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
|
||
Condensed Consolidated Balance Sheets as of June
|
|||
30, 2009 (unaudited) and December 31, 2008 (audited)
|
3-4
|
||
Condensed Consolidated Statements of Income for the
|
|||
three months ended June 30, 2009 and 2008 (unaudited)
|
5
|
||
Condensed Consolidated Statements of Income for the
|
|||
six months ended June 30, 2009 and 2008 (unaudited)
|
6
|
||
Condensed Consolidated Statements of Cash Flows for
|
|
||
the six months ended June 30, 2009 and 2008 (unaudited)
|
7-8
|
||
Notes to unaudited Condensed Consolidated Financial Statements
|
9-24
|
||
Item 2.
|
Management's Discussion and Analysis
|
25-32
|
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
32
|
|
Item 4.
|
Controls and Procedures
|
32-34
|
|
Part II. OTHER INFORMATION
|
35
|
||
Item 1.
|
Legal Proceedings
|
35
|
|
Item 1A.
|
Risk Factors
|
35
|
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
35
|
|
Item 3.
|
Defaults Upon Senior Securities
|
35
|
|
Item 4.
|
Submission of Matters to a Vote of Security Holders
|
35
|
|
Item 5.
|
Other Information
|
35
|
|
Item 6.
|
Exhibits
|
35-36
|
|
SIGNATURES
|
36
|
2009
|
2008
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 888,167 | $ | 527,553 | ||||
Accounts
receivable, net of allowance of $53,527
and
$26,764
|
938,502 | 738,824 | ||||||
Prepaid
expenses
|
1,297 | 1,227 | ||||||
Total
current assets
|
1,827,966 | 1,267,604 | ||||||
PROPERTY
AND EQUIPMENT, net
|
210,984 | 225,212 | ||||||
CUSTOMER
LIST, net of accumulated
amortization
of $9,129,655 and $7,973,341
|
3,105,498 | 4,224,414 | ||||||
GOODWILL,
net of impairment
|
1,288,559 | 1,288,559 | ||||||
DEFERRED
INCOME TAXES
|
811,161 | 421,031 | ||||||
OTHER
ASSETS
|
501,290 | 583,637 | ||||||
TOTAL
ASSETS
|
$ | 7,745,458 | $ | 8,010,457 |
2009
|
2008
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
LIABILITIES AND STOCKHOLDERS’
EQUITY
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable
|
$ | 149,747 | $ | 80,892 | ||||
Accrued
income taxes
|
555,505 | 754,777 | ||||||
Accrued
expenses
|
87,500 | 94,882 | ||||||
Deferred
revenue
|
1,173,076 | 1,157,597 | ||||||
Notes
payable
|
417,114 | 569,372 | ||||||
Total
current liabilities
|
2,382,942 | 2,657,520 | ||||||
NOTES
PAYABLE, less current portion
|
750,615 | 915,615 | ||||||
NOTES
PAYABLE - STOCKHOLDERS, less current portion
|
484,296 | 539,281 | ||||||
TOTAL
LIABILITIES
|
3,617,853 | 4,112,416 | ||||||
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 and 91,326,463 shares issued and
outstanding
on June 30, 2009 December 31,
2008 respectively
|
91,326 | 91,326 | ||||||
Additional
paid-in capital
|
13,880,947 | 13,880,947 | ||||||
Treasury
stock, at cost, 13,507,963 and 8,237,805
common
shares on June 30, 2009 and December 31, 2008
|
(657,876 | ) | (64,220 | ) | ||||
Accumulated
deficit
|
(9,186,792 | ) | (10,010,012 | ) | ||||
Total
stockholders’ equity
|
4,127,605 | 3,898,041 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 7,745,458 | $ | 8,010,457 |
2009
|
2008
|
|||||||
REVENUE
|
$ | 2,291,192 | $ | 2,614,699 | ||||
COST
OF REVENUE
|
846,685 | 562,583 | ||||||
GROSS
PROFIT
|
1,444,507 | 2,052,116 | ||||||
OPERATING
EXPENSES:
|
||||||||
Selling
general and administrative expenses
|
1,363,384 | 1,618,940 | ||||||
INCOME
FROM OPERATIONS
|
81,123 | 433,176 | ||||||
OTHER
INCOME (EXPENSES)
|
(29,288 | ) | (36,297 | ) | ||||
INCOME
BEFORE INCOME TAXES
|
51,835 | 396,879 | ||||||
INCOME
TAXES (EXPENSE) BENEFIT
|
562,992 | - | ||||||
NET
INCOME
|
$ | 614,827 | $ | 396,879 | ||||
BASIC
AND DILUTED EARNINGS PER SHARE
|
$ | 0.00 | $ | 0.00 | ||||
WEIGHTED
AVERAGE SHARES
|
||||||||
OUTSTANDING
- BASIC AND DILUTED
|
91,326,463 | 91,326,463 |
2009
|
2008
|
|||||||
REVENUE
|
$ | 4,832,611 | $ | 5,159,244 | ||||
COST
OF REVENUE
|
1,672,721 | 1,387,801 | ||||||
GROSS
PROFIT
|
3,159,890 | 3,771,443 | ||||||
OPERATING
EXPENSES:
|
||||||||
Selling
general and administrative expenses
|
2,875,491 | 2,984,032 | ||||||
INCOME
FROM OPERATIONS
|
284,399 | 787,411 | ||||||
OTHER
INCOME (EXPENSES)
|
(50,581 | ) | (86,532 | ) | ||||
INCOME
BEFORE INCOME TAXES
|
233,818 | 700,879 | ||||||
INCOME
TAXES (EXPENSE) BENEFIT
|
589,402 | - | ||||||
NET
INCOME
|
$ | 823,220 | $ | 700,879 | ||||
BASIC
AND DILUTED EARNINGS PER SHARE
|
$ | 0.01 | $ | 0.01 | ||||
WEIGHTED
AVERAGE SHARES
|
||||||||
OUTSTANDING
- BASIC AND DILUTED
|
91,326,463 | 91,326,463 |
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
income
|
$ | 823,220 | $ | 700,879 | ||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Depreciation
and amortization expense
|
1,287,293 | 1,486,286 | ||||||
Bad
debt expense
|
4,119 | 38,914 | ||||||
(Increase)
decrease in:
|
||||||||
Accounts
receivable
|
(203,799 | ) | (419,398 | ) | ||||
Prepaid
expenses
|
(71 | ) | (27,376 | ) | ||||
Increase
(decrease) in:
|
||||||||
Accounts
payable
|
68,856 | (43,686 | ) | |||||
Accrued
expenses
|
(206,654 | ) | (17,474 | ) | ||||
Deferred
revenue
|
15,481 | 4,207 | ||||||
Deferred
income taxes
|
(390,130 | ) | - | |||||
Net
cash provided by operating activities
|
1,398,315 | 1,722,352 | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Other
assets held for resale
|
(403 | ) | 500 | |||||
Purchase
of property and equipment
|
(3,000 | ) | (12,000 | ) | ||||
Purchase
of non-compete
|
(1,000 | ) | (70,000 | ) | ||||
Purchase
of customer list
|
(67,398 | ) | (648,875 | ) | ||||
Net
cash (used in) investing activities
|
(71,801 | ) | (730,375 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Net
proceeds from notes payable
|
- | 350,855 | ||||||
Repayment
of notes payable – stockholders
|
(54,984 | ) | (87,010 | ) | ||||
Purchase
treasury stock
|
(593,657 | ) | ||||||
Repayment
of notes payable
|
(317,259 | ) | (1,140,680 | ) | ||||
Net
cash (used in) financing activities
|
(965,900 | ) | (876,835 | ) | ||||
NET
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
|
360,614 | 115,142 | ||||||
CASH
AND CASH EQUIVALENTS –BEGINNING OF PERIOD
|
527,553 | 232,249 | ||||||
CASH
AND CASH EQUIVALENTS -END OF PERIOD
|
$ | 888,167 | $ | 347,391 |
2009
|
2008
|
|||||||
Net
income available to common shareholders
|
$ | 823,220 | $ | 700,879 | ||||
Weighted
average number of common shares
|
91,326,463 | 91,326,463 | ||||||
Basic
and diluted income per share
|
$ | 0.01 | $ | 0.01 |
June 30, 2009 | ||||||||||||
Corporate
|
Internet
|
Consolidated
|
||||||||||
Revenue
|
$ | - | $ | 2,291,192 | $ | 2,291,192 | ||||||
Operating
Income (loss)
|
$ | (52,500 | ) | $ | 133,623 | $ | 81,123 | |||||
Depreciation
and amortization
|
$ | - | $ | 624,409 | $ | 624,409 | ||||||
Interest
expense
|
$ | - | $ | 26,567 | $ | 26,567 | ||||||
Intangible
assets
|
$ | - | $ | 4,624,501 | $ | 4,624,501 | ||||||
Total
assets
|
$ | - | $ | 7,745,458 | $ | 7,745,458 |
June 30, 2008
|
||||||||||||
Corporate
|
Internet
|
Consolidated
|
||||||||||
Revenue
|
$ | - | $ | 2,614,699 | $ | 2,614,699 | ||||||
Operating
Income (loss)
|
$ | (26,239 | ) | $ | 459,415 | $ | 433,176 | |||||
Depreciation
and amortization
|
$ | - | $ | 763,876 | $ | 763,876 | ||||||
Interest
expense
|
$ | - | $ | 38,832 | $ | 38,832 | ||||||
Intangible
assets
|
$ | - | $ | 6,427,429 | $ | 6,427,429 | ||||||
Total
assets
|
$ | - | $ | 7,998,974 | $ | 7,998,974 |
June 30,
2009
|
||||||||||||
Corporate
|
Internet
|
Consolidated
|
||||||||||
Revenue
|
$ | - | $ | 4,832,611 | $ | 4,832,611 | ||||||
Operating
Income (loss)
|
$ | (79,615 | ) | $ | 364,014 | $ | 284,399 | |||||
Depreciation
and amortization
|
$ | - | $ | 1,287,293 | $ | 1,287,293 | ||||||
Interest
expense
|
$ | - | $ | 48,451 | $ | 48,451 | ||||||
Intangible
assets
|
$ | - | $ | 4,624,501 | $ | 4,624,501 | ||||||
Total
assets
|
$ | - | $ | 7,745,458 | $ | 7,745,458 |
June 30, 2008
|
||||||||||||
Corporate
|
Internet
|
Consolidated
|
||||||||||
Revenue
|
$ | - | $ | 5,159,244 | $ | 5,159,244 | ||||||
Operating
Income (loss)
|
$ | (69,708 | ) | $ | 857,119 | $ | 787,411 | |||||
Depreciation
and amortization
|
$ | - | $ | 1,486,286 | $ | 1,486,286 | ||||||
Interest
expense
|
$ | - | $ | 110,518 | $ | 110,518 | ||||||
Intangible
assets
|
$ | - | $ | 6,427,429 | $ | 6,427,429 | ||||||
Total
assets
|
$ | - | $ | 7,998,974 | $ | 7,998,974 |
Customer
list
|
$ | 62,223 | ||
Non-compete
agreement
|
5,000 | |||
Accounts
receivable
|
2,343 | |||
Deferred
revenue
|
(22,858 | ) | ||
Purchase
price
|
$ | 46,708 |
2008
|
||||
Net
sales
|
$ | 5,200,601 | ||
Gross
profit
|
$ | 3,802,982 | ||
Selling,
general and administrative expenses
|
$ | 3,001,920 | ||
Net
income
|
$ | 714,530 | ||
Basic
income per share
|
$ | 0.01 |
Customer
list
|
$ | 40,512 | ||
Non-compete
agreement
|
5,000 | |||
Accounts
receivable
|
2,328 | |||
Equipment
|
10,000 | |||
Deferred
revenue
|
(12,019 | ) | ||
Purchase
price
|
$ | 45,821 |
2008
|
||||
Net
sales
|
$ | 5,208,905 | ||
Gross
profit
|
$ | 3,801,185 | ||
Selling,
general and administrative expenses
|
$ | 2,999,684 | ||
Net
income
|
$ | 714,752 | ||
Basic
income per share
|
$ | 0.01 |
Customer
list
|
$ | 250,000 | ||
Non-compete
agreement
|
5,000 | |||
Deferred
revenue
|
(25,100 | ) | ||
Purchase
price
|
$ | 229,900 |
2008
|
||||
Net
sales
|
$ | 5,238,441 | ||
Gross
profit
|
$ | 3,792,389 | ||
Selling,
general and administrative expenses
|
$ | 3,035,948 | ||
Net
income
|
$ | 669,909 | ||
Basic
income per share
|
$ | 0.01 |
Customer
list
|
$ | 277,965 | ||
Non-compete
agreement
|
50,000 | |||
Deferred
revenue
|
(64,208 | ) | ||
Purchase
price
|
$ | 263,757 |
2008
|
||||
Net
sales
|
$ | 5,463,841 | ||
Gross
profit
|
$ | 3,955,404 | ||
Selling,
general and administrative expenses
|
$ | 3,070,697 | ||
Net
income
|
$ | 798,175 | ||
Basic
income per share
|
$ | 0.01 |
Customer
list
|
$ | 15,428 | ||
Non-compete
agreement
|
5,000 | |||
Accounts
receivable
|
164 | |||
Equipment
|
2,000 | |||
Deferred
revenue
|
(4,050 | ) | ||
Purchase
price
|
$ | 18,542 |
2008
|
||||
Net
sales
|
$ | 5,174,149 | ||
Gross
profit
|
$ | 3,784,285 | ||
Selling,
general and administrative expenses
|
$ | 2,993,117 | ||
Net
income
|
$ | 704,636 | ||
Basic
income per share
|
$ | 0.01 |
Customer
list
|
$ | 400,000 | ||
Non-compete
agreement
|
10,000 | |||
Deferred
revenue
|
(50,000 | ) | ||
Purchase
price
|
$ | 360,000 |
2008
|
||||
Net
sales
|
$ | 5,332,210 | ||
Gross
profit
|
$ | 3,881,000 | ||
Selling,
general and administrative expenses
|
$ | 3,044,777 | ||
Net
income
|
$ | 836,223 | ||
Basic
income per share
|
$ | 0.01 |
Customer
list
|
$ | 530,000 | ||
Non-compete
agreement
|
20,000 | |||
Deferred
revenue
|
(75,000 | ) | ||
Purchase
price
|
$ | 475,000 |
2008
|
||||
Net
sales
|
$ | 5,693,315 | ||
Gross
profit
|
$ | 4,108,040 | ||
Selling,
general and administrative expenses
|
$ | 3,098,406 | ||
Net
income
|
$ | 900,940 | ||
Basic
income per share
|
$ | 0.01 |
Equipment
|
$ | 3,000 | ||
Customer
list
|
62,907 | |||
Non-compete
agreement
|
1,000 | |||
Deferred
revenue
|
(42,000 | ) | ||
Purchase
price
|
$ | 24,907 |
2009
|
||||
Net
sales
|
$ | 5,222,828 | ||
Gross
profit
|
$ | 3,826,474 | ||
Selling,
general and administrative expenses
|
$ | 3,000,953 | ||
Net
income
|
$ | 738,989 | ||
Basic
income per share
|
$ | 0.01 |
2009
|
2008
|
|||||||
Accounts
receivable
|
$ | 21,411 | $ | 19,762 | ||||
Amortization
of Intangible assets
|
3,342,165 | 2,953,689 | ||||||
Less
valuation allowance
|
2,552,420 | 2,552,420 | ||||||
Deferred
tax
asset
|
$ | 811,156 | $ | 421,031 |
2009
|
2008
|
|||||||
Non-interest
bearing amount due on acquisition of N2theNet paid in eleven monthly
installments of $4,046 starting May 2008.
|
$ | - | $ | 11,921 | ||||
Non-interest
bearing amount due on acquisition of DONOBI payable in twelve
monthly installments of $27,083 through November 2009
|
117,114 | 257,451 | ||||||
Non-interest
bearing amount due on acquisition of USA Telephone payable in thirty six
monthly installments starting January 2008
|
1,050,615 | 1,215,615 | ||||||
Total
|
1,167,729 | 1,484,987 | ||||||
Less
current portion
|
(417,114 | ) | (569,372 | ) | ||||
Long-term
portion
|
$ | 750,615 | $ | 915,615 |
Twelve
months ending June 30, 2010
|
$
|
417,114
|
||
Twelve
months ending June 30, 2011
|
300,000
|
|||
Twelve
months ending June 30, 2012
|
300,000
|
|||
Twelve
months ending June 30, 2013
|
150,615
|
|||
Twelve
months ending June 30, 2014
|
-
|
|||
Thereafter
|
-
|
|||
Total
|
$
|
1,167,729
|
2009
|
2008
|
|||||||
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,
2012.
|
$ | 379,711 | $ | 379,711 | ||||
Note
payable to stockholder. The note is payable on January 1, 2012 and bears
interest at an annual rate of 8.0%.
|
104,585 | 104,585 | ||||||
Note
payable to stockholder. The note was paid in full on June 30, 2009 and
bears interest at an annual rate of 8.0%.
|
- | 54,985 | ||||||
Less
current portion
|
- | - | ||||||
Long-term
portion
|
$ | 484,296 | $ | 539,281 |
Year
ending June 30, 2010
|
$ | - | ||
Year
ending June 30, 2011
|
- | |||
Year
ending June 30, 2012
|
484,296 | |||
Year
ending June 30, 2013
|
- | |||
Year
ending June 30, 2014
|
- | |||
Total
|
$ | 484,296 |
For the six months ended June 30, 2009 (unaudited)
|
||||||||||||
Corporate
|
Internet
|
Total
|
||||||||||
Revenue
|
$ | - | $ | 4,832,611 | $ | 4,832,611 | ||||||
Cost
of revenue
|
- | 1,672,721 | 1,672,721 | |||||||||
Gross
profit
|
- | 3,159,890 | 3,159,890 | |||||||||
Operating
expenses
|
79,615 | 2,795,876 | 2,875,491 | |||||||||
Income
(loss) from operations
|
(79,615 | ) | 364,014 | 284,399 | ||||||||
Other
income (expense)
|
- | (50,581 | ) | (50,581 | ) | |||||||
Income
(loss) before income taxes
|
(79,615 | ) | 313,433 | 233,818 | ||||||||
Income
taxes
|
(589,402 | ) | - | (589,402 | ) | |||||||
Net
income (loss)
|
$ | 509,787 | $ | 313,433 | $ | 823,220 |
For the six months ended June 30, 2008 (unaudited)
|
||||||||||||
Corporate
|
Internet
|
Total
|
||||||||||
Revenue
|
$ | - | $ | 5,159,244 | $ | 5,159,244 | ||||||
Cost
of revenue
|
- | 1,387,801 | 1,387,801 | |||||||||
Gross
profit
|
- | 3,771,443 | 3,771,443 | |||||||||
Operating
expenses
|
69,708 | 2,914,324 | 2,984,032 | |||||||||
Income
(loss) from operations
|
(69,708 | ) | 857,119 | 787,411 | ||||||||
Other
income (expense)
|
- | (86,532 | ) | (86,532 | ) | |||||||
Income
(loss) before income taxes
|
(69,708 | ) | 770,587 | 700,879 | ||||||||
Income
taxes
|
- | - | - | |||||||||
Net
income (loss)
|
$ | (69,708 | ) | $ | 770,587 | $ | 700,879 |
For the six months ended June 30, 2009 | ||||||||||||
|
Corporate
|
Internet
|
Total
|
|||||||||
EBITDA
|
$ | (79,615 | ) | $ | 1,649,177 | $ | 1,569,562 | |||||
Interest
expense
|
- | (48,451 | ) | (48,451 | ) | |||||||
Taxes
|
589,402 | - | 589,402 | |||||||||
Depreciation
|
- | (17,228 | ) | (17,228 | ) | |||||||
Amortization
|
- | (1,270,065 | ) | (1,270,065 | ) | |||||||
Net
income (loss)
|
$ | 509,787 | $ | 313,433 | $ | 823,220 |
For
the six months ended June 30, 2008
|
||||||||||||
Corporate
|
Internet
|
Total
|
||||||||||
EBITDA
|
$ | (69,708 | ) | $ | 2,367,391 | $ | 2,297,683 | |||||
Interest
expense
|
- | (110,518 | ) | (110,518 | ) | |||||||
Taxes
|
- | - | - | |||||||||
Depreciation
|
- | (19,118 | ) | (19,118 | ) | |||||||
Amortization
|
- | (1,467,168 | ) | (1,467,168 | ) | |||||||
Net
income (loss)
|
$ | (69,708 | ) | $ | 770,587 | $ | 700,879 |
2009
|
2008
|
|||||||
EBITDA
for the six months ended June 30,
|
$ | 1,569,562 | $ | 2,297,683 | ||||
Interest
expense
|
(48,451 | ) | (110,518 | ) | ||||
Taxes
|
589,402 | - | ||||||
Depreciation
|
(17,228 | ) | (19,118 | ) | ||||
Amortization
|
(1,270,065 | ) | (1,467,168 | ) | ||||
Net
income for the six months ended June 30,
|
$ | 823,220 | $ | 700,879 |
2009
|
2008
|
|||||||||||||||
Current
|
$ | 624,033 | 67 | % | $ | 433,518 | 59 | % | ||||||||
30
< 60
|
162,902 | 16 | % | 159,585 | 22 | % | ||||||||||
60
+
|
151,567 | 17 | % | 145,721 | 19 | % | ||||||||||
Total
|
$ | 938,502 | 100 | % | $ | 738,824 | 100 | % |
31.1
|
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:
August 14, 2009
|
||
By:
|
/s/ Frank Erhartic, Jr.
|
|
Frank
Erhartic, Jr.
|
||
President,
Chief Executive Officer
|
||
(Principal
Executive Officer and
|
||
Principal
Accounting Officer)
|
||
Date:
August 14, 2009
|
||
By:
|
/s/ Daniel A. Judd.
|
|
Daniel
A. Judd
|
||
Chief
Financial Officer
|
||
(Principal
Financial Officer)
|