10-Q 1 syte-10q_20170630.htm 10-Q syte-10q_20170630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the Quarterly Period Ended June 30, 2017

 

SITESTAR CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

Commission file number 000-27763

 

Nevada

 

88-0397234

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

1518 Willow Lawn Drive, Richmond, VA

 

23230

(Address of Principal Executive Offices)

 

(Zip Code)

(434) 382-7366

(Issuer’s telephone number, including area code)

 

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a small reporting company)

  

Smaller reporting company

 

[X]

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

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

The number of shares outstanding of Common Stock, $0.001 par value as of August 7, 2017 is 282,830,163.

 

 

 

 


 

Table of Contents

 

 

 

Page No.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

 

 

 

 

PART 1

 

 

Item 1. Financial Statements

 

4

Unaudited Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016

 

4

Unaudited Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2017 and June 30, 2016

 

5

Unaudited Condensed Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2017 and June 30, 2016

 

6

Unaudited Consolidated Statements of Stockholders’ Equity as of June 30, 2017 and December 31, 2016

 

7

Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and June 30, 2016

 

8

Notes to Unaudited Condensed Consolidated Financial Statements

 

9

Item 2. Management’s Discussions and Analysis of Financial Condition and Results of Operations

 

22

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

28

Item 4. Controls and Procedures

 

28

 

 

 

PART II

 

 

Item 1. Legal Proceedings

 

29

Item 1A. Risk Factors

 

29

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

29

Item 3. Defaults Upon Senior Securities

 

29

Item 4. Mine Safety Disclosures

 

29

Item 5. Other Information

 

30

Item 6. Exhibits

 

31

 

 

 

Signatures

 

32

 

2


 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including, without limitation, Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein, contains statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. The words “believe,” “estimate,” “expect,” “intend,” “anticipate,” “plan” 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, maintenance of strategic alliances and other factors discussed elsewhere in this Form 10-Q, and that actual results may differ materially from those indicated in the forward-looking statements as a result of various factors.

3


 

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

SITESTAR CORPORATION

And Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

June 30, 2017 (unaudited)

 

 

December 31, 2016

 

Assets

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,231,807

 

 

$

2,607,370

 

Accounts receivable, net

 

 

440,403

 

 

 

212,751

 

Investments, at fair value

 

 

123,920

 

 

 

599,500

 

Other current assets

 

 

64,972

 

 

 

2,554,861

 

Total current assets

 

 

2,861,102

 

 

 

5,974,482

 

Real estate - held for resale

 

 

482,894

 

 

 

1,399,280

 

Real estate - held for investment, net

 

 

619,264

 

 

 

506,011

 

Property and equipment, net

 

 

399,182

 

 

 

143,464

 

Goodwill, net

 

 

2,006,498

 

 

 

1,553,745

 

Note receivable

 

 

226,000

 

 

 

 

Non-current investments, at fair value

 

 

8,854,764

 

 

 

 

Other assets

 

 

66,750

 

 

 

264,250

 

 

 

 

12,655,352

 

 

 

3,866,750

 

Total assets

 

$

15,516,454

 

 

$

9,841,232

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Deferred revenue

 

$

247,873

 

 

$

214,898

 

Notes payable, current

 

 

411,111

 

 

 

240,000

 

Accounts payable

 

 

220,631

 

 

 

77,918

 

Accrued bonus

 

 

34,987

 

 

 

51,855

 

Accrued expenses

 

 

160,427

 

 

 

71,532

 

Total current liabilities

 

 

1,075,029

 

 

 

656,203

 

Notes payable

 

 

86,843

 

 

 

25,000

 

Total long-term liabilities

 

 

86,843

 

 

 

25,000

 

Total liabilities

 

 

1,161,872

 

 

 

681,203

 

Stockholders' equity

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 30,000,000

   shares authorized; none issued

 

 

 

 

 

 

Common stock, $0.001 par value, 300,000,000

   shares authorized; 294,526,821 and 204,152,616

   shares issued; 282,830,163 and 190,230,163

   shares outstanding

 

 

294,527

 

 

 

204,152

 

Additional paid-in-capital

 

 

23,538,493

 

 

 

19,096,858

 

Treasury stock, at cost, 11,696,658 and 13,822,453 common shares

 

 

(544,571

)

 

 

(637,561

)

Accumulated other comprehensive (loss) income

 

 

(26,996

)

 

 

39,343

 

Accumulated deficit

 

 

(8,906,871

)

 

 

(9,542,763

)

Total stockholders' equity attributable to Sitestar

   Corporation Stockholders

 

 

14,354,582

 

 

 

9,160,029

 

Noncontrolling interest in consolidated subsidiaries

 

 

 

 

 

 

Total stockholders' equity

 

 

14,354,582

 

 

 

9,160,029

 

Total liabilities and stockholders' equity

 

$

15,516,454

 

 

$

9,841,232

 

 

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

4


 

SITESTAR CORPORATION

and Subsidiaries

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 

 

 

For the three months ended June 30

 

 

For the six months ended June 30

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenues - internet operations

 

$

328,341

 

 

$

356,815

 

 

$

663,427

 

 

$

712,899

 

Revenues - HVAC

 

 

1,299,282

 

 

 

33,022

 

 

 

2,194,674

 

 

 

33,022

 

Revenues - real estate

 

 

25,602

 

 

 

1,179,231

 

 

 

892,146

 

 

 

1,587,448

 

Revenues - asset management

 

 

454,316

 

 

 

 

 

 

605,210

 

 

 

 

Total revenues

 

 

2,107,541

 

 

 

1,569,068

 

 

 

4,355,457

 

 

 

2,333,369

 

Cost of revenues - internet operations

 

 

76,145

 

 

 

93,681

 

 

 

155,954

 

 

 

219,753

 

Cost of revenues - HVAC

 

 

837,340

 

 

 

13,161

 

 

 

1,431,911

 

 

 

13,161

 

Cost of revenues - real estate

 

 

27,345

 

 

 

1,080,213

 

 

 

958,065

 

 

 

1,516,317

 

Cost of revenues - asset management

 

 

 

 

 

 

 

 

 

 

 

 

Total cost of revenues

 

 

940,830

 

 

 

1,187,055

 

 

 

2,545,930

 

 

 

1,749,231

 

Gross profit - internet operations

 

 

252,196

 

 

 

263,134

 

 

 

507,473

 

 

 

493,146

 

Gross profit - HVAC

 

 

461,942

 

 

 

19,861

 

 

 

762,763

 

 

 

19,861

 

Gross (loss) profit - real estate

 

 

(1,743

)

 

 

99,018

 

 

 

(65,919

)

 

 

71,131

 

Gross profit - asset management

 

 

454,316

 

 

 

 

 

 

605,210

 

 

 

 

Total gross profit

 

 

1,166,711

 

 

 

382,013

 

 

 

1,809,527

 

 

 

584,138

 

Selling, general and administrative expenses

 

 

697,658

 

 

 

306,125

 

 

 

1,303,272

 

 

 

518,381

 

Total operating expenses

 

 

697,658

 

 

 

306,125

 

 

 

1,303,272

 

 

 

518,381

 

Income from operations

 

 

469,053

 

 

 

75,888

 

 

 

506,255

 

 

 

65,757

 

Other (expense) income, net

 

 

(1,789

)

 

 

3,659

 

 

 

129,637

 

 

 

4,571

 

Income before income taxes

 

 

467,264

 

 

 

79,547

 

 

 

635,892

 

 

 

70,328

 

Income tax benefit (expense)

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

467,264

 

 

 

79,547

 

 

 

635,892

 

 

 

70,328

 

Less: net income attributable to the non controlling interest

 

 

 

 

 

2,853

 

 

 

 

 

 

2,853

 

Net income attributable to Sitestar Corporation stockholders

 

$

467,264

 

 

$

76,694

 

 

$

635,892

 

 

$

67,475

 

Earnings per share, basic and diluted

 

 

0.00

 

 

 

0.00

 

 

 

0.00

 

 

 

0.00

 

Weighted average number of shares, basic and diluted

 

 

282,830,163

 

 

 

77,404,010

 

 

 

266,970,494

 

 

 

77,404,010

 

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

 

5


 

SITESTAR CORPORATION

and Subsidiaries

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

 

For the three months ended June 30

 

 

For the six months ended June 30

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income

 

$

467,264

 

 

$

79,547

 

 

$

635,892

 

 

$

70,328

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in foreign currency translation adjustments

 

 

 

 

 

(3,735

)

 

 

 

 

 

(91

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of available-for-sale securities

 

 

(19,811

)

 

 

50,351

 

 

 

10,596

 

 

 

50,351

 

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

 

 

2,430

 

 

 

 

 

 

(76,935

)

 

 

 

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

   Securities

 

 

(17,381

)

 

 

50,351

 

 

 

(66,339

)

 

 

50,351

 

Other comprehensive (loss) income

 

 

(17,381

)

 

 

46,616

 

 

 

(66,339

)

 

 

50,260

 

Comprehensive income

 

 

449,883

 

 

 

126,163

 

 

 

569,553

 

 

 

120,588

 

Less: comprehensive income attributable to the non controlling interest

 

 

 

 

 

2,853

 

 

 

 

 

 

2,853

 

Comprehensive income attributable to Sitestar Corporation stockholders

 

$

449,883

 

 

$

123,310

 

 

$

569,553

 

 

$

117,735

 

 

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

 

 

 

6


 

SITESTAR CORPORATION

and Subsidiaries

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Common

 

 

 

 

 

 

Additional

 

 

Treasury

 

 

Other Comprehensive

 

 

Accumulated

 

 

Noncontrolling

 

 

Stockholders'

 

 

 

Stock

 

 

Amount

 

 

Paid In Capital

 

 

Stock

 

 

Income

 

 

Deficit

 

 

Interest

 

 

Equity

 

Balance December 31, 2015

 

 

77,404,010

 

 

$

91,327

 

 

$

13,728,989

 

 

$

(637,561

)

 

$

3,415

 

 

$

(9,435,125

)

 

$

 

 

$

3,751,045

 

Opening balance adjustment

 

 

100,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2015 (restated)

 

 

77,504,010

 

 

 

91,327

 

 

 

13,728,989

 

 

 

(637,561

)

 

 

3,415

 

 

 

(9,435,125

)

 

 

 

 

 

3,751,045

 

Net (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(107,638

)

 

 

 

 

 

(107,638

)

Contributed capital

 

 

112,826,153

 

 

 

112,825

 

 

 

5,367,869

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,480,694

 

Loss on foreign exchange translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(361

)

 

 

 

 

 

 

 

 

(361

)

Unrealized gain on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

36,289

 

 

 

 

 

 

 

 

 

36,289

 

Balance December 31, 2016

 

 

190,330,163

 

 

 

204,152

 

 

 

19,096,858

 

 

 

(637,561

)

 

 

39,343

 

 

 

(9,542,763

)

 

 

 

 

 

9,160,029

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

635,892

 

 

 

 

 

 

635,892

 

Contributed capital

 

 

92,500,000

 

 

 

92,500

 

 

 

4,532,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,625,000

 

Unrealized (loss) gain on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(66,339

)

 

 

 

 

 

 

 

 

(66,339

)

Adjustment for share cancellation

 

 

 

 

 

(2,125

)

 

 

(90,865

)

 

 

92,990

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance June 30, 2017

 

 

282,830,163

 

 

$

294,527

 

 

$

23,538,493

 

 

$

(544,571

)

 

$

(26,996

)

 

$

(8,906,871

)

 

$

 

 

$

14,354,582

 

 

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

 

 

 

7


 

SITESTAR CORPORATION

and Subsidiaries

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30, 2017 and 2016

 

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

635,892

 

 

$

70,328

 

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

 

 

 

 

 

 

 

 

Amortization

 

 

 

 

 

55

 

Depreciation

 

 

53,390

 

 

 

17,934

 

Loss on sale of real estate

 

 

52,383

 

 

 

(186,820

)

Gain on sale of available-for-sale securities

 

 

(76,935

)

 

 

 

Gain on non-current investments

 

 

(604,764

)

 

 

 

Bad debt expense

 

 

7,617

 

 

 

1,224

 

Real estate valuation adjustment

 

 

48,741

 

 

 

 

(Increase) decrease in:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(235,269

)

 

 

(15,144

)

Other current assets

 

 

(10,111

)

 

 

(8,955

)

Increase (decrease) in:

 

 

 

 

 

 

 

 

Deferred revenue

 

 

32,975

 

 

 

6,350

 

Accounts payable

 

 

142,713

 

 

 

21,989

 

Accrued expenses

 

 

72,027

 

 

 

(13,173

)

Net cash flows from operating activities

 

 

118,659

 

 

 

(106,212

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from sale of real estate held for sale

 

 

550,270

 

 

 

1,295,799

 

Proceeds from sale of real estate held for investment

 

 

 

 

 

239,850

 

Improvements to real estate held for sale

 

 

(86,008

)

 

 

(103,005

)

Improvements to real estate held for investment

 

 

 

 

 

(17,540

)

Proceeds from sale of marketable securities

 

 

486,176

 

 

 

 

Purchases of marketable securities

 

 

 

 

 

(199,649

)

Proceeds from sale of domain names

 

 

200,000

 

 

 

 

Purchase of domain names

 

 

 

 

 

(56,250

)

Purchase of property and equipment

 

 

(30,352

)

 

 

 

Capitalized loan fees

 

 

(2,500

)

 

 

 

Subsidiary acquisitions

 

 

(6,211,772

)

 

 

(201,059

)

Net cash flows from investing activities

 

 

(5,094,186

)

 

 

958,146

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Principal payments on note payable

 

 

(25,036

)

 

 

(90,000

)

Proceeds from the common stock issuance

 

 

4,625,000

 

 

 

 

Net cash flows from financing activities

 

 

4,599,964

 

 

 

(90,000

)

Net increase (decrease) in cash

 

 

(375,563

)

 

 

761,934

 

Cash and cash equivalents at beginning of the period

 

 

2,607,370

 

 

 

184,731

 

Cash and cash equivalents at end of the period

 

$

2,231,807

 

 

$

946,665

 

Non-cash supplemental information:

 

 

 

 

 

 

 

 

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

 

$

66,339

 

 

$

(50,351

)

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

 

$

226,000

 

 

$

 

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

 

$

125,000

 

 

$

 

Transfer of other current assets to investments

 

$

2,500,000

 

 

$

 

Write-down of goodwill due to seller not meeting carryback obligations

 

$

15,000

 

 

$

 

HVAC equipment acquired through capital leases and debt obligations

 

$

172,990

 

 

$

 

HVAC acquisitions through notes payable

 

$

100,000

 

 

$

65,000

 

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

 

8


 

SITESTAR CORPORATION

and Subsidiaries

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization and Lines of Business

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

The Company operates through five reportable segments: Corporate, Internet Operations, HVAC Operations, Real Estate Operations, and Asset Management Operations. The management of the Company is also currently reviewing investment opportunities in the private markets, including in other lines of business.

Corporate

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

Internet Operations

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

HVAC Operations

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

As of June 30, 2017, HVAC Value Fund had closed on six acquisitions for an aggregate purchase price of $2.02 million which includes estimated earn outs of approximately $350,000. As previously reported in our Current Report on Form 8-K filed with the SEC on June 14, 2016 and further described above, the purpose of HVAC Value Fund is to acquire HVAC and plumbing businesses. Accordingly, these six acquisitions were made in the ordinary course of business and consistent with the customs and practices (including with respect to nature, scope, magnitude, quantity, frequency and contemplated purpose) of HVAC Value Fund, and, in turn, the Company.  

Real Estate Operations

Sitestar owns a real estate investment portfolio that includes 13 residential properties, vacant land, and one commercial property. Our real estate portfolio is primarily focused in the Roanoke and Lynchburg areas of Virginia. The portfolio includes single family homes that are currently rented and managed through a third-party property manager, as well as vacant properties being prepared or currently listed for sale.

9


Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

 

Asset Management Operations

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

Sitestar, through its wholly-owned subsidiary, Willow Oak Asset Management, LLC, signed a fee share agreement on May 11, 2017 with Lizard Head, LLC, the general partner of Bridge Reid Fund I, LP. Under the agreement, Willow Oak became a special limited partner to Bridge Reid, providing fund advisory services to Bridge Reid in exchange for payments equal to 33% of the management fees accrued quarterly by the general partner and 33% of the incentive fees accrued annually, on investors who become limited partners after May 11, 2017. Fees received by Willow Oak will be paid as units in Bridge Reid, and deposited into a Willow Oak capital account at Bridge Reid.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries including: Sitestar.net, Inc., HVAC Value Fund, LLC, and Willow Oak Asset Management, LLC. All intercompany accounts and transactions have been eliminated.  

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared by Sitestar Corporation, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments), which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) have been omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2016 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 24, 2017 (the “2016 Form 10-K”). The results for the six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.

Use of Estimates

In accordance with Accounting Principles Generally Accepted in the United State 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 those related to fair value of investments, revenue recognition, accrued expenses, financing operations, goodwill valuation, other assets, 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.

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.

10


Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

 

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and accounts receivable. The Company places its cash with high quality financial institutions and, at times, may exceed the FDIC and CDIC insurance limit. As of June 30, 2017, some of the Company’s cash balances exceeded the FDIC and CDIC 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.

Investments

The Company currently holds and makes investments in marketable securities through its corporate operations. Marketable securities held are classified as available-for-sale based on management’s intent. Unrealized gains (losses) are categorized as other comprehensive income. Realized gains (losses) on marketable securities are determined by specific identification. Interest is recognized on an accrual basis; dividends are recorded as earned on the ex-dividend date. The Company holds additional non-current investments through its asset management operations. Non-current investments do not qualify as available-for-sale securities. The classification of these investments is assessed upon purchase and reassessed at each reporting period. Non-current investments are marked to market at the end of each reporting period and revenue is recognized in the condensed consolidated statement of income in the period of adjustment.

Accounts Receivable

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

Sales of internet services, which are not automatically processed via credit card or bank account drafts, have been the Company’s highest exposure to collection risk. The Company attempts to reduce this risk by including a late payment fee and a manual processing payment fee to customer accounts. Receivables more than ninety days past due are no longer included in accounts receivable and are turned over to a collection agency. Accounts receivable more than 30 days are considered past due. 

Sales of HVAC services are typically paid via credit card or check upon completion of service. Sales that are not collected upon completion are generally to existing and repeat customers who have established a track record of timely payments. Historically, HVAC has not encountered issues with collectability of customer accounts. Accounts receivable more than 30 days are considered past due.

Note Receivable

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

Impairment of Long-Lived Assets

In accordance with GAAP, long-lived assets to be held and used 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, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. Long-lived assets to be disposed are reported at the lower of carrying amount or fair value of the asset less cost to sell.

11


Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

 

Property and Equipment

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

Goodwill and Other Intangible Assets

Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations accounted for under the acquisition method of accounting. The Company does not amortize goodwill. The Company tests its goodwill annually during the fourth quarter of its fiscal year or when 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) and involves a two-step process. Prior to performing the two-step impairment test, the Company may make a qualitative assessment of the likelihood of goodwill impairment to determine whether a detailed quantitative analysis is required. The first step of the impairment test involves comparing the estimated fair values of the Company’s reporting units with the reporting units’ carrying amounts, including goodwill. The Company estimates the fair value of its reporting units using discounted expected future cash flows. If the carrying amount of the reporting unit exceeds its fair value, a second step is performed to compare the carrying amount of goodwill to the implied fair value of that goodwill. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess.

The Company performs an analysis of its goodwill as of December 31 annually, or whenever events or changes in circumstances indicate that the assigned values may no longer be appropriate. No impairment was recorded in 2016. During the quarter ended June 30, 2017, a downward adjustment of $15,000 was made to goodwill held through the HVAC segment. This adjustment was the result of a previous seller not meeting the operational terms of a carryback note that was previously included as consideration for the acquisition. See Note 3 for more information.

Other intangible assets consist of customer relationships, developed technology and software, trade names, and other assets acquired in conjunction with the purchases of businesses or purchases of assets from other companies. As of June 30, 2017, these intangible assets have been fully amortized. The remaining intangible assets consist of domain names attributed to the internet segment. When management determines material intangible assets are acquired in conjunction with the purchase of a business, the Company determines the fair values of the identifiable intangible assets by taking into account management’s own analysis and an independent third-party valuation specialist’s appraisal. Intangible assets determined to have definite lives are amortized over their estimated useful lives.

The Company owns 634 domain names, of which 107 are available for sale. These domains are valued at historical cost.

Real Estate

Real estate properties held for resale are carried at the lower of cost or fair market value. All costs directly related to the improvement and carrying of real estate are capitalized, including renovations and property taxes, to the extent the capitalized costs of the property do not exceed the estimated fair value of the property. If the cost of the real estate exceeds the estimated fair value, the excess is charged to expense. Fair value is estimated based on comparable sales in the geographic area the real estate is located and tax assessed values. 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.

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

Accrued Bonus

Accrued bonuses represent performance based incentives that have not yet been paid. These bonus amounts are paid annually after financial records are finalized.

12


Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

 

Other Accrued Expenses

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

Deferred Revenue

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

Revenue Recognition

Internet Operations

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. 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.

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

HVAC Operations

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

Real Estate Operations

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

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

Asset Management Operations

The Company earns revenue from investments held through the asset management segment through various fee share agreements as well as through realized and unrealized gains and losses. Management fees earned are recorded and paid out monthly and are included in revenue. Performance fees earned are accrued monthly, paid out yearly and are included in revenue on the condensed consolidated statement of income. As non-current investments do not quality as available-for-sale securities, non-current investments are marked to market at the end of each reporting period. Realized and unrealized gains and losses are recognized as revenue in the period of adjustment.

13


Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

 

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 consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases 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. The most recent three tax years, fiscal years ending December 31, 2016, December 31, 2015, and December 31, 2014, are open to potential IRS examination.

Income Per Share

The basic income per common share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding. Diluted income per common share is computed similar to basic income per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company has no potentially dilutive securities.  

Other Comprehensive Income

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

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842). The guidance in ASU 2016-02 supersedes the lease recognition requirements in ASC Topic 842, Leases. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is required to adopt this standard in the first quarter of 2019. The Company is currently evaluating the effect this standard will have on its Consolidated Financial Statements.

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

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

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

14


Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

 

NOTE 3. BUSINESS CONBINATIONS OR ACQUISITIONS

As of June 17, 2016 and June 30, 2016, HVAC Value Fund completed the 100% acquisition of two HVAC subsidiaries. As of July 8, 2016, HVAC Value Fund completed the 100% acquisition of a third subsidiary. As of July 15, 2016, HVAC Value Fund completed the 100% acquisition of a fourth subsidiary. As of October 1, 2016, HVAC Value Fund completed the 100% acquisition of a fifth subsidiary. As of January 20, 2017, HVAC Value Fund completed the 100% acquisition of a sixth subsidiary. These subsidiaries engage in providing heating, ventilation, plumbing, and air conditioning services, installation, and repairs to residential and commercial customers. As a result of the acquisitions, HVAC Value Fund offers heating, ventilation, plumbing, and air conditioning services to customers in Arizona and the surrounding southwestern states. As previously reported in our Current Report on Form 8-K filed with the SEC on June 14, 2016 and described further herein, the purpose of HVAC Value Fund is to acquire HVAC and plumbing businesses. Accordingly, these six acquisitions were made in the ordinary course of business and consistent with the customs and practices (including with respect to nature, scope, magnitude, quantity, frequency, and contemplated purpose) of HVAC Value Fund, and, in turn, the Company.  

On a pro forma basis, the business acquired on January 20, 2017 contributed revenues of $538,495, net income of $92,540, and additional selling, general and administrative expenses to HVAC Value Fund during the quarter ended June 30, 2017. The following unaudited pro forma summaries present consolidated information of HVAC Value Fund as if the current and previous year business combinations had occurred on January 1 of each respective fiscal year. Some of the pro forma information for the year ended December 31, 2016 was calculated using annualized, unaudited 2015 financial information, and pro forma information for the period ended June 30, 2017 was calculated using annualized, unaudited 2016 information, as information for the period from January 1, 2016 through the applicable subsidiary closing date is unavailable.

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

 

Pro forma six months ended June 30, 2017 (unaudited)

 

January 20, 2017 acquisition

 

Revenue

 

$

2,270,501

 

Earnings

 

$

(15,505

)

 

Pro forma year ended December 31, 2016

(unaudited)

 

2016 acquisitions

(in aggregate)

 

 

2017 acquisition

 

 

Consolidated pro forma year ended

December 31, 2016 (unaudited)

 

Revenue

 

$

3,781,167

 

 

$

1,456,685

 

 

$

5,237,852

 

Earnings

 

$

517,495

 

 

$

295,886

 

 

$

813,381

 

 

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

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

 

June 2016 acquisitions (in aggregate)

 

 

 

 

 

 

Fair value of consideration transferred:

 

Cash

 

$

160,000

 

Notes payable

 

$

65,000

 

 

 

Fair value of assets acquired:

 

Vehicles

 

$

35,000

 

Equipment

 

$

13,700

 

Total identifiable assets

 

$

48,700

 

Goodwill

 

$

176,300

 

Subsequent adjustments

 

$

(15,000

)

Adjusted goodwill

 

$

161,300

 

15


Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

 

 

July 8, 2016 acquisition

 

 

 

 

 

 

Fair value of consideration transferred:

 

Cash

 

$

375,000

 

Notes payable

 

$

100,000

 

 

 

Fair value of assets acquired:

 

Goodwill

 

$

475,000

 

 

July 15, 2016 acquisition

 

 

 

 

 

 

Fair value of consideration transferred:

 

Cash

 

$

340,000

 

Notes payable

 

$

100,000

 

 

 

Fair value of assets acquired:

 

Vehicles

 

$

40,000

 

Total identifiable assets

 

$

40,000

 

Goodwill

 

$

400,000

 

 

October 1, 2016 acquisition

 

 

 

 

 

 

Fair value of consideration transferred:

 

Cash

 

$

315,000

 

 

 

Preliminary fair value of assets acquired:

 

Vehicles

 

$

20,000

 

Equipment

 

$

5,000

 

Total identifiable assets

 

$

25,000

 

Goodwill

 

$

290,000

 

 

January 20, 2017 acquisition

 

 

 

 

 

 

Fair value of consideration transferred:

 

Cash

 

$

460,000

 

Notes payable

 

$

100,000

 

Assumed obligations

 

$

169,255

 

 

 

Preliminary fair value of assets acquired:

 

Equipment

 

$

119,684

 

Leased Vehicles

 

$

143,590

 

Total identifiable assets

 

$

263,274

 

Goodwill

 

$

465,981

 

 

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

 

As previously mentioned in Note 2 and as noted above in the June 2016 acquisitions, a downward adjustment of $15,000 was made to goodwill during the quarter ended June 30, 2017. Part of the consideration paid for the June 2016 acquisitions was a $15,000 seller carryback note. The note was payable in full on July 1, 2017 contingent on certain revenue targets and other operational conditions. As of the quarter ended June 30, 2017 it was determined by management that neither the revenue targets nor the operational conditions had been met, therefore, the payable was no longer due and total consideration paid for the acquisition decreased.

The purchase price allocations above are deemed preliminary for valuation purposes, and management may adjust the allocations for the one year period allotted. Allocations for the October 1, 2016 and January 20, 2017 acquisitions remain open for subsequent management adjustment.

16


Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

 

NOTE 4. INVESTMENTS

The Company holds various investments through Willow Oak, LLC through its asset management segment and may invest excess cash in marketable securities through its corporate segment. The fair values of the Company’s marketable securities are determined in accordance with GAAP, with fair value being defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The following available-for-sale securities are re-measured to fair value on a recurring basis and are valued using Level 1 inputs, which are quoted prices (unadjusted) for identical assets in active markets.

 

 

 

Cost Basis

 

 

Unrealized Gain

 

 

Unrealized Loss

 

 

Fair Value

 

June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock available for sale

 

$

153,970

 

 

$

 

 

$

(30,050

)

 

$

123,920

 

 

 

 

Cost Basis

 

 

Unrealized Gain

 

 

Unrealized Loss

 

 

Fair Value

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock available for sale

 

$

563,211

 

 

$

36,289

 

 

$

 

 

$

599,500

 

 

In the three and six month period ended June 30, 2017, the Company recognized $2,430 of realized losses and $76,935 of realized gains, respectively. This compares to the three and six month period ended June 30, 2016 when the Company recognized no realized gains or losses.

 

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

 

 

 

Cost Basis