ENTERPRISE DIVERSIFIED, INC. 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 endedDecember 31, 2021 and 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$14,043,411 atDecember 31, 2020 , to$17,105,760 atDecember 31, 2021 . This change was primarily attributable to$4,225,702 of net income in the asset management operations segment,$824,284 of net income in the real estate operations segment,$434,228 of net income in the internet operations segment, and was partially offset by$2,661,865 of net loss in the other operations segment. There was no reportable income attributed to discontinued operations for the year endedDecember 31, 2021 . Corporate expenses for the year endedDecember 31, 2021 , included in the net loss from other operations, totaled$2,148,641 . Total comprehensive net income for the year endedDecember 31, 2021 equaled$2,822,349 . 7 --------------------------------------------------------------------------------
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.
December 31, September 30, December 31,
2021 2021 June 30, 2021 March 31, 2021 2020
ASSETS
Cash and equivalents $ 13,487,482 $ 9,316,890 $ 9,399,112 $ 292,767 $ 341,007
Accounts receivables, net 351,405 302,548 369,893 130,155 144,791
Investment redemption
receivable 3,734,465 5,579,679 - - -
Investments, at fair value - 3,765,834 8,512,439 15,736,234 13,574,462
Real estate, total 26,911 27,334 27,732 239,500 241,876
Goodwill and other assets 340,495 490,599 493,618 508,094 555,044
Total assets $ 17,940,758 $ 19,482,884 $ 18,802,794 $ 16,906,750 $ 14,857,180
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accounts payable $ 11,474 $ 67,585 $ 48,920 $ 60,734 $ 65,524
Accrued expenses 645,798 465,606 117,103 137,803 306,063
Income taxes payable 6,532 360,000 - - -
Deferred revenue 171,194 198,199 198,045 198,848 192,088
Notes payable and other
liabilities - - 24,461 247,305 250,094
Total liabilities 834,998 1,091,390 388,529 644,690 813,769
Total stockholders' equity 17,105,760 18,391,494 18,414,265 16,262,060 14,043,411
Total liabilities and
stockholders' equity $ 17,940,758 $ 19,482,884 $ 18,802,794 $ 16,906,750 $ 14,857,180 Financial Condition, Liquidity, and Capital Resources
During the year endedDecember 31, 2021 ,Enterprise Diversified carried out its business strategy in four operating segments: Asset Management Operations, Real Estate Operations, Internet Operations, and Other 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$13,487,482 at year-endDecember 31, 2021 , compared to$341,007 at year-endDecember 31, 2020 . Real estate held for investment decreased to$26,911 at year-endDecember 31, 2021 , compared to$241,876 at year-endDecember 31, 2020 , and long-term investments decreased to$0 at year-endDecember 31, 2021 , compared to$13,574,462 at year-endDecember 31, 2020 . Total accrued expenses increased to$645,798 at year-endDecember 31, 2021 , compared to$306,063 at year-endDecember 31, 2020 , and total notes payable decreased to$0 at the year endedDecember 31, 2021 , from$250,094 at year-endDecember 31, 2020 . The increase in cash and equivalents and decrease in long-term investments are primarily attributed to the series of liquidating distributions the Company initiated fromAlluvial Fund during the current year. The decreases in real estate and notes payable are primarily due to the opportunistic sales of certainEDI 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 ofDecember 31, 2021 , andDecember 31, 2020 , is as shown: December 31, 2021 December 31, 2020 Current $ 348,745 $ 142,121 30 - 60 days 1,545 1,836 60 + days 1,115 834 Total $ 351,405 $ 144,791
We have no material capital expenditure requirements.
During the quarterly period endedJune 30, 2020 , the Company received loan proceeds in the amount of$125,102 under the Paycheck Protection Program, as amended (the "PPP"), administered by theU.S. Small Business Administration . The PPP, established as part of theU.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 theSmall Business Administration for the full value of its PPP loan inDecember 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 endedDecember 31, 2020 . During the quarterly period endedSeptember 30, 2018 ,EDI Real Estate, LLC , as a borrower, issued a promissory note secured by certain properties held for investment. This note carried an annual interest rate of 5.6% and fully matured onSeptember 1, 2033 , with early payoff permitted. The interest rate on this note was subject to change once each five-year period based on an index rate plus a margin of 2.750 percentage points. The index rate was calculated as a monthly average yield onU.S. Treasury Securities , adjusted to a constant maturity of five years. During the quarterly period endedSeptember 30, 2021 , the remaining loan balance was paid in full and no future payments are required. During the quarterly period endedSeptember 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 dueSeptember 15, 2022 , with early payoff permitted. During the quarterly period endedJune 30, 2021 , the balance of this note was paid in full in conjunction with the sale of the property. No future payments are required. 8 --------------------------------------------------------------------------------
Notes payable as of
Interest Rates Average Term 2021 2020
Interest-bearing amount due on
promissory note through EDI Real Estate ,
LLC 5.60% 15 years $ - $ 154,094
Interest-bearing amount due on real
estate held for investment through EDI
Real Estate, LLC 6.00% 5 years - 96,000
Less current portion - (5,609 )
Long-term portion $ - $ 244,485
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. 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
Through the former home services operations segment, an operating lease on warehouse and office space inScottsdale, Arizona , commenced onMay 1, 2018 . This lease would have extended throughMay 31, 2021 . This lease was not conveyed with the divestiture onMay 24, 2019 .Specialty Contracting Group, LLC (formerly known asHVAC 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 ofDecember 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 endedDecember 31, 2020 .
Discussion Regarding COVID-19 Potential Impacts
Due to the continuing uncertainty surrounding the COVID-19 pandemic, management has continued to regularly monitor and assess all Company operations for potential impacts of the COVID-19 pandemic, including as infectious variants such as Omicron have emerged. As of the year endedDecember 31, 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 theU.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 endedMarch 31, 2021 , and continuing, to date, on an ongoing basis, representatives from theSecurities and Exchange Commission ("SEC")Division of Investment Management and the Company have engaged in informal discussions and correspondence regarding a general inquiry by theSEC 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. In prior reporting periods, management had determined that our ownership of "investment securities" (as defined in the 1940 Act) exceeded 40% of the value of the Company's total assets (exclusive of government securities and cash items), as measured under the 1940 Act. Our ownership of "investment securities" was largely comprised of our investment and limited partnership interests inAlluvial Fund, LP . In this respect, as the composition of our assets had changed over time, including by virtue of our previous sale of membership interests inMt Melrose, LLC and our previous divestiture of the former Home Services Operations segment, the impact of our long-standingAlluvial Fund investment to the composition of our total assets, as measured under the 1940 Act, had become more pronounced, albeit inadvertently. As a result of such discussions and correspondence among the Company and theSEC , the Board of Directors of the Company reconfirmed, during the quarterly period endedMarch 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 endedSeptember 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 theAlluvial Fund, LP , as previously discussed. 9 --------------------------------------------------------------------------------
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") andWillow Oak Asset Management Fund Management Services, LLC ("Willow Oak FMS"). These subsidiaries were formed onOctober 10, 2016 ,May 24, 2018 , andAugust 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 endedDecember 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 endedDecember 31, 2019 , one new joint venture was formed in whichWillow Oak Capital Management is a non-managing beneficial owner. During the year endedDecember 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 ofDecember 31, 2021 , Willow Oak no longer holds any remaining investment inAlluvial 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 its remaining fee share arrangements, as well as through fund management services. During the year endedDecember 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 endedDecember 31, 2021 , totaled$4,225,702 . This compares to the year endedDecember 31, 2020 , when the asset management operations segment produced$3,690,473 of revenue, there were no costs of revenue, operating expenses totaled$425,704 , and other income totaled$2,283 . The increase in revenue in 2021 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 fund management services agreements and affiliate fee share relationships. Asset management operations operating expenses remained comparable year over year. OnDecember 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 endedDecember 31, 2021 . In accordance with the partnership terms ofAlluvial Fund , a portion of Willow Oak's capital account will be retained by the general partner until the fund's activities for the year endedDecember 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 included within the investment redemption receivable amount on the accompanying consolidated balance sheets. As ofDecember 31, 2021 , Willow Oak no longer holds any remaining investment inAlluvial Fund . This compares to the year endedDecember 31, 2020 , when the fair value of long-term investments held through the asset management operations segment totaled$13,520,616 .
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.
Year Ended December Year Ended December
Annual 31, 2021 31, 2020
Revenues $ 4,650,298 $ 3,690,473
Cost of revenue - -
Operating expenses 424,596 425,704
Other income - 2,283
Net income $ 4,225,702 $ 3,267,052
Year Ended December Year Ended December
Asset Management Operations Revenue 31, 2021 31, 2020
Unrealized gains on investment activity $ 4,178,870 $ 3,424,267
Performance fee revenue 308,466 116,179
Management fee revenue 78,504 60,419
Fund management services revenue 84,458 89,608
Total revenue $ 4,650,298 $ 3,690,473
December 31, September 30,
Quarterly 2021 2021 June 30, 2021 March 31, 2021
Revenues $ 94,125 $ 806,314 $ 1,556,005 $ 2,193,854
Cost of revenue - - - -
Operating expenses 80,788 113,158 112,939 117,711
Net income $ 13,337 $ 693,156 $ 1,443,066 $ 2,076,143
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Real Estate Operations During the year endedDecember 31, 2021 , the real estate operations segment generated revenue of$356,560 , which includes rental revenue of$17,060 , and the cost of revenues of$248,424 , which includes$8,695 of cost of rental revenues. Operating expenses during the year endedDecember 31, 2021 , were$39,185 and other income totaled$755,333 . Net income for the real estate operations segment for the year endedDecember 31, 2021 , totaled$824,284 . Other income for the year endedDecember 31, 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 endedDecember 31, 2020 , when the real estate operations segment generated revenue of$578,313 , including rental revenue of$59,313 , cost of revenues of$326,636 , including cost of rental revenues of$43,726 , operating expenses of$31,937 , other expenses of$17,064 , and total net income of$202,676 . Other expenses incurred during the year endedDecember 31, 2020 , were primarily interest-related expenses. The current year decreases in revenue and cost of 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
For the year endedDecember 31, 2021 , depreciation expense on theEDI Real Estate portfolio of properties was$3,727 . This compares to depreciation expense for the year endedDecember 31, 2020 , when depreciation expense on theEDI Real Estate portfolio of properties was$15,774 . During the year endedDecember 31, 2021 , three properties held for resale and one vacant lot were sold for gross proceeds of$339,500 . Net proceeds totaled$80,259 . This compares to their total carrying value of$211,238 , which resulted in a net gain of$128,262 being recognized during the current year. This compares to the year endedDecember 31, 2020 , when four properties held for resale were sold for gross proceeds of$519,000 and net proceeds totaled$229,209 . This compared to their total carrying value of$232,744 , which resulted in a net gain of$286,256 being recognized during the year endedDecember 31, 2020 . No properties were purchased during the years endedDecember 31, 2021 or 2020.
No impairment adjustments were recorded during the years ended
Through
EDI Real Estate December 31, 2021 December 31, 2020 Units occupied or available for rent 1
4
Vacant lots held for investment 2
3
Total units held for investment 3 7
Units held for investment consist of single-family residential rental units.
The lease in effect as of
EDI Real Estate December 31, 2021 December 31, 2020 Total real estate held for investment $ 43,821 $
303,158
Accumulated depreciation (16,910 ) (61,282 ) Real estate held for investment, net $ 26,911 $ 241,876 Mt Melrose Operations For the years endedDecember 31, 2021 and 2020, prior to the sale of the remaining membership interests onMay 17, 2021 , the Company's remaining investment in Mt Melrose was carried on our consolidated balance sheets for$53,846 . This carrying value was reflective of the mechanics of theJune 27, 2019 transaction, as the Company could not obtain current appraisals for each individual property at that time. By way of the Mt Melrose transaction, the Company was able to significantly reduce direct and overhead expenses, improve net cash flows, and fully deconsolidate approximately$6.4 million of debt. Additionally, the Company was afforded the opportunity to refocus growth opportunities to its asset management operations segment. These circumstances, rather than the cash consideration received, are what strategically prompted the majority sale of the Mt Melrose entity. Additional debt restructurings and sales of previously inactive real estate properties allowed the portfolio to continue its redirection, which management believes provided long-term returns greater than its carrying value. Management's belief was substantiated as the Company recognized a gain of$778,872 during the quarterly period endedJune 30, 2021 , and current year endedDecember 31, 2021 , on the sale of its then-remaining membership interests in the Mt Melrose entity. This gain is recognized on the accompanying consolidated statements of operations as a gain on sale of noncontrolling interest in subsidiary. As of the quarterly period endedJune 30, 2021 , and subsequently as of year-endDecember 31, 2021 , the Company no longer holds any interest in the Mt Melrose entity. As noted above, this compares to the year endedDecember 31, 2020 , when the Company's remaining investment in MtMelrose was carried on the consolidated balance sheets for$53,846 . See Notes 4 and 11 for more information. 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. Year Ended December Year Ended December Annual 31, 2021 31, 2020 Revenues $ 356,560 $ 578,313 Cost of revenue 248,424 326,636 Operating expenses 39,185 31,937 Other income (expense) 755,333 (17,064 ) Net income $ 824,284 $ 202,676 December 31, September 30, Quarterly 2021 2021 June 30, 2021 March 31, 2021 Revenues$ 9,300 $ 1,800 $ 335,724 $ 9,736 Cost of revenue 4,105 466 236,209 7,644 Operating expenses (751 ) 15,202 18,249 6,485 Other income (expense) (12 ) (332 ) 760,472 (4,795 ) Net income (loss)$ 5,934 $ (14,200 ) $ 841,738 $ (9,188 ) 11
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Internet Operations Revenue attributed to the internet operations segment during the year endedDecember 31, 2021 , totaled$895,385 and cost of revenue totaled$270,627 . Operating expenses for the segment totaled$212,217 for the year endedDecember 31, 2021 , and other income totaled$21,687 . Net income for the internet operations segment was$434,228 for the year endedDecember 31, 2021 . Other income for the year endedDecember 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 endedDecember 31, 2020 , when revenue totaled$978,946 , cost of revenues totaled$321,582 , operating expenses were$193,791 , other income was$4,251 , and net income was$467,824 . Other income for the year endedDecember 31, 2020 , 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 ofDecember 31, 2021 , we have a total of 6,973 customer accounts across theU.S. andCanada . This compares to the year endedDecember 31, 2020 , when we had a total of 7,009 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 ofDecember 31, 2021 , approximately 49% of our internet segment revenue is driven by internet access services, with the remaining 51% being earned though web hosting and other web-based storage services. This compares to the year endedDecember 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
Approximately 92% of our customer accounts are
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.
Year Ended December Year Ended December
Annual 31, 2021 31, 2020
Revenues $ 895,385 $ 978,946
Cost of revenue 270,627 321,582
Operating expenses 212,217 193,791
Other income 21,687 4,251
Net income $ 434,228 $ 467,824
December 31, September 30,
Quarterly 2021 2021 June 30, 2021 March 31, 2021
Revenues $ 221,103 $ 218,097 $ 223,919 $ 232,266
Cost of revenue 66,772 61,863 70,029 71,963
Operating expenses 60,426 54,905 50,345 46,541
Other income 1,036 19,930 360 361
Net income $ 94,941 $ 121,259 $ 103,905 $ 114,123
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Other Operations The Company's other operations segment did not produce any revenue or cost of revenue during the year endedDecember 31, 2021 . Operating expenses totaled$2,148,641 , other expenses were$146,692 , and income tax expense totaled$366,532 for the year endedDecember 31, 2021 . Included in other expenses for the year endedDecember 31, 2021 , is an impairment expense of$189,515 related to the Company's promissory note from and common stock of Triad Guaranty, Inc. See Note 6 for more information on the Company's considerations surrounding its Triad investments. Corporate operating expenses accounted for the full$2,148,641 of reported operating expenses for the year endedDecember 31, 2021 . The total net loss attributed to the other operations segment was$2,661,865 for the year endedDecember 31, 2021 . This compares to the year endedDecember 31, 2020 , when our other operations segment again produced no revenue and no cost of revenue. Operating expenses totaled$966,862 , other income was$143,528 , and there was no income tax expense. Included in other income for the year endedDecember 31, 2020 , for the other operations segment is$125,839 of debt extinguishment as a result of the forgiveness of the Company's PPP loan. Corporate operating expenses accounted for the full$966,862 of reported operating expenses. This resulted in a net loss of$823,334 for the other operations segment for the year endedDecember 31, 2020 . Income tax expense was higher for the year endedDecember 31, 2021 , primarily due to the tax effects of the Company's liquidation of its investment inAlluvial Fund, LP . The Alluvial fund liquidation resulted in the recognition of previously unrealized net investment gains. The Company was able to offset a significant portion of the realized investment activity with net operating losses that had been carried forward from prior years. The Company did not recognize any income tax expense for the year endedDecember 31, 2020 , as the Company operated at a tax loss for the year, and any deferred liabilities associated with unrealized gains in theAlluvial Fund investments were offset by deferred tax assets. The Company continues to provide a full valuation allowance against its net deferred tax assets, including net operating loss carryforwards, as of the year endedDecember 31, 2021 . See Note 13 for more information. Corporate expenses were higher for the year endedDecember 31, 2021 primarily due to an increase in legal fees, director fees, and consulting fees, which are associated with the Company's Business Combination. See Note 11 for more information. 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. Year Ended December Year Ended December Annual 31, 2021 31, 2020 Revenues $ - $ - Cost of revenue - - Operating expenses 2,148,641 966,862 Other income (expense) (146,692 ) 143,528 Income tax expense (366,532 ) - Net loss $ (2,661,865 ) $ (823,334 ) December 31, September Quarterly 2021 30, 2021 June 30, 2021 March 31, 2021 Revenues $ - $ - $ - $ - Cost of revenue - - - - Operating expenses 1,222,809 477,234 241,345 207,253
Other income (expense) (170,605 ) 14,248 4,841 4,824 Income tax expense (6,532 ) (360,000 ) - - Net loss$ (1,399,946 ) $ (822,986 ) $ (236,504 ) $ (202,429 )
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 endedDecember 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 endedDecember 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 endedDecember 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. 13
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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 ofDecember 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 onDecember 31 indicate a potential goodwill impairment. Total goodwill reported on the consolidated balance sheets is$212,445 atDecember 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 mentionedDecember 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 endedDecember 31, 2021 . The Company's historical Triad Guaranty, Inc. note is included on the consolidated balance sheets for$25,000 as of the year endedDecember 31, 2021 . The remaining notes receivable balance on the consolidated balance sheet is comprised of the Company'sDecember 27, 2021 purchase of an additional Triad Guaranty, Inc. note receivable, also for$25,000 , as of the year endedDecember 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 ofDecember 31, 2020 . The above mentionedDecember 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 endedDecember 31, 2021 . The Company has attributed no value to its historical Triad Guaranty, Inc. stock as ofDecember 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 onDecember 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 endedDecember 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 endedDecember 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 endedDecember 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 endedDecember 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 endedDecember 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 endedDecember 31, 2021 . 14
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