NEVADA
(State
or other jurisdiction of
incorporation
or organization)
|
88-0397234
(I.R.S.
Employer Identification No.)
|
Page
Number
|
||||
PART
I. FINANCIAL INFORMATION
|
||||
Item
1.
|
Financial
Statements (Unaudited)
|
|||
Condensed
Consolidated Balance Sheets as of September 30, 2010 and December 31,
2009
|
3-4
|
|||
Condensed
Consolidated Statements of Income for the three months ended September 30,
2010 and 2009
|
5
|
|||
Condensed
Consolidated Statements of Income for the nine months ended September 30,
2010 and 2009
|
6
|
|||
Condensed
Consolidated Statements of Cash Flows for the nine months ended September
30, 2010 and 2009
|
7-8
|
|||
Notes
to Condensed Consolidated Financial Statements
|
9-18
|
|||
Item
2.
|
Management's
Discussion and Analysis
|
19-25
|
||
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
25
|
||
Item
4.
|
Controls
and Procedures
|
25-26
|
||
Part
II. OTHER INFORMATION
|
27
|
|||
Item
1.
|
Legal
Proceedings
|
27
|
||
Item
1A.
|
Risk
Factors
|
27
|
||
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
27
|
||
Item
3.
|
Defaults
Upon Senior Securities
|
27
|
||
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
27
|
||
Item
5.
|
Other
Information
|
27
|
||
Item
6.
|
Exhibits
|
27
|
||
SIGNATURES
|
28
|
2010
|
2009
|
|||||||
CURRENT
ASSETS
|
Unaudited
|
|||||||
Cash
and cash equivalents
|
$ | 955,803 | $ | 1,090,807 | ||||
Accounts
receivable, net of allowance of $6,291 and $14,316
|
167,326 | 455,773 | ||||||
Prepaid
expenses
|
170,024 | 1,430 | ||||||
Total
current assets
|
1,293,153 | 1,548,010 | ||||||
PROPERTY
AND EQUIPMENT, net
|
181,812 | 193,715 | ||||||
CUSTOMER
LIST, net of accumulated amortization of $11,670,538 and
$10,216,778
|
586,135 | 2,018,375 | ||||||
GOODWILL,
net of impairment
|
1,288,559 | 1,288,559 | ||||||
DEFERRED
TAX ASSETS
|
803,162 | 760,861 | ||||||
REAL
ESTATE HELD FOR INVESTMENT
|
254,424 | - | ||||||
OTHER
ASSETS
|
278,643 | 496,314 | ||||||
TOTAL
ASSETS
|
$ | 4,685,888 | $ | 6,305,834 |
2010
|
2009
|
|||||||
CURRENT
LIABILITIES
|
Unaudited
|
|||||||
Accounts
payable
|
$ | 36,366 | $ | 131,598 | ||||
Accrued
income taxes
|
270,815 | 414,815 | ||||||
Accrued
expenses
|
62,439 | 29,052 | ||||||
Deferred
revenue
|
643,805 | 861,235 | ||||||
Notes
payable
|
905,880 | 900,615 | ||||||
Total
current liabilities
|
1,919,305 | 2,337,315 | ||||||
NOTES
PAYABLE - STOCKHOLDERS
|
155,567 | 547,245 | ||||||
TOTAL
LIABILITIES
|
2,074,872 | 2,884,560 | ||||||
STOCKHOLDERS'
EQUITY
|
||||||||
Preferred
Stock, $.001 par value, 10,000,000 shares authorized, 0 shares issued and
outstanding
|
- | - | ||||||
Common
stock, $.001 par value, 300,000,000 shares authorized, 91,326,463 shares
issued in 2010 and 2009 and 75,039,705 and 76,199,705 shares outstanding
in 2010 and 2009
|
91,326 | 91,326 | ||||||
Additional
paid-in capital
|
13,880,947 | 13,880,947 | ||||||
Treasury
stock, at cost, 16,286,758 and 15,126,758 common shares
|
(779,204 | ) | (735,696 | ) | ||||
Accumulated
deficit
|
(10,582,053 | ) | (9,815,303 | ) | ||||
Total
stockholders’ equity
|
2,611,016 | 3,421,274 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 4,685,888 | $ | 6,305,834 |
2010
|
2009
|
|||||||
REVENUE
|
$ | 1,196,920 | $ | 1,696,807 | ||||
COST
OF REVENUE
|
555,294 | 695,157 | ||||||
GROSS
PROFIT
|
641,626 | 1,001,650 | ||||||
OPERATING
EXPENSES:
|
||||||||
Selling
general and administrative expenses
|
798,126 | 1,030,490 | ||||||
INCOME
(LOSS) FROM OPERATIONS
|
(156,500 | ) | (28,840 | ) | ||||
OTHER
INCOME (EXPENSES)
|
(1,413 | ) | (21,045 | ) | ||||
INCOME
(LOSS) BEFORE INCOME TAXES
|
(157,913 | ) | (49,885 | ) | ||||
INCOME
TAXES (EXPENSE) BENEFIT
|
(303,238 | ) | (459,163 | ) | ||||
NET
INCOME (LOSS)
|
$ | (461,151 | ) | $ | (509,048 | ) | ||
BASIC
AND DILUTED EARNINGS PER SHARE
|
$ | (0.01 | ) | $ | (0.01 | ) | ||
WEIGHTED
AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED
|
75,124,922 | 77,771,500 |
2010
|
2009
|
|||||||
REVENUE
|
$ | 3,955,530 | $ | 6,126,649 | ||||
COST
OF REVENUE
|
1,806,604 | 2,367,879 | ||||||
GROSS
PROFIT
|
2,148,926 | 3,758,770 | ||||||
OPERATING
EXPENSES:
|
||||||||
Selling
general and administrative expenses
|
2,422,018 | 3,293,824 | ||||||
INCOME
(LOSS) FROM OPERATIONS
|
(273,092 | ) | 464,946 | |||||
OTHER
INCOME (EXPENSES)
|
(34,131 | ) | (71,626 | ) | ||||
INCOME
(LOSS) BEFORE INCOME TAXES
|
(307,223 | ) | 393,320 | |||||
INCOME
TAXES EXPENSE
|
(459,527 | ) | (367,946 | ) | ||||
NET
INCOME (LOSS)
|
$ | (766,750 | ) | $ | 25,374 | |||
BASIC
AND DILUTED EARNINGS PER SHARE
|
$ | (0.01 | ) | $ | 0.00 | |||
WEIGHTED
AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED
|
75,306,903 | 77,771,500 |
2010
|
2009
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
income (loss)
|
$ | (766,750 | ) | $ | 25,374 | |||
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities:
|
||||||||
Depreciation
and amortization expense
|
1,580,830 | 1,895,893 | ||||||
Allowance
for doubtful accounts
|
(8,025 | ) | (32,556 | ) | ||||
Deferred
income taxes
|
(42,301 | ) | (80,423 | ) | ||||
(Increase)
decrease in:
|
||||||||
Accounts
receivable
|
296,472 | (290,383 | ) | |||||
Prepaid
expenses
|
(168,594 | ) | (155 | ) | ||||
Other
assets
|
101,742 | - | ||||||
Increase
(decrease) in:
|
||||||||
Accounts
payable
|
(95,232 | ) | 25,394 | |||||
Accrued
expenses
|
33,387 | (695 | ) | |||||
Deferred
revenue
|
(217,430 | ) | (71,422 | ) | ||||
Accrued
income taxes
|
(144,000 | ) | 27,650 | |||||
Net
cash provided by operating activities
|
570,099 | 1,498,677 | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Other
assets held for resale
|
1,762 | (573 | ) | |||||
Purchase
of property and equipment
|
- | (3,000 | ) | |||||
Purchase
of real estate held for investment
|
(254,424 | ) | - | |||||
Purchase
of non-compete
|
(1,000 | ) | (1,000 | ) | ||||
Purchase
of customer list
|
(21,520 | ) | (67,398 | ) | ||||
Net
cash provided by (used in) investing activities
|
(275,182 | ) | (71,971 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Repayment
of notes payable – stockholders
|
(391,678 | ) | (62,985 | ) | ||||
Purchase
treasury stock
|
(43,508 | ) | (667,206 | ) | ||||
Proceeds
from notes payable
|
17,020 | - | ||||||
Repayment
of notes payable
|
(11,755 | ) | (436,943 | ) | ||||
Net
cash (used in) financing activities
|
(429,921 | ) | (1,167,134 | ) | ||||
NET
(DECREASE) IN CASH AND CASH EQUIVALENTS
|
(135,004 | ) | 259,572 | |||||
CASH
AND CASH EQUIVALENTS –BEGINNING OF PERIOD
|
1,090,807 | 527,553 | ||||||
CASH
AND CASH EQUIVALENTS -END OF PERIOD
|
$ | 955,803 | $ | 787,125 |
2010
|
2009
|
|||||||
Net
income (loss) available to common shareholders
|
$ | (461,151 | ) | $ | (509,048 | ) | ||
Weighted
average number of common shares
|
75,124,922 | 77,771,500 | ||||||
Basic
and diluted income per share
|
$ | (0.01 | ) | $ | (0.01 | ) |
2010
|
2009
|
|||||||
Net
income (loss) available to common shareholders
|
$ | (766,750 | ) | $ | 25,374 | |||
Weighted
average number of common shares
|
75,306,903 | 77,771,500 | ||||||
Basic
and diluted income per share
|
$ | (0.01 | ) | $ | 0.00 |
September
30, 2010
|
||||||||||||
Corporate
|
Internet
|
Consolidated
|
||||||||||
Revenue
|
$ | - | $ | 1,196,920 | $ | 1,196,920 | ||||||
Operating
Income (loss)
|
$ | (25,040 | ) | $ | (131,460 | ) | $ | (156,500 | ) | |||
Depreciation
and amortization
|
$ | - | $ | 526,967 | $ | 526,967 | ||||||
Interest
expense
|
$ | - | $ | 4,638 | $ | 4,638 | ||||||
Real
estate held for investment
|
$ | 254,424 | $ | - | $ | 254,424 | ||||||
Intangible
assets
|
$ | - | $ | 2,712,300 | $ | 2,712,300 | ||||||
Total
assets
|
$ | 254,424 | $ | 4,431,464 | $ | 4,685,888 |
September
30, 2009
|
||||||||||||
Corporate
|
Internet
|
Consolidated
|
||||||||||
Revenue
|
$ | - | $ | 1,696,807 | $ | 1,696,807 | ||||||
Operating
Income (loss)
|
$ | (13,841 | ) | $ | (14,999 | ) | $ | (28,840 | ) | |||
Depreciation
and amortization
|
$ | - | $ | 608,601 | $ | 608,601 | ||||||
Interest
expense
|
$ | - | $ | 17,842 | $ | 17,842 | ||||||
Real
estate held for investment
|
$ | - | $ | - | $ | - | ||||||
Intangible
assets
|
$ | - | $ | 4,024,534 | $ | 4,024,534 | ||||||
Total
assets
|
$ | - | $ | 6,471,856 | $ | 6,471,856 |
September
30, 2010
|
||||||||||||
Corporate
|
Internet
|
Consolidated
|
||||||||||
Revenue
|
$ | - | $ | 3,955,530 | $ | 3,955,530 | ||||||
Operating
Income (loss)
|
$ | (89,718 | ) | $ | (183,374 | ) | $ | (273,092 | ) | |||
Depreciation
and amortization
|
$ | - | $ | 1,580,830 | $ | 1,580,830 | ||||||
Interest
expense
|
$ | - | $ | 25,682 | $ | 25,682 | ||||||
Real
estate held for investment
|
$ | 254,424 | $ | - | $ | 254,424 | ||||||
Intangible
assets
|
$ | - | $ | 2,712,300 | $ | 2,712,300 | ||||||
Total
assets
|
$ | 254,424 | $ | 4,431,464 | $ | 4,685,888 |
September
30, 2009
|
||||||||||||
Corporate
|
Internet
|
Consolidated
|
||||||||||
Revenue
|
$ | - | $ | 6,126,649 | $ | 6,126,649 | ||||||
Operating
Income (loss)
|
$ | (93,456 | ) | $ | 558,402 | $ | 464,946 | |||||
Depreciation
and amortization
|
$ | - | $ | 1,895,893 | $ | 1,895,893 | ||||||
Interest
expense
|
$ | - | $ | 66,293 | $ | 66,293 | ||||||
Real
estate held for investment
|
$ | - | - | - | ||||||||
Intangible
assets
|
$ | - | $ | 4,024,534 | $ | 4,024,534 | ||||||
Total
assets
|
$ | - | $ | 6,471,856 | $ | 6,471,856 |
Equipment
|
$ | 3,000 | ||
Customer
list
|
62,907 | |||
Non-compete
agreement
|
1,000 | |||
Deferred
revenue
|
(42,000 | ) | ||
Purchase
price
|
$ | 24,907 |
2009
|
||||
Net
sales
|
$ | 6,135,869 | ||
Gross
profit
|
$ | 3,763,790 | ||
Selling,
general and administrative expenses
|
$ | 3,295,747 | ||
Net
income
|
$ | 28,471 | ||
Basic
income per share
|
$ | 0.00 |
Equipment
|
$ | - | ||
Customer
list
|
21,520 | |||
Non-compete
agreement
|
1,000 | |||
Deferred
revenue
|
(5,500 | ) | ||
Purchase
price
|
$ | 17,020 |
2010
|
||||
Net
sales
|
$ | 3,966,909 | ||
Gross
profit
|
$ | 2,158,711 | ||
Selling,
general and administrative expenses
|
$ | 2,424,589 | ||
Net
income
|
$ | (759,536 | ) | |
Basic
income per share
|
$ | (0.01 | ) |
2010
|
2009
|
|||||||
Current
provision:
|
||||||||
Federal
|
$ | 426,554 | $ | 381,113 | ||||
State
|
75,274 | 67,256 | ||||||
Deferred
provision:
|
||||||||
Federal
|
(35,956 | ) | (68,359 | ) | ||||
State
|
(6,345 | ) | (12,064 | ) ) | ||||
Total
income tax provision
|
$ | 459,527 | $ | 367,946 |
2010
|
2009
|
|||||||
Accounts
receivable
|
$ | 6,291 | $ | 14,695 | ||||
Amortization
of Intangible assets
|
3,349,291 | 3,298,586 | ||||||
Less
valuation allowance
|
(2,552,420 | ) | (2,552,420 | ) | ||||
Deferred
tax asset
|
$ | 803,162 | $ | 760,861 |
2010
|
2009
|
|||||||
Non-interest
bearing amount due on acquisition of USA Telephone.
|
$ | 900,615 | $ | 900,615 | ||||
Non-interest
bearing amount due on acquisition of Jellico
|
5,265 | - | ||||||
Totals
|
905,880 | 900,615 | ||||||
Less
current portion
|
(905,880 | ) | (900,615 | ) | ||||
Long-term
portion
|
$ | - | $ | - |
Twelve
months ending September 30, 2011
|
$
|
905,880
|
||
Twelve
months ending September 30, 2012
|
-
|
|||
Twelve
months ending September 30, 2013
|
-
|
|||
Twelve
months ending September 30, 2014
|
-
|
|||
Twelve
months ending September 30, 2015
|
-
|
|||
Thereafter
|
-
|
|||
Total
|
$
|
905,880
|
2010
|
2009
|
|||||||
Note
payable to officer and stockholder on a line of credit of $750,000 at an
annual interest rate of 10% interest. The accrued interest and
principal are due on January 1, 2014.
|
$ | 155,567 | $ | 424,930 | ||||
Note
payable to stockholder. The note is payable on January 1, 2014 and bears
interest at an annual rate of 8.0%.
|
- | 122,315 | ||||||
Totals
|
155,567 | 547,245 | ||||||
Less
current portion
|
- | - | ||||||
Long-term
portion
|
$ | 155,567 | $ | 547,245 |
Year
ending June 30, 2011
|
$ | - | ||
Year
ending June 30, 2012
|
- | |||
Year
ending June 30, 2013
|
- | |||
Year
ending June 30, 2014
|
155,567 | |||
Year
ending June 30, 2015
|
- | |||
Total
|
$ | 155,567 |
For the nine months ended
September 30, 2010
|
||||||||||||
Corporate
|
Internet
|
Total
|
||||||||||
Revenue
|
$ | - | $ | 3,955,530 | $ | 3,955,530 | ||||||
Cost
of revenue
|
- | 1,806,604 | 1,806,604 | |||||||||
Gross
profit
|
- | 2,148,926 | 2,148,926 | |||||||||
Operating
expenses
|
89,718 | 2,332,300 | 2,422,018 | |||||||||
Income
(loss) from operations
|
(89,718 | ) | (183,374 | ) | (273,092 | ) | ||||||
Other
income (expense)
|
- | (34,131 | ) | (34,131 | ) | |||||||
Income
(loss) before income taxes
|
(89,718 | ) | (217,505 | ) | (307,223 | ) | ||||||
Income
taxes expense (benefit)
|
- | 459,527 | 459,527 | |||||||||
Net
income (loss)
|
$ | (89,718 | ) | $ | (677,032 | ) | $ | (766,750 | ) |
For the nine months ended
September 30, 2009
|
||||||||||||
Corporate
|
Internet
|
Total
|
||||||||||
Revenue
|
$ | - | $ | 6,126,649 | $ | 6,126,649 | ||||||
Cost
of revenue
|
- | 2,367,879 | 2,367,879 | |||||||||
Gross
profit
|
- | 3,758,770 | 3,758,770 | |||||||||
Operating
expenses
|
93,456 | 3,200,368 | 3,293,824 | |||||||||
Income
(loss) from operations
|
(93,456 | ) | 558,402 | 464,946 | ||||||||
Other
income (expense)
|
- | (71,626 | ) | (71,626 | ) | |||||||
Income
(loss) before income taxes
|
(93,456 | ) | 486,776 | 393,320 | ||||||||
Income
taxes (expense) benefit
|
- | 367,946 | 367,946 | |||||||||
Net
income (loss)
|
$ | (93,456 | ) | $ | 118,830 | $ | 25,374 |
For
the nine months ended
September
30, 2010
|
||||||||||||
|
Corporate
|
Internet
|
Total
|
|||||||||
EBITDA
|
$ | (89,718 | ) | $ | 1,389,006 | $ | 1,299,288 | |||||
Interest
expense
|
- | (25,681 | ) | (25,681 | ) | |||||||
Taxes
|
- | (459,527 | ) | (459,527 | ) | |||||||
Depreciation
|
- | (11,903 | ) | (11,903 | ) | |||||||
Amortization
|
- | (1,568,927 | ) | (1,568,927 | ) | |||||||
Net
income (loss)
|
$ | (89,718 | ) | $ | (677,032 | ) | $ | (766,750 | ) |
For
the nine months ended
September
30, 2009
|
||||||||||||
Corporate
|
Internet
|
Total
|
||||||||||
EBITDA
|
$ | (93,456 | ) | $ | 2,448,962 | $ | 2,355,506 | |||||
Interest
expense
|
- | (66,293 | ) | (66,293 | ) | |||||||
Taxes
|
- | (367,946 | ) | (367,946 | ) | |||||||
Depreciation
|
- | (25,862 | ) | (25,862 | ) | |||||||
Amortization
|
- | (1,870,031 | ) | (1,870,031 | ) | |||||||
Net
income (loss)
|
$ | (93,456 | ) | $ | 118,830 | $ | 25,374 |
2010
|
2009
|
|||||||
EBITDA
for the nine months ended September 30,
|
$ | 1,299,288 | $ | 2,355,506 | ||||
Interest
expense
|
(25,681 | ) | (66,293 | ) | ||||
Taxes
|
(459,527 | ) | (367,946 | ) | ||||
Depreciation
|
(11,903 | ) | (25,862 | ) | ||||
Amortization
|
(1,568,927 | ) | (1,870,031 | ) | ||||
Net
income for the nine months ended September 30,
|
$ | (766,750 | ) | $ | 25,374 |
2010
|
2009
|
|||||||||||||||
Current
|
$ | 61,716 | 37 | % | $ | 150,467 | 33 | % | ||||||||
30
< 60
|
26,386 | 16 | % | 159,585 | 35 | % | ||||||||||
60
+
|
79,224 | 47 | % | 145,721 | 32 | % | ||||||||||
Total
|
$ | 167,326 | 100 | % | $ | 455,773 | 100 | % |
Certification
of President Pursuant to the Securities Exchange Act of 1934, Rules 13a-14
and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
|
||
31.2
|
Certification
of Chief Financial Officer Pursuant to the Securities Exchange Act of
1934, Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the
Sarbanes- Oxley Act of 2002.
|
|
32
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|
SITESTAR CORPORATION | |||
Date:
November 15, 2010
|
By:
|
/s/ Frank Erhartic, Jr. | |
Frank Erhartic, Jr. | |||
President, Chief Executive Officer | |||
(Principal
Executive Officer and
Principal Accounting Officer)
|
Date:
November 15, 2010
|
By:
|
/s/ Daniel A. Judd. | |
Daniel A. Judd | |||
Chief Financial Officer | |||
(Principal Financial Officer) |