NOTE

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

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

On an ongoing basis, management evaluates its estimates and judgments, including, among other items, those related to fair value of investments, revenue recognition, accrued expenses, financing operations, fair value of goodwill, fixed asset lives and impairment, lease right-of-use assets and impairment, deferred tax assets, liabilities and valuation allowance, other assets, the present value of lease liabilities, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are

not

readily apparent from other sources. Actual results

may

differ from these estimates under different assumptions and conditions. These accounting policies are described at relevant sections in the notes to the consolidated financial statements.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash, cash equivalents, and accounts receivable. The Company places its cash with high-quality financial institutions and, at times,

may

exceed the FDIC and CDIC insurance limit. The Company extends credit based on an evaluation of customers’ financial condition, generally without collateral. Exposure to losses on receivables is principally dependent on each customer’s financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses.

Cash and Cash Equivalents

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

three

months or less.

Investments

The Company holds various investments through its asset management operations and real estate segments. Additionally, investments can be held and reported under the Company’s “other” segment. Assets held through these segments do

not

have a readily determinable value as these investments are

not

publicly traded, nor do they have published sales records. These investments are remeasured to fair value on a recurring basis. See Note

for more information.

As of

December 31, 2019,

the Company also holds its remaining equity investment in Mt Melrose, LLC through its real estate segment. The Company has determined that its remaining equity investment does

not

have a readily determinable fair value, and the Company will account for the investment at cost, less any impairment, as adjusted for changes resulting from observable price changes. When fair value becomes determinable, the investment will be marked to fair value on a periodic basis.

Accounts Receivable

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

Real estate segment rental accounts are typically paid by tenants via cash or check

later than the

fifth

of the month. Any accounts collected after the

fifth

are charged either a flat-rate late fee or a daily-rate late fee based upon the lease agreement. If payments are

not

provided in a timely manner, then the amount due is designated as an account receivable. If accounts remain uncollected, then standard operating procedures are followed to commence a notice process for the tenant to either pay the amount due or vacate the property. Accounts receivable from rental revenue are generally considered unrecoverable after

days unless the Company reasonably believes that recovery is probable. These procedures typically result in low amounts of past due receivables.

The internet segment attempts to reduce the risk of non-collection by including a late-payment fee and a manual-processing-payment fee to customer accounts. Receivables more than

days past due are

longer included in accounts receivable and are turned over to a collection agency. Accounts receivable more than

days are considered past due.

As of

December 31, 2019

and

2018,

allowances offsetting gross accounts receivable on the accompanying consolidated balance sheets totaled

$307

and

$26,830,

respectively. For the years ended

December 31, 2019

and

2018,

bad debt expense from continuing operations was

$88,511

and

$32,803,

respectively.

Notes Receivable

The Company does

not

routinely issue notes receivable in the ordinary course of business, but when a business opportunity arises, a subsidiary

may

issue a note if it appears to be favorable to the Company. 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.

Inventory

Inventory is carried on the balance sheet at the lower of purchased cost or net realizable value. Inventory is evaluated periodically for any obsolete or damaged stock. As of

December 31, 2019

and

2018,

there was

obsolescence allowance recorded against inventory held on the consolidated balance sheets.

Property and Equipment

Property and equipment are recorded at cost. Expenditures for maintenance and repairs are charged to operations as incurred, while renewals and betterments are capitalized. Gains and losses on disposals are included in the results of operations. Depreciation is computed using the straight-line method based on the estimated useful lives for each of the following asset classifications:

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

Property and equipment are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts

may

not

be recoverable.

The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, then the Company uses estimated future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are

not

expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. Property and equipment to be disposed are reported at the lower of carrying amount or fair value of the asset less cost to sell.

Goodwill and Other Intangible Assets

Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations accounted for under the acquisition method of accounting. The Company tests its goodwill annually as of

December

31st

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. The Company estimates the fair value of its reporting units using discounted expected future cash flows.

During the year ended

December 31, 2018,

an impairment adjustment of

$754,958

was recorded to goodwill held through the home services segment. As noted above, various qualitative factors were considered before preparing a quantitative analysis. Qualitatively, a general underperformance of previously acquired home services businesses triggered the quantitative analysis. As part of the quantitative analysis, management estimated the fair value of the home services segment at the enterprise level using a discounted cash flow approach. The results were then tested for reasonableness using a market approach by analyzing comparable firms’ growth rates, margins, capital expenditures, and working capital requirements. During the period ended

June 30, 2019,

an additional impairment of the remaining home services segment goodwill of

$1,024,591

was recognized and reported as a component of the loss on the divestiture of Specialty Contracting Group, LLC’s assets.

Intangible assets (other than goodwill) consist of domain names attributed to the internet segment. The Company owns

228

domain names, of which

106

are available for sale. These domains are valued at historical cost. When management determines that material intangible assets are acquired in conjunction with the purchase of a business, the Company determines the fair values of the identifiable intangible assets by taking into account internal and external appraisals. Intangible assets determined to have definite lives are amortized over their estimated useful lives. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, then the Company uses estimated future undiscounted cash flows of the related intangible asset or asset grouping over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are

not

expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value.

Real Estate

Real estate properties held for resale are carried at the lower of cost or fair value. All costs directly related to the improvement and carrying of real estate are capitalized, including renovations and property taxes, to the extent the capitalized costs of the property do

not

exceed the estimated fair value of the property. If the cost of the real estate exceeds the estimated fair value, then the excess is charged to expense. Fair value is estimated based on comparable sales in the geographic area in which the real estate is located. Fair value is evaluated annually by management or when events or changes in circumstances indicate the carrying value of the real estate

may

not

be recoverable.

During the year ended

December 31, 2019,

net impairment adjustments of

$26,170

were recorded on real estate held for resale through EDI Real Estate, LLC in order to properly reflect sales activity throughout the year. During the year ended

December 31, 2018,

an impairment adjustment of

$64,038

was recorded to real estate held for resale through EDI Real Estate, LLC in order to properly reflect market value for those properties held during the year. This adjustment was primarily the result of a deteriorating building purchased by prior management in

1998.

During the year ended

December 31, 2019,

an impairment adjustment of

$126,827

was recorded on the Company’s commercial warehouse held for resale in order to properly reflect market value at that time. During the year ended

December 31, 2018,

an impairment adjustment of

$964,743

was recorded to real estate held for resale through Mt Melrose, LLC in order to properly reflect market value for those properties held at the end of the year. This adjustment was the result of

properties being transitioned to “held for resale” from “held for investment” as part of a portfolio redirection. See Note

for more information. Recent tax assessments, valuations, and local real estate agents were used to value this portfolio of held-for-resale properties.

Real estate properties held for investment are carried at the cost basis plus additional costs where the cost extended the life of or added value to the property. Otherwise, the cost is expensed as incurred. Properties categorized as real estate held for investment are

not

expected by management to be sold in the next

months. This determination is periodically reviewed by management.

Accrued Bonus

Accrued bonuses represent performance-based incentives that have

not

yet been paid. Bonuses can be paid in the form of cash or via the issuance of Company stock. Bonus structures for employees are a pre-approved part of a formal employment agreement or arrangement. Stock based compensation, issued as part of the Company’s Equity Incentive Plan, is reserved for board members and members of senior management. The compensation accrual amount is based on the final value of Company stock that has been approved to be issued by the Governance, Compensation, and Nomination Committee of the Board of Directors. These bonus amounts are accrued when earned and able to be estimated and are paid or issued annually after financial records are finalized.

Other Accrued Expenses

Other accrued expenses represent incurred but

not

-yet-paid expenses from payroll accruals, vacation accruals, professional fees, and other accrued taxes.

Leases

January 1, 2019,

the Company adopted ASU

No.

2016

02,

“Leases” (Topic

842

). The guidance in ASU

No.

2016

supersedes the lease recognition requirements in ASC Topic

840

and established ASC Topic

842.

ASU

No.

2016

requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU

No.

2016

is effective for fiscal years beginning after

December 15, 2018,

with early adoption permitted. The Company adopted this guidance using the following practical expedients:

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

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

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

Additionally, the Company made ongoing accounting policy elections whereby it (i) does

not

recognize right-of-use (ROU) assets or lease liabilities for short-term leases (those with original terms of

months or less) and (ii) combines lease and non-lease elements of our leases.

Upon adoption of the new guidance on

January 1, 2019,

the Company recorded an ROU asset of approximately

$184,000

(net of existing deferred rent liability) and recognized a lease liability of approximately

$186,000,

with

resulting cumulative effect adjustment to retained earnings.

Revenue Recognition

Asset Management and Other Investment Revenue

The Company earns revenue from investments through various fee share and consulting agreements, as well as through realized and unrealized gains and losses, which

may

result in negative period or quarterly revenues. Management fees earned are recorded and paid out monthly and are included in revenue on the accompanying consolidated statements of operations. Performance fees earned are accrued monthly, paid out annually, and are also included in revenue on the accompanying consolidated statements of operations. Consulting fees are billed out monthly after services have been performed. Long-term investments are marked to market at the end of each reporting period. Realized and unrealized gains and losses are recognized as revenue in the period of adjustment.

Management notes that the structure of these arrangements leaves a very low possibility for nonperformance. While the amount of revenue varies from month to month, collectability is very high.

contract assets or liabilities are recognized or incurred.

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

A summary of revenue earned through asset management operations for the years ended

December 31, 2019

and

2018

is included below:

Asset Management Operations Revenue	Year Ended December 31, 2019		Year Ended December 31, 2018
Realized and unrealized gains (losses) on investment activity	$	1,607,644	$	(834,014	)
Management and performance fee revenue		65,171		41,151
Fund management services revenue		100,461		17,614
Total revenue	$	1,773,276	$	(775,249	)

Real Estate Revenue

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

Rental revenue from real estate held for investment is recognized when it is earned, generally on the last day of each month or at another regular period agreed upon by the Company and the tenant. Tenants generally provide a security deposit at the time of possession. This deposit is held separately from revenue and only applied to revenue when rental payment comparable to the security deposit amount is

not

provided in a timely manner and considered unlikely to be recovered. Otherwise, the security deposit is returned in a timely manner after the property is surrendered back to the Company. Management has concluded that the nature of the performance obligation is cyclical and predictable with a very low possibility for nonperformance.

contract assets or liabilities are recognized or incurred.

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

Internet Revenue

The Company sells internet services under annual and monthly contracts. Under the annual contracts, the subscriber pays a

one

-time annual fee, which is recognized as revenue ratably over the life of the contract. Under the monthly contracts, the subscriber is billed monthly and revenue is recognized for the period to which the service relates. Domain name registration revenue is recognized at the point of registration. Sales of computer hardware are recognized as revenue upon delivery and acceptance of the product by the customer. Sales are adjusted for any returns or allowances. Management has concluded that the nature of the performance obligation is cyclical with a very low possibility for nonperformance. Contract liabilities (deferred revenue) were recognized in the amount of collections received in advance of services to be performed.

contract assets were recognized or incurred.

The Company generates revenue in its internet segment from consumer and business-grade internet access, wholesale managed modem services for downstream ISPs, web hosting,

third

-party software as a reseller, and various ancillary services in the United States and Canada. Services include narrow-band (dial-up and ISDN) and broadband services (DSL, fiber-optic, and wireless), web hosting, and additional related services to consumers and businesses. Customers

may

also subscribe to web hosting plans to include email access and storage. Internet revenue is affected by the changing composition of revenue sources. In some years, this shift can be significant.

Home Services Revenue

Prior to the divestiture transaction on

May 24, 2019,

the Company performed HVAC and plumbing service repairs and installed HVAC units for its customers through its home services segment. Revenue was recognized upon completion of the installation or service call. Sales were adjusted for any returns or allowances. A return or allowance situation would arise based on the

two

-year workmanship warranty that typically conveyed with the installation of a new unit. There was also a

two

-year assurance warranty on newly installed parts and equipment that was honored by the manufacturer. If an installation was performed over multiple days, then it was accounted for using work-in-process (WIP) accounting. Contract progress was measured by comparing materials and labor hours incurred to materials and labor hours expected per the contract. These types of contracts were typically completed within

one

month’s time. A small portion of revenue was from the sale of annual service agreements. Revenue attributable to these agreements was recognized over the life of the agreement.

If payment was received prior to contract completion, then the amount of revenue attributable to the unperformed work was designated as unearned revenue. If payment was

not

provided in advance or at the time of service or installation completion, then the amount due was recognized as revenue and as an account receivable.

Management has acknowledged that these performance obligations were recognized at designated points in time during the contract, including the completion of the contract. As the customer controlled the asset and had the right to use it during the contract, the Company had the right to payment for performance completed to date. Contract liabilities (deferred revenue) were recognized in the amount of collections received in advance of services to be performed.

contract assets were recognized or incurred.

Deferred Revenue

Deferred revenue represents collections from customers in advance of internet or home services to be performed. Revenue is recognized in the period service is provided. Total deferred revenue decreased from

$210,212

December 31, 2018

$204,960

December 31, 2019.

During the years ended

December 31, 2019

and

2018,

$206,520

and

$214,142

, respectively, of revenue was recognized from prior-year contract liabilities (deferred revenue).

Income Taxes

Income taxes are accounted for under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax benefits or consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than

not

that some portion or all of the deferred tax assets will

not

be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment, inclusive of the recent tax reform act. The most recent

three

tax years, fiscal years ended

December 31, 2019,

2018,

and

2017,

are open to potential IRS examination.

Income (Loss) Per Share

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

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

None

of the potentially dilutive securities had a dilutive impact during the years ended

December 31, 2019

and

2018.

The number of anti-dilutive shares for the years ended

December 31, 2019

and

2018,

consisting of common shares underlying common stock equity incentives, which have been excluded from the computation of diluted income (loss) per share, was

70,000

shares and

zero

shares, respectively.

Other Comprehensive Income

Other comprehensive income is the result of the impact of foreign currency translations related to the Company’s internet segment operations in Canada.

Recently Issued Accounting Pronouncements

August 2018,

the FASB issued ASU

No.

2018

13,

“Fair Value Measurement” (Topic

820

). The guidance intends to improve the effectiveness of the disclosures relating to recurring and nonrecurring fair value measurements. The guidance is effective for fiscal years beginning after

December 15, 2019.

Portions of the guidance are to be adopted prospectively while other portions are to be adopted retroactively. Early adoption is permitted. The adoption of this guidance is

not

expected to have a material impact on our consolidated financial statements.

June 2016,

the FASB issued ASU

No.

2016

13,

“Financial Instruments - Credit Losses” (Topic

326

). The guidance eliminates the probable initial recognition threshold that was previously required prior to recognizing a credit loss on financial instruments. The credit loss estimate can now reflect an entity’s current estimate of all future expected credit losses. Under the previous guidance, an entity only considered past events and current conditions. In

April 2019,

the FASB further clarified the scope of the credit losses standard and addressed issues related to accrued interest receivable balances, recoveries, variable interest rates, and prepayments. In

May 2019,

the FASB issued further guidance to provide entities with an option to irrevocably elect the fair value option applied on an instrument-by-instrument basis for eligible financial instruments. In

November 2019,

the FASB issued further guidance on expected recoveries for purchased financial assets with credit deterioration, and transition refiled for troubled debt restructurings, disclosures related to accrued interest receivables, and financial assets secured by collateral maintenance provisions. The guidance is effective for fiscal years beginning after

December 15, 2019,

including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. The adoption of certain amendments of this guidance must be applied on a modified retrospective basis and the adoption of the remaining amendments must be applied on a prospective basis. The Company currently expects that the adoption of this guidance

may

change the way we assess the collectability of our receivables and recoverability of other financial instruments. The Company will adopt this guidance as of

January 1, 2023.

The adoption of this guidance is

not

expected to have a material impact on our consolidated financial statements.

The Company does

not

believe that any other recently issued effective standards, or standards issued but

not

yet effective, if adopted, would have a material effect on the accompanying consolidated financial statements.