, 2021, the Company completed a liquidating withdrawal schedule from the Alluvial Fund in order to further strengthen the Company’s assertion that it is not subject to the application of the Investment Company Act of 1940, further discussed below. As of December 31, 2021, Willow Oak no longer holds any investment in Alluvial Fund.

As has been previously reported, on June 27, 2019, the Company sold 65% of its membership interest in Mt Melrose, LLC to Woodmont. Under the terms of the parties’ membership interest purchase agreement, the Company had agreed to indemnify Woodmont against certain losses actually incurred by Woodmont as a result of breaches of the Company’s representations and warranties made under the agreement. Also, in connection with the transaction, the Company and Woodmont had entered into a certain Amended and Restated Limited Liability Company Agreement of Mt Melrose, LLC, which had set forth the general terms and conditions governing the arrangements between the two members. In line with the Company’s sale of its remaining membership interests in Mt Melrose to Woodmont effective May 17, 2021, all of such contractual obligations have been terminated, and are no longer in effect as of the quarterly period ended June 30, 2021.

Also through the asset management operations segment, an operating lease on office space in New York City commenced on October 1, 2017, and extended through September 30, 2020. On October 1, 2020, the Company renewed this lease on a month-to-month basis at a reduced rate for limited storage access given the state of the New York City rental market as a result of the COVID-19 pandemic.

Through the former home services operations segment, an operating lease on warehouse and office space in Scottsdale, Arizona, commenced on May 1, 2018. This lease would have extended through May 31, 2021. This lease was not conveyed with the divestiture on May 24, 2019. Specialty Contracting Group, LLC (formerly known as HVAC Value Fund, LLC) was the lessee party to the lease. However, Specialty Contracting Group, in connection with its dissolution and winding up, surrendered possession of the premises to the landlord, in default of this lease. As of December 31, 2020, the remaining balance of the lease liability has been written off as the likelihood for any future collection is remote. This reduction in liability is included as income from discontinued operations on the accompanying consolidated statements of operations for the year ended December 31, 2020.

As has been previously reported, on June 27, 2019, the Company sold 65% of its membership interest in Mt Melrose, LLC to an unaffiliated third-party purchaser, Woodmont Lexington, LLC (“Woodmont”). Under the terms of the parties’ membership interest purchase agreement, the Company agreed to indemnify Woodmont against any losses actually incurred as a result of breaches of the Company’s representations and warranties made under the agreement. To date, Woodmont has made several claims for indemnification under the agreement, all of which have been rejected and disputed by the Company. Also, in connection with the transaction, the Company and Woodmont entered into a certain Amended and Restated Limited Liability Company Agreement of Mt Melrose, LLC (the “A&R LLC Agreement”). The A&R LLC Agreement sets forth the general terms and conditions governing the arrangements between the two members. The A&R LLC Agreement provides that the business and affairs of Mt Melrose will be managed exclusively by one or more managers; and Woodmont is designated as the sole manager. In addition, the Company expressly agreed to a three-year “standstill” arrangement, during which time the Company will not in any way participate, directly or indirectly, in the management or control of Mt Melrose; and with respect to any matters requiring a vote of the members, the Company will vote with (i.e., the same as) Woodmont. Subsequent to the transaction, Woodmont, as the manager of Mt Melrose, has purported that the Company’s membership interest in Mt Melrose has been diluted to 20.8%. The Company disputes this assertion and maintains that it has retained its 35% membership interest.

Discussion Regarding COVID-19 Potential Impacts

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

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

Management continues toregularly monitor and assess all Company operations for additional potential impacts of the COVID-19 pandemic.pandemic, including as infectious variants such as Omicron have emerged. As of the year ended December 31, 2020,2021, the Company has not been forced to make significant operational changes as a result of the pandemic. Management does not anticipate additional challenges in meeting existing obligations, nor do we expect significant customer or vendor interruptions. However, the extent to which the continuing COVID-19 pandemic ultimately may impact our business, financial condition, liquidity, and results of operations likely will continue to depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the continuing pandemic, the direct and indirect impact of the continuing pandemic on our employees, customers, and service providers, as well as the U.S. economy, and the actions taken by governmental authorities and other third parties in response to the continuing pandemic.

Discussion Regarding the Company’s Status Under the Investment Company Act of 1940

As discussed above, the Company, directly and through our subsidiaries, currently is engaged primarily in asset management operations, real estate operations, and internet operations lines of business–that is, in businesses other than that of investing, reinvesting, owning, holding, or trading in securities. We are not engaged primarily, nor do we propose to engage primarily, in the business of investing, reinvesting, or trading in securities; nor does the Company propose to operate any of its businesses in a manner that would cause the Company to be subject to regulation as an “investment company” under the Investment Company Act of 1940 (the “1940 Act”).

However, beginning during the quarterly period ended March 31, 2021, and continuing, to date, on an ongoing basis, representatives from the Securities and Exchange Commission (“SEC”) Division of Investment Management and the Company have engaged in informal discussions and correspondence regarding a general inquiry by the SEC as to the Company’s current status under the 1940 Act, namely as a result of the apparent quantitative significance of the Company’s assets that from time to time may have constituted “investment securities” in relation to the Company’s total assets.

As a result of such discussions and correspondence among the Company and the SEC, the Board of Directors of the Company reconfirmed, during the quarterly period ended March 31, 2021, that the Company has a bona fide intent to be engaged primarily in lines of business not constituting that of investing, reinvesting, or trading in securities, nor that of acquiring, owning, or holding “investment securities,” and the Board resolved to explore certain strategic options so as to eliminate as soon as is reasonably possible any uncertainty in regard to the Company’s status under the 1940 Act.

Subsequently, as of the quarterly period ended September 30, 2021, management determined that our ownership of “investment securities” fell below the 40% threshold established by the 1940 Act. This decrease was attributed to the completion of the Company’s withdrawals from the Alluvial Fund, LP, as previously discussed.

Results of Operations

Asset Management Operations

The Company operates its asset management operations business through its wholly-owned subsidiaries, Willow Oak Asset Management, LLC (“Willow Oak”), Willow Oak Capital Management, LLC, Willow Oak Asset Management Affiliate Management Services, LLC (“Willow Oak AMS”) and Willow Oak Asset Management Fund Management Services, LLC (“Willow Oak FMS”). These subsidiaries were formed on October 10, 2016, May 24, 2018, and August 21, 2020, 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. During the year ended December 31, 2019, one new joint venture was formed in which Willow Oak Capital Management is a non-managing beneficial owner. During the year ended December 31, 2020, we assisted in the launch of a new private investment fund, and two new wholly-owned entities, Willow Oak AMS and Willow Oak FMS, were formed to advance strategic relationships with external investment firms. Additionally, Willow Oak formalized a new strategic relationship with an investment firm, becoming a non-managing beneficial owner in exchange for the provision of certain ongoing FMS and operational services.

As of December 31, 2020,2021, Willow Oak continues to hold a directno longer holds any remaining investment in the Alluvial Fund, LP. The realized and unrealized investment gains and losses earned during the current year and in prior periods presented are reported as revenue on the accompanying consolidated statements of operations. This treatment can result in reporting negative revenue figures for a given period. Willow Oak continues to earn revenue through theits remaining fee share arrangements, as well as through fund management services.

During the year ended December 31, 2021, the asset management operations segment produced $4,650,298 of revenue. There were no costs of revenue and operating expenses totaled $424,596. Net income for the year ended December 31, 2021, totaled $4,225,702. This compares to the year ended December 31, 2020, when the asset management operations segment produced $3,690,473 of revenue. Costrevenue, there were no costs of revenue, was $0 and operating expenses totaled $425,704. Other income attributable to the asset management operations segment totaled $2,283. Net income for the year ended December 31, 2020, totaled $3,267,052. This compares to the year ended December 31, 2019, when the asset management operations segment produced $1,773,276 of revenue, cost of revenue was $0,$425,704, and operating expenses totaled $410,226. Additionally, other income for the year ended December 31, 2019, was $36,565, and total net income for the year ended December 31, 2019, was $1,399,615.totaled $2,283. The increase in revenue in 20202021 is due to market volatility and increased returns through the Company’s Alluvial investment along with an increase in fee share revenues from the new service and affiliate relationships. The slight increase in operating expenses is primarily due to higher payroll expenses as the segment expands its fund management services offerings. Otheragreements and affiliate fee share relationships. Asset management operations operating expenses remained comparable year over year.

On December 31, 2021, Willow Oak initiated its third and final liquidating cash distribution totaling $3,734,465 income respect of such withdrawal. This brings the total cash distribution amount to $17,772,369 for the segmentyear ended December 31, 2021. In accordance with the partnership terms of Alluvial Fund, a portion of Willow Oak’s capital account will be retained by the general partner until the fund’s activities for the year ended December 31, 2021, have been finalized through an independent audit. The retained amount will not be actively invested and will not be subject to investment gains or losses. The retained amount is primarily due to sub-lease rental income earned throughincluded within the Company’s New York office space.

investment redemption receivable amount on the accompanying consolidated balance sheets. As of December 31, 2021, Willow Oak no longer holds any remaining investment in Alluvial Fund. This compares to the year ended December 31, 2020, when the fair value of long-term investments held through the asset management operations segment totaled $13,520,616. This compares to the fair value of long-term investments held at December 31, 2019, which totaled $10,072,358. The increase in investments is attributable to positive Alluvial Fund performance during the year ended December 31, 2020. Management notes that, while short-term market volatility can have a significant effect on reported revenue for a given period, the Company’s overall investment strategy is ultra-long-term focused.

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

Real Estate Operations

EDI Real Estate Operations

ForDuring the year ended December 31, 2020,2021, the EDI Real Estatereal estate operations segment generated revenue of $578,313,$356,560, which includes rental revenue of $59,313,$17,060, and the cost of revenues of $326,636,$248,424, which includes $43,726$8,695 of cost of rental revenues. Operating expenses during the year ended December 31, 2021, were $39,185 and other income totaled $755,333. Net income for the real estate operations segment for the year ended December 31, 2020, were $31,937 and other expenses2021, totaled $17,064. Net$824,284. Other income for EDI Real Estate operations for the year ended December 31, 2020, totaled $202,676.2021 is primarily attributable to the gain recognized on the sale of the remaining noncontrolling Mt Melrose entity membership interests totaling $778,872. This compares to the year ended December 31, 2019,2020, when EDI Real Estatethe real estate operations segment generated revenue of $171,792,$578,313, including rental revenue of $76,792,59,313, cost of revenues of $209,410,$326,636, including cost of rental revenues of $104,279,$43,726, operating expenses of $42,080,$31,937, other expenses of $75,359,$17,064, and a total net lossincome of $155,057.$202,676. Other expenses incurred during the yearsyear ended December 31, 2020, and 2019, were primarily interest-related expenses. Significant deferred maintenance expenses incurred in the prior year did not recur, which resulted in aThe current year decreasedecreases in therevenue and cost of rental revenue.revenue are due to the diminishing real estate portfolio. The slight increase in operating expenses during the current year is primarily attributable to the amortization of the remaining debt issuance expenses associated with the previously outstanding mortgage payable. The remaining balance of this mortgage was paid in full during the current year.

EDI Real Estate Operations

No impairment adjustments were recorded during the yearyears ended December 31, 2021 and 2020. 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 market value throughout the year.

Through EDI Real Estate, as of December 31, 20202021 and 2019,2020, the EDI Real Estate portfolio of properties included the following units:

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

The leaseslease in effect as of December 31, 2020, are2021, is based on annual time periods and typically includea month-to-month provisions after the completion ofprovision, as the initial term.annual term has been completed. An outside property management company manages thesethis rental propertiesproperty on behalf of the Company. The property management company has introduced updated and renewed leases for existing rental properties.

Mt Melrose Operations

As described in Note 4, management previously determined that the Company no longer has a controlling financial interest in Mt Melrose. All activity prior to the deconsolidation event was included on our consolidated statements of operations for given prior reporting periods under the real estate segment. No Mt Melrose activity is included on the consolidated statements of operations for the year ended December 31, 2020. For the year ended December 31, 2019, Mt Melrose activity is only included through June 27, 2019, the date of the majority sale of the Company’s membership interest. As of June 27, 2019, all previously consolidated assets and liabilities of Mt Melrose, LLC have been removed from our consolidated balance sheets. Accordingly, there are no consolidated Mt Melrose assets as of the years ended December 31, 2020 and 2019 included on the accompanying consolidated balance sheets.

For the year ended December 31, 2019, the Mt Melrose portfolio generated rental revenue of $365,971. The cost of rental revenue totaled $276,049. Operating expenses for the year ended December 31, 2019, were $295,945. Other expenses totaled $4,580,940 and the net loss for the year ended December 31, 2019, totaled $4,786,963. Other expenses for the year ended December 31, 2019 are primarily related to the loss recognized on the equity sale of the Mt Melrose entity mentioned previously, which totaled $4,157,809.

The tables below provide a 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 upon the Company’s majority equity sale of the entity.

Internet Operations

Revenue attributed to the internet operations segment during the year ended December 31, 2020,2021, totaled $978,946$895,385 and cost of revenue totaled $321,582.$270,627. Operating expenses for the segment totaled $193,791$212,217 for the year ended December 31, 2020,2021, and other income totaled $4,251.$21,687. Net income for the internet operations segment was $467,824$434,228 for the year ended December 31, 2020.2021. Other income for the year ended December 31, 2021, consists primarily of gains recognized on the sales of an unused Autonomous System Number and a domain name. This compares to the year ended December 31, 2019,2020, when revenue totaled $1,066,229,$978,946, cost of revenues totaled $330,654,$321,582, operating expenses were $223,118,$193,791, other income was $10,169,$4,251, and comprehensivenet income was $519,572. Included in the segment’s comprehensive$467,824. Other income for the year ended December 31, 2019, was an accumulated other comprehensive loss related to the recognition of foreign currency translation adjustments. Other income for the years ended December 31, 2020, and 2019, is primarily the result of refundable sales tax credits and credit card rewards. The year over year decrease in revenue and cost of revenue is in line with the decline in total customer accounts.

As of December 31, 2020,2021, we have a total of 7,0096,973 customer accounts across the U.S. and Canada. This compares to the year ended December 31, 2019,2020, when we had a total of 7,4667,009 customer accounts. While the total number of customer accounts did not decrease significantly year over year, the sales mix has shifted slightly from higher revenue, lower margin products to lower revenue, higher margin products. As of December 31, 2020,2021, approximately 60%49% of our internet segment revenue is driven by internet access services, with the remaining 40%51% being earned though web hosting and other web-based storage services. This compares to the year ended December 31, 2020, when approximately 60% of our internet segment revenue was driven by internet access services, with the remaining 40% being earned though web hosting and other web-based storage services.

Amortization expense on domain names used for internet operations during the year ended December 31, 2021 totaled $7,278. There was no comparable amortization expense on domain names for the year ended December 31, 2020.

Approximately 92% of our customer accounts are U.S.-based, while 8% are Canada-based. Revenue generated by our U.S. customers totaled $929,383$851,274 and revenue generated by our Canadian customers totaled $49,563$44,111 during the year ended December 31, 2020.2021. This compares to revenue generated by our U.S. customers of $1,011,407$929,383 and revenue generated by our Canadian customers of $54,822$49,563 during the year ended December 31, 2019.2020.

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

Discontinued Operations - Home Services Operations

As noted previously, Specialty Contracting Group, LLC’s historical operations are now classified as “discontinued operations” in our consolidated financial statements, and all presented prior periods have also been reclassified to discontinued operations for comparability. Net income reported from discontinued operations related to the home services operations segment for the year ended December 31, 2020 was $165,186. Included in this amount is $147,113 of extinguished debt from expired historical obligations. Also included in net income is a $20,484 loss recovery on discontinued operations that represents royalties earned in accordance with the Rooter Hero royalty arrangement mentioned previously. This compares to the net loss of $1,510,475 reported from discontinued operations related to the home services operations segment for the year ended December 31, 2019.

Other Operations

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

Discontinued Operations - Home Services Operations

As noted previously, Specialty Contracting Group, LLC’s historical operations are now classified as “discontinued operations” in our consolidated financial statements, and all presented prior periods have also been reclassified to discontinued operations for comparability. For the year ended December 31, 2021, there was no reportable net income from discontinued operations related to the home services segment. This compares to net income reported from discontinued operations related to the home services operations segment for the year ended December 31, 2020, of $165,186. Included in this amount is $147,113 of extinguished debt from expired historical obligations. Also included in net income from discontinued operations for the year ended December 31, 2020, is a $20,484 loss recovery on discontinued operations that represents royalties earned in accordance with the Rooter Hero royalty arrangement mentioned previously.

Summary Discussion of Critical Accounting Estimates

Our accounting policies are more fully described in Note 2, Summary of Significant Accounting Policies, to the accompanying consolidated financial statements (see page 29). As disclosed in Note 2, the preparation of financial statements requires the use of judgments and estimates. We base our estimates on historical experience and on various other assumptions we believe to be reasonable according to current facts and circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates. We considered the following to be our most critical accounting estimates that involve significant judgment:

Fair-Value of Long-Term Assets

Goodwill

The Company tests its goodwill annually as of December 31, or more often if events and circumstances indicate that those assets might not be recoverable. Impairment testing of goodwill is required at the reporting-unit level (operating segment or one level below operating segment). The impairment test involves calculating the impairment of goodwill based solely on the excess of the carrying value of the reporting unit over the fair value of the reporting unit. Prior to performing the impairment test, the Company may make a qualitative assessment of the likelihood of goodwill impairment to determine whether a detailed quantitative analysis is required. This qualitative assessment and the ongoing evaluation of events and circumstances represent critical accounting estimates. Management considers a variety of factors when making these estimates, which include, but are not limited to, internal changes in the segment’s operations, external changes that affect the segment’s industry, and overall financial condition of the segment and Company.

Management did not identify any events or circumstances throughout the year that would indicate potential goodwill impairment, nor did management’s qualitative assessment performed on December 31 indicate a potential goodwill impairment. Total goodwill reported on the consolidated balance sheets is $212,445 at December 31, 2021.

Notes Receivable

Notes receivable are recorded at their principal amount and interest is accrued quarterly based on the applicable interest rate. The Company makes an assessment of the ultimate collectability of each note receivable on an annual basis based upon the financial condition of the borrower. This estimation of collectability represents the critical accounting estimate. Management considers multiple factors when making this estimate, which include, but are not limited to, the perceived risk profile of the borrower, current financial condition and liquidity of the borrower, and availability and perceived value of the borrower’s collateral.

Management’s assessment of the collectability of the Triad Guaranty, Inc. note receivable was adjusted during the current year in accordance with the above mentioned December 27, 2021, transaction. This transaction indicated a decrease in the market’s perceived collectability of the original Triad Guaranty, Inc. note. The Company recorded an impairment expense of $144,105 to its historical promissory note from Triad Guaranty, Inc., which is included on the accompanying consolidated statement of operations for the year ended December 31, 2021. The Company’s historical Triad Guaranty, Inc. note is included on the consolidated balance sheets for $25,000 as of the year ended December 31, 2021. The remaining notes receivable balance on the consolidated balance sheet is comprised of the Company’s December 27, 2021 purchase of an additional Triad Guaranty, Inc. note receivable, also for $25,000, as of the year ended December 31, 2021.

Long-Term Investments

When investment inputs or publicly available information are limited or unavailable, management estimates the value of certain long-term investment using the limited information it has available. This estimation process, which was used to measure the value of the Company’s common stock in Triad Guaranty, Inc., represents a critical accounting estimate. Management utilizes the available inputs to perform an initial valuation estimate and subsequently updates that valuation when additional inputs become available.

The Company historically measured its investment in the Triad Guaranty, Inc. stock at its cost basis, which was equal to the amount of accrued interest on the historical Triad Guaranty, Inc. promissory note as of December 31, 2020. The above mentioned December 27, 2021, transaction, however, indicated a decrease in the market’s valuation of the common stock of Triad Guaranty, Inc. The Company recorded an impairment expense of $45,410 to its historical Triad Guaranty, Inc. common stock, which is included on the accompanying statement of operations for the year ended December 31, 2021. The Company has attributed no value to its historical Triad Guaranty, Inc. stock as of December 31, 2021, on the accompanying consolidated balance sheets.

Other Intangible Assets

When management determines that material intangible assets are acquired in conjunction with the purchase of a business, the Company determines the fair values of the identifiable intangible assets by taking into account internal and external appraisals. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. These initial appraisals, as well as the subsequent evaluation of events and circumstances that may indicate impairment, represent critical accounting estimates. 

Management did not identify any events or circumstances throughout the year that would indicate potential impairment of the Company’s domain names, nor did management’s assessment performed on December 31 indicate potential impairment of the Company’s domain names. The total value of the Company’s domain names, net of amortization, reported under other assets on the consolidated balance sheets is $61,972 as of the year ended December 31, 2021.

Deferred Tax Assets and Liabilities

Income taxes are accounted for under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax benefits or consequences of events that have been included in the consolidated financial statements. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management’s analysis of the amount of deferred tax assets that will ultimately be realized represents a critical accounting estimate.

As of the year ended December 31, 2021, the Company recognized a net deferred tax asset of $1,432,017. In an effort to remain conservative and limit the potential financial impact of management’s estimate, the Company has provided a full valuation allowance against its net deferred tax assets as of the year ended December 31, 2021. This results in no value being attributed to the Company’s net deferred tax assets on the accompanying consolidated balance sheet as of the year ended December 31, 2021. See Note 13 for more information.

Contingencies, Commitments, and Litigation

Liabilities are recognized when management determines that contingencies, commitments, and/or litigation represent events that are more likely than not to result in a measurable obligation to the Company. Management’s analysis of these events represents a critical accounting estimate.

As of and during the year ended December 31, 2021, management did not identify any such events that would more likely than not result in a measurable obligation to the Company. Accordingly, the Company has not recorded any such liabilities related to contingencies, commitments, and/or litigation on the accompanying consolidated balance sheets as of the year ended December 31, 2021.

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, 2020, and there2021. There have been no disagreements with such independent accountants during the last two fiscal years ended December 31, 2020,2021, 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, 2020.2021. 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. 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, 2020.2021.

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 Executive Chairman 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, 2020,2021, 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

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements would not be prevented or detected on a timely basis.

As a result of our evaluations, we identified the following material weaknessweaknesses in our internal control over financial reporting as of December 31, 2020:2021:

We have not properly designed internal controls over the preparationSegregation of our financial statements. We have incorporated consultants, new hires, and review processes to alleviate some of the associated risksDuties: The Company has a lack of segregation of duties due to the limited size of its staff. Specifically - 

Financial Close and Reporting: The Company does not have effective internal controls over all parts of the financial close and reporting matters; however, formalprocess in that one individual is responsible for reconciling significant accounts, preparing the most significant journal entries, evaluating complex transactions and consistent policiesreporting requirements, and procedures, as well as complete control documentationalso is responsible for all significantthe financial statement close, consolidation, and reporting areas, have not been prepared or implemented.process.

Changes in Our Internal Controls

During the yearyears ended December 31, 2021 and 2020, the Company continued to uphold its established processes and controls surrounding its financial reporting, but did not make any significant modifications to its control environment.

During the year ended December 31, 2019, the The Company hired a new Vice President of Operations in ordercontinues to build out new company processes and optimize existing company procedures. Additionally, this role is intendedmake efforts to create a dedicated operational manager across each of the business segments. As a result, corporate management has greater visibility over financial transactions andreinforce its internal control processes.enviornment by utilizing an external accounting firm during its financial closing process, engaging third-party consultants to review the accounting and related dislcosures for transactions that management and the board of directors determine to be particularly complex, and maintaining strict document retention policies and procedures that allow for full visibility of all financial statements and schedules by all ENDI managers and the Executive Chairman.

None.

Not applicable.

PART III

We expect to file with the SEC in April 2021 2022 (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 meeting of stockholders scheduled to be held on May 27, 2021.25, 2022.

The information required by this item is incorporated herein by reference from the Company’s definitive Proxy Statement for the 20212022 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 20212022 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 20212022 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 20212022 annual meeting of stockholders under the sections entitled “Determinations Regarding Independence” and “Transactions with Related Persons.”

Our independent public accounting firm is Brown, Edwards & Company, L.L.P., Lynchburg, Virginia, PCAOB Auditor ID 423.

The information required by this item is incorporated herein by reference from the Company’s definitive Proxy Statement for the 20212022 annual meeting of stockholders under the section entitled “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 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.

(f)(d) 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.

(g)(e) Filed as Exhibit 10.13 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.

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

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

(j)(g) 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.

(k)(h) 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.

(l) 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.

(m) Filed as Exhibit 99.1 to Registrant’s Form 10-K for the fiscal year ended December 31, 2019 filed with the Securities and Exchange Commission on March 30, 2020, and incorporated herein by reference.

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

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

* Pursuant(k) Filed as Exhibit 10.8 to a requestRegistrant’s Form 10-K for confidential treatment, portions of this Exhibit have been redacted from the publiclyfiscal year ended December 31, 2020 filed document and have been furnished separately towith the Securities and Exchange Commission on March 29, 2021, and incorporated herein by reference.

(l) Filed as required by Rule 24b-2 underExhibit 3.1 to Registrant’s Form 8-K Amendment No. 1 filed with the Securities and Exchange Act of 1934, as amended.Commission on July 8, 2021, and incorporated herein by reference.

(m) Filed as Exhibit 2.1 to Registrant’s Form 8-K filed with the Securities and Exchange Commission on December 29, 2021, and incorporated herein by reference.

(n) Filed as Exhibit 2.2 to Registrant’s Form 8-K filed with the Securities and Exchange Commission on December 29, 2021, and incorporated herein by reference.

** 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 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

Enterprise Diversified, Inc.

Richmond, Virginia

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Enterprise Diversified, Inc. and subsidiaries (the “Company”) as of December 31, 20202021 and 2019,2020, and the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2020,2021, 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, 20202021 and 2019,2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020,2021, in conformity with accounting principles generally accepted in the United States of America.

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 audits. 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 audits 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 audits, 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 audits 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 audits 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 audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit mattersmatter communicated below are mattersis a matter arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition

Description of the Matter

As described in Note 2 to the consolidated financial statements, the Company recognizes revenue from customers across multiple revenue streams. The principal considerations for our determination that performing procedures relating to revenue recognition is a critical audit matter are the significant audit effort in performing procedures and evaluating evidence related to the Company’s revenues, as well as the judgment in determining that revenues were recognized in the correct period.

How We Addressed the Matter in Our Audit

We obtained an understanding and evaluated the design of the Company’s revenue recognition processes. We reviewed the Company’s revenue recognition policies to test that they were in accordance with accounting principles generally accepted in the United States of America. For a sample of revenue transactions, we performed detail transaction testing by agreeing the amounts recognized to contractual agreements, invoices, collections, and testing the mathematical accuracy of the recorded revenue, as well as the related receivable or deferred revenue balances. For a sample of accounts receivable balances, we confirmed the amounts due to the Company at year-endyear end directly with customers.

Valuation of Investments

Description of the Matter

At December 31, 2020, the Company’s investments included $13,520,616 in an alternative investment fund at fair value. The fair value of this fund is determined by management using the net asset value (“NAV”) practical expedient for estimating fair value as disclosed in Notes 5 and 6 to the consolidated financial statements. The principal considerations for our determination that performing procedures relating to investment valuation is a critical audit matter are the significant audit effort in performing procedures and evaluating evidence related to the Company’s valuation, including the use of a specialist.

How We Addressed the Matter in Our Audit

We obtained an understanding and evaluated the design of the Company’s investment valuation process, including management’s assessment of the significant inputs and estimates used in the fair value measurement. We confirmed the Company’s reported fair value directly with the fund manager including the Company’s ownership percentage of the fund’s net assets. We utilized a third-party valuation specialist with specialized skills and knowledge who assisted in evaluating the reasonableness of the fair value measurement. The specialist tested the valuation of the fund’s underlying investment holdings and reviewed the fund’s valuation methodologies for conformity with accounting principles generally accepted in the United States of America. We also reviewed subsequent events and valuation balances and considered whether they corroborated or contradicted the Company’s year-end value.

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

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

Lynchburg, Virginia

March 29, 202128, 2022

ENTERPRISE DIVERSIFIED, INC.

Andand Subsidiaries

CONSOLIDATED BALANCE SHEETS

December 31, 20202021 and 20192020

The accompanying notes are an integral part of these consolidated financial statements.

ENTERPRISE DIVERSIFIED, INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these consolidated financial statements.

Years Ended December 31, 2021 and 2020

ENTERPRISE DIVERSIFIED, INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

The accompanying notes are an integral part of these consolidated financial statements.

ENTERPRISE DIVERSIFIED, INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY