UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q/A




x
            QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d)
              OF
      THE SECURITIES EXCHANGE ACT OF
1934




For
the quarterly period ended March 31, 2009




o
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d)
              OF
      THE EXCHANGE ACT




For the
transition period from __________ to __________




000-27763


(Commission
file number)




SITESTAR
CORPORATION


(Exact
name of small business issuer as specified in its charter)




NEVADA
              (State
      or other jurisdiction of
              incorporation
      or organization)
            
            88-0397234
              (I.R.S.
      Employer Identification No.)




7109
Timberlake Road, Lynchburg, VA  24502


(Address
of principal executive offices)




(434)
239-4272


(Issuer's
telephone number)


N/A


(Former
name, former address and former fiscal year, if changed since last
report)




Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act of 1934 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.  Yes x No o





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




Large
Accelerated Filer o Accelerated
Filer o Non-Accelerated
Filer (Do not check if a smaller reporting Company) o Smaller Report
Company x





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Date 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 o No




Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Exchange Act).


Yes o No x









SITESTAR
CORPORATION AND SUBSIDIARIES





EXPLANATORY
NOTE





This
Amendment No. 1 to our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2009 initially filed with the Securities and Exchange
Commission on October 8, 2009 is being filed to reflect restatements of
Sitestar Corporation‘s Consolidated Balance Sheets as of March 31, 2009,
and the related Consolidated Statements of Income and, Cash Flows for the three
months ended March 31, 2009 (the “Financial Statements”). These
restatements reflect the effects of adjustments for the accounting related to
various matters detailed in Note 1 to the Consolidated Financial
Statements. These restatements reflect adjustments for transactions related to
revenue recognition as filed for the year ended December 31, 2009.  In
addition, results for 2008 have been restated with respect to the accounting for
such matters where appropriate. Accordingly, amounts included in Selected
Financial Data, are restated. Sitestar Corporation is also revising the
discussion under Item 7, Management’s Discussion and Analysis of Financial
Condition and Results of Operations and Item 9A, Controls and Procedures in
order to reflect the effects of the restatement. Except with respect to these
matters, the Financial Statements in this Form 10-Q/A do not reflect any
events that have occurred after the 2009 Form 10-Q was filed.





2




SITESTAR
CORPORATION




Index




Page
      NumberPART
      I.
              FINANCIAL
      INFORMATIONItem
      1.
              Financial
      StatementsCondensed
      Consolidated Balance Sheets as of March  31, 2009 (unaudited)
      and December 31, 2008
              
              4
      -5Condensed
      Consolidated Statements of Income for the three months ended March 31,
      2009 and 2008 (unaudited)
              
              6Condensed
      Consolidated Statements of Cash Flows for the three months ended March 31,
      2009 and 2008 (unaudited)
              
              7 -
      8Notes
      to unaudited Condensed Consolidated Financial Statements
              
              9 -
      24Item
      2.
              Management's
      Discussion and Analysis
              
              25
      - 32Item
      3.
              Quantitative
      and Qualitative Disclosures About Market Risk
              
              32Item
      4.
              Controls
      and Procedures
              
              32
      - 33Part
      II.
              OTHER
      INFORMATIONItem
      1.
              Legal
      Proceedings
              
              34Item
      1A.
              Risk
      Factors
              
              34Item
      2.
              Unregistered
      Sales of Equity Securities and Use of
              
              34Item
      3.
              Defaults
      Upon Senior Securities
              
              34Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              
              34Item
      5.
              Other
      Information
              
              34Item
      6.
              Exhibits
              
              34SIGNATURES
              
              35




3




PART
I. FINANCIAL INFORMATION




Item 1.Financial
Statements




SITESTAR
CORPORATION AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETS


MARCH
31, 2009 AND DECEMBER 31, 2008




ASSETS




2009
            
            
            2008(Unaudited)Restated
            
            
            RestatedCURRENT
      ASSETSCash
      and cash equivalents
            
            $
            456,289
            
            
            $
            527,553Accounts
      receivable, net of allowance of $38,374and $49,405
            
            
            734,740
            
            
            
            361,056Prepaid
      expenses
            
            
            1,201
            
            
            
            1,227Total
      current assets
            
            
            1,192,230
            
            
            
            889,836PROPERTY
      AND EQUIPMENT, net
            
            
            219,619
            
            
            
            225,212CUSTOMER
      LIST, net of accumulatedamortization of $8,146,728 and $7,973,341
            
            
            3,679,523
            
            
            
            4,224,414GOODWILL,
      net of impairment
            
            
            1,288,559
            
            
            
            1,288,559DEFERRED
      INCOME TAXES
            
            
            689,393
            
            
            
            421,031OTHER
      ASSETS
            
            
            542,606
            
            
            
            583,637TOTAL
      ASSETS
            
            $
            7,611,930
            
            
            $
            7,632,689




See the
accompanying notes to the unaudited condensed consolidated financial
statements.




4


SITESTAR
CORPORATION AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS, continued


MARCH
31, 2009 AND DECEMBER 31, 2008




LIABILITIES
AND STOCKHOLDERS’ EQUITY




2009
            
            
            2008(Unaudited)Restated
            
            
            RestatedCURRENT
      LIABILITIESAccounts
      payable
            
            $
            14,595
            
            
            $
            80,892Accrued
      income taxes
            
            
            411,754
            
            
            
            262,297Accrued
      expenses
            
            
            99,826
            
            
            
            94,882Deferred
      revenue
            
            
            1,271,448
            
            
            
            1,157,597Notes
      payable
            
            
            485,084
            
            
            
            569,372Total
      current liabilities
            
            
            2,282,707
            
            
            
            2,165,040NOTES
      PAYABLE, less current portion
            
            
            825,615
            
            
            
            915,615NOTES
      PAYABLE - STOCKHOLDERS, less current portion
            
            
            539,281
            
            
            
            539,281TOTAL
      LIABILITIES
            
            
            3,647,603
            
            
            
            3,619,936STOCKHOLDERS'
      EQUITYPreferred Stock, $.001 par value, 10,000,000 shares authorized, 0 shares
      issued and outstanding
            
            
            -
            
            
            
            -Common stock, $.001 par value, 300,000,000 sharesauthorized, 77,778,500 and 83,088,658 shares issued andoutstanding on March 31, 2009 December 31,2008 respectively
            
            
            91,326
            
            
            
            91,326Additional
      paid-in capital
            
            
            13,880,947
            
            
            
            13,880,947Treasury
      stock, at cost, 13,547,963 and 8,237,805common shares on March 31,  2009 and December 31,
      2008
            
            
            (657,509
            )
            
            
            (64,220
            )Accumulated
      deficit
            
            
            (9,350,437
            )
            
            
            (9,895,300
            )Total
      stockholders’ equity
            
            
            3,964,327
            
            
            
            4,012,753TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
            
            $
            7,611,930
            
            
            $
            7,632,689





See the
accompanying notes to the unaudited condensed consolidated financial
statements.




5




SITESTAR
CORPORATION AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS
OF INCOME


FOR
THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008


(UNAUDITED)




2009
            
            
            2008Restated
            
            
            RestatedREVENUE
            
            $
            2,378,110
            
            
            $
            2,220,890COST
      OF REVENUE
            
            
            826,037
            
            
            
            825,218GROSS
      PROFIT
            
            
            1,552,073
            
            
            
            1,395,672OPERATING
      EXPENSES:Selling
      general and administrative expenses
            
            
            1,104,822
            
            
            
            1,449,793INCOME
      FROM OPERATIONS
            
            
            447,251
            
            
            
            (54,121
            )OTHER
      INCOME (EXPENSES)
            
            
            (21,293
            )
            
            
            (50,235
            )INCOME
      BEFORE INCOME TAXES
            
            
            425,958
            
            
            
            (104,356
            )INCOME
      TAXES (EXPENSE) BENEFIT
            
            
            118,905
            
            
            
            (687,762
            )NET
      INCOME
            
            $
            544,863
            
            
            $
            (792,118
            )BASIC
      AND DILUTED EARNINGS PER SHARE
            
            $
            0.01
            
            
            $
            (0.01
            )WEIGHTED
      AVERAGE SHARESOUTSTANDING
      - BASIC AND DILUTED
            
            
            77,778,500
            
            
            
            83,088,658




See the
accompanying notes to the unaudited condensed consolidated financial
statements.




6




SITESTAR
CORPORATION AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR
THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008


(UNAUDITED)




2009
            
            
            2008Restated
            
            
            RestatedCASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
            
            $
            544,863
            
            
            $
            (792,118
            )Adjustments
      to reconcile net income (loss) to net cash provided by operating
      activities:Depreciation
      and amortization expense
            
            
            662,882
            
            
            
            722,411Bad
      debt expense
            
            
            (11,031
            )
            
            
            31,965(Increase)
      decrease in:Accounts
      receivable
            
            
            (362,653
            )
            
            
            54,268Prepaid
      expenses
            
            
            26
            
            
            
            (4,997
            )Deferred
      tax asset
            
            
            (268,362
            )
            
            
            622,188Increase
      (decrease) in:Accounts
      payable
            
            
            (66,297
            )
            
            
            15,564Accrued
      expenses
            
            
            4,944
            
            
            
            25,922Deferred
      revenue
            
            
            113,851
            
            
            
            14,341Accrued
      income taxes
            
            
            149,457
            
            
            
            65,574Net
      cash provided by operating activities
            
            
            767,680
            
            
            
            755,118CASH
      FLOWS FROM INVESTING ACTIVITIES:Other
      assets held for resale
            
            
            31
            
            
            
            292Purchase
      of property and equipment
            
            
            (3,000
            )
            
            
            -Purchase
      of non-compete
            
            
            (1,000
            )
            
            
            (5,000
            )Purchase
      of customer list
            
            
            (67,398
            )
            
            
            (52,333
            )Net
      cash (used in) investing activities
            
            
            (71,367
            )
            
            
            (57,041
            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      proceeds from notes payable
            
            
            -
            
            
            
            27,683Repayment
      of notes payable – stockholders
            
            
            -
            
            
            
            (87,010
            )Purchase
      treasury stock
            
            
            (593,289
            )Repayment
      of notes payable
            
            
            (174,288
            )
            
            
            (635,068
            )Net
      cash (used in) financing activities
            
            
            (767,577
            )
            
            
            (694,395
            )NET
      INCREASE (DECREASE) IN CASH AND
CASH  EQUIVALENTS
            
            
            (71,264
            )
            
            
            3,682CASH
      AND CASH EQUIVALENTS –BEGINNING OF  PERIOD
            
            
            527,553
            
            
            
            232,249CASH
      AND CASH EQUIVALENTS -END OF  PERIOD
            
            $
            456,289
            
            
            $
            235,931




See the
accompanying notes to the unaudited condensed consolidated financial
statements




7




SITESTAR CORPORATION AND
SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR
THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008 (continued)


(UNAUDITED)




SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:




During
the three months ended March 31, 2009 and 2008, the Company accrued income taxes
(benefit) expense of $(118,905) and $687,762 and paid interest expense of
approximately $22,000 and $72,000, respectively.




NON-CASH
INVESTING AND FINANCING TRANSACTIONS:




During
the three months ended March 31, 2009, the Company issued no shares of common
stock.




8




SITESTAR
CORPORATION


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED- RESTATED





NOTE 
1– RESTATEMENT OF FINANCIAL STATEMENTS





The
Company is restating earnings for the quarters ended December 31, 2009 to
reflect the proper revenue recognition of processing charges and late fees for
customers cut off from internet service because the collectability of those
charges is not reasonably assured.  In addition, the Company will
institute ongoing monitoring that constantly occurs in the ordinary course of
operations.





The
restatements had no effect on annual 2009 revenues, operating income, pre-tax
income, net income or cash flows.





During
the audit of the Company’s financial statement for the year ended December 31,
2009, management of the Company was first advised by the Company’s independent
registered public accounting firm that an error existed in its revenue
recognition of processing charges and late fees.




Management
performed a detailed reconciliation of revenue and related accounts beginning in
2007 in order to quantify the potential balance adjustments. The Company’s
management, upon being advised by its independent auditor of the calculation
issue, as part of its Sarbanes Oxley policy regarding internal controls
regarding financial reporting, immediately reported this issue to the Board of
Directors which promptly initiated and conducted its review.




Management
and the Board of Directors reviewed management’s findings and the Board of
Directors concluded that restating the condensed consolidated financial
statements for the quarters ended December 31, 2009 is required. The Company is
restating for errors identified in its revenue accounts pertaining to the
recognition of processing charges and late fees and the related trade accounts
receivable and bad debts.   The effects of these restatements are
included in this Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 2009.





The
correction of the errors noted above increased 2009 first quarter net income by
$243,975.




9




SITESTAR
CORPORATION


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


UNAUDITED-
RESTATED





NOTE 
1– RESTATEMENT OF FINANCIAL STATEMENTS, continued




The
following is a summary of the effects of these changes on the Company’s
consolidated statements of income and cash flows:




Consolidated Statements of Income




For the Quarter Ended March 31, 2009
            
            As Previously
                Reported
            
            
            Adjustments
            
            
            As RestatedRevenue
            
            
            2,541,419
            
            
            
            (163,309
            )
            
            
            2,378,110Selling,
      general and administrative expenses
            
            
            1,512,106
            
            
            
            (407,284
            )
            
            
            1,104,822Income
      tax benefit (expense)
            
            
            118,906
            
            
            
            (1
            )
            
            
            118,905Net
      income
            
            
            300,888
            
            
            
            243,975
            
            
            
            544,863Basic
      and diluted income per share
            
            
            .00
            
            
            
            .01
            
            
            
            .01




Consolidated Statements of Cash Flows




For the Quarter Ended March 31, 2009
            
            As Previously
              Reported
            
            
            Adjustments
            
            
            As RestatedNet
      income
            
            
            300,888
            
            
            
            243,975
            
            
            
            544,863Allowance
      for doubtful accounts
            
            
            7,846
            
            
            
            (18,877
            )
            
            
            (11,031
            )Accounts
      receivable
            
            
            (137,555
            )
            
            
            (225,098
            )
            
            
            (362,653
            )Deferred
      income taxes
            
            
            (268,362
            )
            
            
            -
            
            
            
            (268,362
            )





NOTE
2 – BASIS OF PRESENTATION




The
unaudited condensed consolidated financial statements have been prepared by
Sitestar Corporation (the “Company” or “Sitestar”), 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 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 footnotes for the year ended December 31,
2008 included in the Company’s Annual Report on Form 10-K.  The results for
the three months ended March 31, 2009 are not necessarily indicative of the
results to be expected for the full year ending December 31, 2009.




10




SITESTAR
CORPORATION


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


UNAUDITED-
RESTATED





NOTE
3 – EARNINGS PER SHARE




The
Financial Accounting Standards (FAS) No. 128, "Accounting for Earnings Per
Share" requires dual presentation of basic and diluted earnings per share on the
face of the statements of income and requires a reconciliation of the numerators
and denominators of the basic and diluted earnings per share calculation. Basic
earnings per share are calculated based on the weighted average number of shares
of common stock outstanding during each period. Diluted income per share is
computed using weighted average shares outstanding adjusted to reflect the
dilutive effect of all potential common shares that were outstanding during the
period.





For the
three months ended March 31, 2009 and March 31, 2008:





2009
            
            
            2008Restated
            
            
            RestatedNet
      income available to common shareholders
            
            $
            544,863
            
            
            $
            (792,118
            )Weighted
      average number of common shares
            
            
            77,778,500
            
            
            
            83,088,658Basic
      and diluted income per share
            
            $
            0.01
            
            
            $
            (0.01
            )





NOTE
4 – COMMON STOCK





During
the three months ended March 31, 2009, the Company issued no shares of common
stock.




NOTE
5 – SEGMENT INFORMATION




The
Company has two business units that have been aggregated into two reportable
segments: Corporate and Internet.





The
Corporate group is the holding company and oversees the operation of the other
business units. The Corporate group also arranges financing for the entire
organization. The Company’s Internet group consists of multiple sites of
operation and services customers throughout the U.S. and Canada.





The
Company evaluates the performance of its operating segments based on income from
operations before income taxes, accounting changes, non-recurring items and
interest income and expense.




11




SITESTAR
CORPORATION


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


UNAUDITED-
RESTATED




NOTE
5 – SEGMENT INFORMATION, continued




Summarized
financial information concerning the Company's reportable segments is shown in
the following table for the three months ended March 31, 2009 and
2008:


March31, 2009




Corporate
            
            
            Internet
            
            
            ConsolidatedRestated
            
            
            Restated
            
            
            RestatedRevenue
            
            $
            -
            
            
            $
            2,378,110
            
            
            $
            2,378,110Operating
      Income (loss)
            
            $
            (27,115
            )
            
            $
            474,366
            
            
            $
            447,251Depreciation
      and amortization
            
            $
            -
            
            
            $
            662,882
            
            
            $
            662,882Interest
      expense
            
            $
            -
            
            
            $
            21,884
            
            
            $
            21,884Intangible
      assets
            
            $
            -
            
            
            $
            5,240,275
            
            
            $
            5,240,275Total
      assets
            
            $
            -
            
            
            $
            7,611,930
            
            
            $
            7,611,930





March31, 2008




Corporate
            
            
            Internet
            
            
            ConsolidatedRestated
            
            
            Restated
            
            
            RestatedRevenue
            
            $
            -
            
            
            $
            2,220,890
            
            
            $
            2,220,890Operating
      Income (loss)
            
            $
            (43,469
            )
            
            $
            (10,652
            )
            
            $
            (54,121
            )Depreciation
      and amortization
            
            $
            -
            
            
            $
            722,411
            
            
            $
            722,411Interest
      expense
            
            $
            -
            
            
            $
            71,686
            
            
            $
            71,686Intangible
      assets
            
            $
            -
            
            
            $
            6,519,938
            
            
            $
            6,519,938Total
      assets
            
            $
            -
            
            
            $
            6,680,801
            
            
            $
            6,680,801





NOTE
6 – RECENTLY ISSUED ACCOUNTING PROUNCEMENTS





In
February 2007, the Financial Accounting Standard Board (FASB) issued FASB
Statement No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities (“FAS 159”). FAS 159 permits companies to choose to
measure, on an instrument-by-instrument basis, financial instruments and certain
other items at fair value that are not currently required to be measured at fair
value. The Company believes it will not have a material impact on its financial
position or on the results of operations.





In
December 2007, the FASB issued FASB Statement No. 141, Business Combinations
(“FAS 141”).  This Statement establishes principles and requirements
for how the acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any non-controlling
interest in the acquiree, recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase, and determines what
information to disclose. This Statement applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008.  The Company may not apply it before that date. The Company is
currently evaluating the effect the adoption of FAS No. 141, but believes
it will not have a material impact on its financial position or on the results
of operations.




12




SITESTAR
CORPORATION


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


UNAUDITED-
RESTATED





NOTE
6 – RECENTLY ISSUED ACCOUNTING PROUNCEMENTS, continued




In
December 2007, the FASB issued FASB Statement No. 160, Non-controlling Interests
in Consolidated Financial Statements (“FAS 160”).  This Statement
establishes accounting and reporting standards that require the ownership
interests in subsidiaries held by parties other than the parent to be clearly
identified, labeled and presented in the consolidated statement of financial
position. This Statement is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15,
2008.  The Company is currently evaluating the effect the adoption of
FAS No. 160, but believes it will not have a material impact on its
financial position or on the results of operations.




In March
2008, the FASB issued FASB No. 161, Disclosures about Derivative Instruments and
Hedging Activities—an amendment of FASB Statement No. 133.




FASB
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities,
does not provide adequate information about how derivative and hedging
activities affect an entity’s financial position, financial performance and cash
flows. Accordingly, this Statement requires enhanced disclosures about an
entity’s derivative and hedging activities and thereby improves the transparency
of financial reporting. This Statement is effective for financial statements
issued for fiscal years and interim periods beginning after November 15,
2008.  The Company is currently evaluating the effect the adoption of
FASB No. 161, but believes it will not have a material impact on its
financial position or on the results of operations.




In May
2008, the FASB issued FASB Statement No. 162, The Hierarchy of Generally
Accepted Accounting Principles.  This Statement identifies the sources
of accounting principles and the framework for selecting the principles to be
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with GAAP in the United States (the GAAP
hierarchy).  The Board concluded that the GAAP hierarchy should reside
in the accounting literature established by the FASB and is issuing this
Statement to achieve that result.  This Statement is effective 60 days
following the SEC’s approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles. The Company is currently evaluating
the effect the adoption of FASB No. 162, but believes it will not have a
material impact on its financial position or on the results of
operations.




13




SITESTAR
CORPORATION


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


UNAUDITED-
RESTATED





NOTE
6 – RECENTLY ISSUED ACCOUNTING PROUNCEMENTS, continued




In May
2008, the FASB issued FASB Statement No. 163, Accounting for Financial Guarantee
Insurance Contracts—an interpretation of FASB Statement No. 60.  This
Statement clarifies how Statement 60 applies to financial guarantee insurance
contracts, including the recognition and measurement to be used to account for
premium revenue and claim liabilities. These clarifications will increase
comparability in financial reporting of financial guarantee insurance contracts
by insurance enterprises. This Statement requires expanded disclosures about
financial guarantee insurance contracts. This Statement is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and all interim periods within those fiscal years.  The Company is
currently evaluating the effect the adoption of FASB No. 163, but believes
it will not have a material impact on its financial position or on the results
of operations.




NOTE
7 – ACQUISITIONS





Comcation,
Inc.




Effective
March 1, 2008, the Company entered into an Asset Purchase Agreement pursuant to
which it acquired the Internet related assets of Comcation, Inc., a Pennsylvania
ISP.  The total purchase price was $38,500 representing the fair value
of the assets acquired which consisted of a $9,135 cash payment at closing with
the remaining balance paid in 5 monthly installments beginning April
2008.





The
following table summarizes the estimated fair values of assets acquired and
liabilities assumed at the date of acquisition.  Sitestar has assessed
the valuations of certain intangible assets as represented below.





Customer
      list
            
            $
            62,223Non-compete
      agreement
            
            
            5,000Accounts
      receivable
            
            
            2,343Deferred
      revenue
            
            
            (22,858
            )Purchase
      price
            
            $
            46,708





Because
the acquisition of Comcation was consummated effective March 1, 2008, there are
limited results of operations of Comcation in the consolidated financial
statements for the three months ended March 31, 2008.




14




SITESTAR
CORPORATION


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


UNAUDITED-
RESTATED





NOTE
7 – ACQUISITIONS, continued





The
following table presents the unaudited pro forma condensed statement of
operations for the three months ended March 31, 2008 and reflects the results of
operations of the Company as if the acquisition of Comcation had been effective
January 1, 2008.  The pro forma amounts are not necessarily indicative of
the combined results of operations had the acquisitions been effective as of
that date, or of the anticipated results of operations, due to cost reductions
and operating efficiencies that are expected as a result of the
acquisitions.





2008Net
      sales
            
            $
            2,558,382Gross
      profit
            
            $
            1,731,296Selling,
      general and administrative expenses
            
            $
            1,370,519Net
      income
            
            $
            186,325Basic
      income per share
            
            $
            0.00





N2 the Net,
LLC




Effective
April 1, 2008, the Company entered into an Asset Purchase Agreement pursuant to
which it acquired the Internet related assets of N2 the Net, LLC, a Tennessee
ISP.  The total purchase price was $48,156 representing the fair value
of the assets acquired which consisted of a $3,650 cash payment at closing with
the remaining balance due in 11 monthly installments beginning May
2008.  The purchase price has been subsequently adjusted down to
$45,821.





The
following table summarizes the estimated fair values of assets acquired and
liabilities assumed at the date of acquisition.  Sitestar has assessed
the valuations of certain intangible assets as represented below.





Customer
      list
            
            $
            40,512Non-compete
      agreement
            
            
            5,000Accounts
      receivable
            
            
            2,328Equipment
            
            
            10,000Deferred
      revenue
            
            
            (12,019
            )Purchase
      price
            
            $
            45,821





Because
the acquisition of N2 the Net was consummated effective April 1, 2008, there are
no results of operations of Comcation in the consolidated financial statements
for the three months ended March 31, 2008.




15




SITESTAR
CORPORATION


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


UNAUDITED-
RESTATED





NOTE
7 – ACQUISITIONS, continued





The
following table presents the unaudited pro forma condensed statement of
operations for the three months ended March 31, 2008 and reflects the results of
operations of the Company as if the acquisition of N2 the Net had been effective
January 1, 2008.  The pro forma amounts are not necessarily indicative of
the combined results of operations had the acquisitions been effective as of
that date, or of the anticipated results of operations, due to cost reductions
and operating efficiencies that are expected as a result of the
acquisitions.





2008Net
      sales
            
            $
            2,570,335Gross
      profit
            
            $
            1,737,193Selling,
      general and administrative expenses
            
            $
            1,374,109Net
      income
            
            $
            187,492Basic
      income per share
            
            $
            0.00





Dial Assurance,
Inc.




Effective
May 1, 2008, the Company entered into an Asset Purchase Agreement pursuant to
which it acquired the Internet related assets of Dial Assurance, Inc., a
Georgia-based wholesale managed modem solution provider.  The total
purchase price was $229,900 representing the fair value of the assets acquired
which consisted of a $100,000 cash payment at closing with the remaining balance
paid in 6 monthly installments beginning June 2008.





The
following table summarizes the estimated fair values of assets acquired and
liabilities assumed at the date of acquisition.  Sitestar has assessed
the valuations of certain intangible assets as represented below.





Customer
      list
            
            $
            250,000Non-compete
      agreement
            
            
            5,000Deferred
      revenue
            
            
            (25,100
            )Purchase
      price
            
            $
            229,900





Because
the acquisition of Dial Assurance was consummated effective May 1, 2008, there
are no results of operations of Dial Assurance in the consolidated financial
statements for the three months ended March 31, 2008.




16




SITESTAR
CORPORATION


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


UNAUDITED-
RESTATED





NOTE
7 – ACQUISITIONS, continued





The
following table presents the unaudited pro forma condensed statement of
operations for the three months ended March 31, 2008 and reflects the results of
operations of the Company as if the acquisition of Dial Assurance had been
effective January 1, 2008.  The pro forma amounts are not necessarily
indicative of the combined results of operations had the acquisitions been
effective as of that date, or of the anticipated results of operations, due to
cost reductions and operating efficiencies that are expected as a result of the
acquisitions.





2008Net
      sales
            
            $
            2,603,170Gross
      profit
            
            $
            1,759,939Selling,
      general and administrative expenses
            
            $
            1,372,915Net
      income
            
            $
            202,073Basic
      income per share
            
            $
            0.00





United
Systems Access, Inc.




Effective
May 1, 2008, the Company entered into an Asset Purchase Agreement pursuant to
which it acquired certain broadband digital subscriber line (DSL) accounts and
related assets of United Systems Access, Inc., (d/b/a USA Telephone), a
corporation with its headquarters in Maine.  The net purchase price
was $297,965 representing the fair value of the assets acquired which consisted
of a $130,000 cash payment at closing with the remaining balance paid in 60 days
from closing. The purchase price has been subsequently adjusted down to
$263,757.





The
following table summarizes the estimated fair values of assets acquired and
liabilities assumed at the date of acquisition.  Sitestar has assessed
the valuations of certain intangible assets as represented below.





Customer
      list
            
            $
            277,965Non-compete
      agreement
            
            
            50,000Deferred
      revenue
            
            
            (64,208
            )Purchase
      price
            
            $
            263,757





Because
the acquisition of  was consummated effective May 1, 2008, there are
no results of operations of USA Telephone in the consolidated financial
statements for the three months ended March 31, 2008.




17




SITESTAR
CORPORATION


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


UNAUDITED-
RESTATED





NOTE
7 – ACQUISITIONS, continued





The
following table presents the unaudited pro forma condensed statement of
operations for the three months ended March 31, 2008 and reflects the results of
operations of the Company as if the acquisition of USA Telephone had been
effective January 1, 2008.  The pro forma amounts are not necessarily
indicative of the combined results of operations had the acquisitions been
effective as of that date, or of the anticipated results of operations, due to
cost reductions and operating efficiencies that are expected as a result of the
acquisitions.





2008Net
      sales
            
            $
            2,681,839Gross
      profit
            
            $
            1,814,437Selling,
      general and administrative expenses
            
            $
            1,421,916Net
      income
            
            $
            205,372Basic
      income per share
            
            $
            0.00





AdaNet




Effective
June 1, 2008, the Company entered into an Asset Purchase Agreement pursuant to
which it acquired the Internet related assets of AdaNet, an Oklahoma
ISP.  The total purchase price was $20,667 representing the fair value
of the assets acquired which consisted of a $3,836 cash payment at closing with
the remaining balance paid in 5 monthly installments beginning July
2008.  The purchase price has been subsequently adjusted down to
$18,542.





The
following table summarizes the estimated fair values of assets acquired and
liabilities assumed at the date of acquisition.  Sitestar has assessed
the valuations of certain intangible assets as represented below.





Customer
      list
            
            $
            15,428Non-compete
      agreement
            
            
            5,000Accounts
      receivable
            
            
            164Equipment
            
            
            2,000Deferred
      revenue
            
            
            (4,050
            )Purchase
      price
            
            $
            18,542





Because
the acquisition of AdaNet was consummated effective June 1, 2008, there are no
results of operations of AdaNet in the consolidated financial statements for the
three months ended March 31, 2008.




18




SITESTAR
CORPORATION


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


UNAUDITED-
RESTATED





NOTE
7 – ACQUISITIONS, continued





The
following table presents the unaudited pro forma condensed statement of
operations for the three months ended March 31, 2008 and reflects the results of
operations of the Company as if the acquisition of AdaNet had been effective
January 1, 2008.  The pro forma amounts are not necessarily indicative of
the combined results of operations had the acquisitions been effective as of
that date, or of the anticipated results of operations, due to cost reductions
and operating efficiencies that are expected as a result of the
acquisitions.




2008Net
      sales
            
            $
            2,551,259Gross
      profit
            
            $
            1,723,978Selling,
      general and administrative expenses
            
            $
            1,369,569Net
      income
            
            $
            182,504Basic
      income per share
            
            $
            0.00





Velocity West,
Inc.




Effective
August 1, 2008, the Company entered into an Asset Purchase Agreement pursuant to
which it acquired the Internet related assets of Velocity West, Inc., an ISP and
wholesale managed modem solution provider with headquarters in
Texas.  The total purchase price was $360,000 representing the fair
value of the assets acquired which consisted of a $100,000 cash payment at
closing with the remaining balance paid beginning September 2008.





The
following table summarizes the estimated fair values of assets acquired and
liabilities assumed at the date of acquisition.  Sitestar has assessed
the valuations of certain intangible assets as represented below.





Customer
      list
            
            $
            400,000Non-compete
      agreement
            
            
            10,000Deferred
      revenue
            
            
            (50,000
            )Purchase
      price
            
            $
            360,000





Because
the acquisition of Velocity West was consummated effective August 1, 2008, there
are no results of operations of Velocity West in the consolidated financial
statements for the three months ended March 31, 2008.




19




SITESTAR
CORPORATION


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


UNAUDITED-
RESTATED





NOTE
7 – ACQUISITIONS, continued





The
following table presents the unaudited pro forma condensed statement of
operations for the three months ended March 31, 2008 and reflects the results of
operations of the Company as if the acquisition of Velocity West had been
effective January 1, 2008.  The pro forma amounts are not necessarily
indicative of the combined results of operations had the acquisitions been
effective as of that date, or of the anticipated results of operations, due to
cost reductions and operating efficiencies that are expected as a result of the
acquisitions.




2008Net
      sales
            
            $
            2,717,676Gross
      profit
            
            $
            1,839,263Selling,
      general and administrative expenses
            
            $
            1,400,133Net
      income
            
            $
            233,337Basic
      income per share
            
            $
            0.00





ISP Holding Company,
LLC




Effective
November 1, 2008, the Company entered into an Asset Purchase Agreement pursuant
to which it acquired the Internet related assets of ISP Holding Company, LLC
d/b/a DONOBi Internet Services, an ISP with headquarters in
Washington.  The total purchase price was $475,000 representing the
fair value of the assets acquired which consisted of a $150,000 cash payment at
closing with the remaining balance due in 12 monthly installments beginning
December 2008.





The
following table summarizes the estimated fair values of assets acquired and
liabilities assumed at the date of acquisition.  Sitestar has assessed
the valuations of certain intangible assets as represented below.





Customer
      list
            
            $
            530,000Non-compete
      agreement
            
            
            20,000Deferred
      revenue
            
            
            (75,000
            )Purchase
      price
            
            $
            475,000





Because
the acquisition of DONOBi Internet Services was consummated effective November
1, 2008, there are no results of operations of ISP Holding Company in the
consolidated financial statements for the three months ended March 31,
2008.




20




SITESTAR
CORPORATION


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


UNAUDITED-
RESTATED





NOTE
7 – ACQUISITIONS, continued





The
following table presents the unaudited pro forma condensed statement of
operations for the three months ended March 31, 2008 and reflects the results of
operations of the Company as if the acquisition of DONOBi Internet Services had
been effective January 1, 2008.  The pro forma amounts are not necessarily
indicative of the combined results of operations had the acquisitions been
effective as of that date, or of the anticipated results of operations, due to
cost reductions and operating efficiencies that are expected as a result of the
acquisitions.




2008Net
      sales
            
            $
            2,816,990Gross
      profit
            
            $
            1,907,263Selling,
      general and administrative expenses
            
            $
            1,426,907Net
      income
            
            $
            249,190Basic
      income per share
            
            $
            0.00





NOTE
8 – PROVISION FOR INCOME TAXES





The
provision for federal and state income taxes for the three months ended March
31, 2009 and 2008 included the following:





2009
            
            
            2008Current
      provision:Federal
            
            $
            (127,038
            )
            
            $
            (55,738)State
            
            
            (22,419
            )
            
            
            (9,836)Deferred
      provision:Federal
            
            
            228,108
            
            
            
            (528,860)State
            
            
            40,254
            
            
            
            (93,328)Total
      income tax provision
            
            $
            118,905
            
            
            $
            (687,762)




21




SITESTAR
CORPORATION


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


UNAUDITED-
RESTATED





NOTE
8 – PROVISION FOR INCOME TAXES, continued




Deferred
tax assets and liabilities reflect the net effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes.  Significant components
of the Company's deferred tax assets and liabilities at March 31, 2009 and
December 31, 2008 are as follows:


2009
            
            
            2008Accounts
      receivable
            
            $
            22,901
            
            
            $
            19,762Amortization
      of Intangible assets
            
            
            3,218,912
            
            
            
            2,953,689Loss
      carry-forward
            
            
            -
            
            
            
            -Less
      valuation allowance
            
            
            (2,552,420
            )
            
            
            (2,552,420
            )Deferred
      tax
      asset
            
            $
            689,393
            
            
            $
            421,031





At March
31, 2009 and December 31, 2008, the Company has provided a valuation allowance
for the deferred tax asset since management has not been able to determine that
the realization of that asset is more likely than not.  Net operating loss
carry forwards was entirely applied for the year ended December 31,
2007.





NOTE
9 – INTANGIBLE ASSETS





The
Company continually monitors its intangible assets to determine whether any
impairment has occurred.  In making such determination with respect to
these assets, the Company evaluates the performance, on an undiscounted cash
flow basis, of the intangible assets or group of assets.  Should impairment
be identified, a loss would be reported to the extent that the carrying value of
the related intangible asset exceeds its fair value using the discounted cash
flow method.  The Company's customer lists are being amortized over three
years. Amortization expense was $654,290 and $713,117 for the three months
ended March 31, 2009 and 2008.





NOTE
10 – DEFERRED REVENUE





Deferred
revenue represents collections from customers in advance for services not yet
performed and are recognized as revenue in the period service is
provided.





Revenue
Recognition





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 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.




22




SITESTAR
CORPORATION


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


UNAUDITED-
RESTATED





NOTE
11 – NOTES PAYABLE




Notes
payable at March 31, 2009 and December 31, 2008 consist of the
following:






2009
            
            
            
            2008Non-interest
      bearing amount due on acquisition of N2theNet paid in eleven monthly
      installments of $4,046 starting May 2008.
            
            
            -
            
            
            
            11,921Non-interest
      bearing amount due on acquisition of DONOBI  payable in twelve
      monthly installments of $27,083 through November 2009
            
            
            185,084
            
            
            
            257,451Non-interest
      bearing amount due on acquisition of USA Telephone payable in thirty six
      monthly installments starting January 2008
            
            
            1,125,615
            
            
            
            1,215,615Less
      current portion
            
            
            (485,084
            )
            
            
            (569,372
            )Long-term
      portion
            
            $
            825,615
            
            
            $
            915,615





The
future principal maturities of these notes are as follows:




Twelve
      months ending March 31, 2010
            
            $
            485,084Twelve
      months ending March 31, 2011
            
            
            300,000Twelve
      months ending March 31, 2012
            
            
            300,000Twelve
      months ending March 31, 2013
            
            
            225,615Twelve
      months ending March 31, 2014
            
            
            -Thereafter
            
            
            -Total
            
            $
            1,310,699




23




SITESTAR
CORPORATION


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


UNAUDITED-
RESTATED





NOTE
12 - NOTES PAYABLE - STOCKHOLDERS




Notes
payable - stockholders at March 31, 2009 and December 31, 2008 consist of the
following:




2009
            
            
            2008Note
      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
            
            
            $
            379,711Note
      payable to stockholder. The note is payable on January 1, 2012 and bears
      interest at an annual rate of 8.0%.
            
            
            104,585
            
            
            
            104,585Note
      payable to stockholder. The note is payable on January 1, 2012 and bears
      interest at an annual rate of 8.0%.
            
            
            54,985
            
            
            
            54,985Less
      current portion
            
            
            -
            
            
            
            -Long-term
      portion
            
            $
            539,281
            
            
            $
            539,281





The
future principal maturities of these notes are as follows:




Year
      ending March 31, 2010
            
            $
            -Year
      ending March 31, 2011
            
            
            -Year
      ending March 31, 2012
            
            
            539,281Year
      ending March 31, 2013
            
            
            -Year
      ending March 31, 2014
            
            
            -Total
            
            $
            539,281




24




SITESTAR
CORPORATION





Item
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations




General




The
following discussion and analysis should be read in conjunction with the
Company’s consolidated financial statements and related footnotes for the year
ended December 31, 2008 included in the Annual Report on Form 10-K.  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.





Overview




Sitestar
is an Internet Service Provider (ISP) that offers consumer and business-grade
Internet access, wholesale managed modem services for downstream ISPs and Web
hosting.  Sitestar also delivers value-added services including spam,
virus and spyware protection, pop-up ad blocking and web
acceleration.  The Company maintains multiple sites of operation and
provides services to customers throughout the U.S. and Canada.





The
products and services that the Company provides include:




·
                Internet
      access services;
 ·
                Web
      acceleration services;
 ·
                Web
      hosting services;
 ·
                End-to-end
      e-commerce solutions; and
 ·
                Toner
      and ink cartridge remanufacturing
services.




The
Company’s Internet division markets and sells narrow-band (dial-up and ISDN) and
broadband services (DSL, fiber-optic, satellite, cable and wireless), and
supports these products utilizing its own infrastructure and
affiliations.  Value-added services include web acceleration, spam and
virus filtering, as well as, spyware protection.





Additionally,
the Company markets and sells web hosting and related services to consumers and
businesses.





The
Company also markets, sells and manufactures computer systems, computer
hardware, computer software, networking services, repair services and toner and
ink cartridge remanufacturing services from the Lynchburg, Virginia
location.





25




SITESTAR
CORPORATION





Item
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued





Results
of operations




The
following tables show financial data for the three months ended March 31, 2009
and 2008. Operating results for any period are not necessarily indicative of
results for any future period.





For the three months ended
              March 31, 2009 (unaudited)Corporate
            
            
            Internet
            
            
            TotalRevenue
            
            $
            -
            
            
            $
            2,378,110
            
            
            $
            2,378,110Cost
      of revenue
            
            
            -
            
            
            
            826,037
            
            
            
            826,037Gross
      profit
            
            
            -
            
            
            
            1,552,073
            
            
            
            1,552,073Operating
      expenses
            
            
            27,115
            
            
            
            1,077,707
            
            
            
            1,104,822Income
      (loss) from operations
            
            
            (27,115
            )
            
            
            474,366
            
            
            
            447,251Other
      income (expense)
            
            
            -
            
            
            
            (21,293
            )
            
            
            (21,293
            )Income
      (loss) before income taxes
            
            
            (27,115
            )
            
            
            453,073
            
            
            
            425,958Income
      tax (expense) benefit
            
            
            118,905
            
            
            
            -
            
            
            
            118,905Net
      income (loss)
            
            $
            91,790
            
            
            $
            453,073
            
            
            $
            544,863





26




SITESTAR
CORPORATION





Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations, continued




For the three months ended
              March 31, 2008 (unaudited)Corporate
            
            
            Internet
            
            
            TotalRestated
            
            
            Restated
            
            
            RestatedRevenue
            
            $
            -
            
            
            $
            2,220,890
            
            
            $
            2,220,890Cost
      of revenue
            
            
            -
            
            
            
            825,218
            
            
            
            825,218Gross
      profit
            
            
            -
            
            
            
            1,395,672
            
            
            
            1,395,672Operating
      expenses
            
            
            43,469
            
            
            
            1,406,324
            
            
            
            1,449,793Income
      (loss) from operations
            
            
            (43,469
            )
            
            
            (10,652
            )
            
            
            (54,121
            )Other
      income (expense)
            
            
            -
            
            
            
            (50,235
            )
            
            
            (50,235
            )Income
      (loss) before income taxes
            
            
            (43,469
            )
            
            
            (60,887
            )
            
            
            (104,356
            )Income
      tax (expense) benefit
            
            
            (687,762
            )
            
            
            -
            
            
            
            (687,762
            )Net
      income (loss)
            
            $
            (731,231
            )
            
            $
            (60,887
            )
            
            $
            (792,118
            )





EBITDA
(Earnings Before Interest, Taxes, Depreciation and Amortization) consists of
revenue less cost of revenue and operating expense.  EBITDA is provided
because it is a measure commonly used by investors to analyze and compare
companies on the basis of operating performance. EBITDA is presented to enhance
an understanding of the Company’s operating results and is not intended to
represent cash flows or results of operations in accordance with GAAP for the
periods indicated. EBITDA is not a measurement under GAAP and is not necessarily
comparable with similarly titled measures for other companies. See the Liquidity
and Capital Resource section for further discussion of cash generated from
operations.





The
following tables show a reconciliation of EBITDA to the GAAP presentation of net
income for the three months ended March 31, 2009 and 2008.




For
      the three months ended
              March
      31, 2009Corporate
            
            
            Internet
            
            
            TotalRestated
            
            
            Restated
            
            
            RestatedEBITDA
            
            $
            (27,115
            )
            
            $
            1,137,839
            
            
            $
            1,110,724Interest
      expense
            
            
            -
            
            
            
            (21,884
            )
            
            
            (21,884
            )Taxes
            
            
            118,905
            
            
            
            -
            
            
            
            118,905Depreciation
            
            
            -
            
            
            
            (8,592
            )
            
            
            (8,592
            )Amortization
            
            
            -
            
            
            
            (654,290
            )
            
            
            (654,290
            )Net
      income (loss)
            
            $
            91,790
            
            
            $
            453,073
            
            
            $
            544,863





27




SITESTAR
CORPORATION





Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations, continued




For
      the three months ended
              March
      31, 2008Corporate
            
            
            Internet
            
            
            TotalRestated
            
            
            Restated
            
            
            RestatedEBITDA
            
            $
            (43,469
            )
            
            $
            733,208
            
            
            $
            689,739Interest
      expense
            
            
            -
            
            
            
            (71,684
            )
            
            
            (71,684
            )Taxes
            
            
            (687,762
            )
            
            
            -
            
            
            
            (687,762
            )Depreciation
            
            
            -
            
            
            
            (9,294
            )
            
            
            (9,294
            )Amortization
            
            
            -
            
            
            
            (713,117
            )
            
            
            (713,117
            )Net
      income (loss)
            
            $
            (731,231
            )
            
            $
            (60,887
            )
            
            $
            (792,118
            )





THREE MONTHS ENDED MARCH 31,
2009 COMPARED TO MARCH 31, 2008 (Unaudited)




REVENUE





Revenue
for the three months ended March 31, 2009 increased by $157,220 or 7.1% from
$2,220,890 for the three months ended March 31, 2008 to $2,378,110 for the same
period in 2009.  Internet sales remained relatively flat primarily due
to the addition of Internet customers from the asset acquisitions and offset by
additional attrition to broadband service.  To insure continued
strength in revenues, the Company has acquired and plans to continue to acquire
the assets of additional ISPs and fold them into its operations to provide
future revenues.




COST
OF REVENUE





Costs of
revenue for the three months ended March 31, 2009 increased by $819 or 0.1% from
$825,218 for the three months ended March 31, 2008 to $826,037 for the same
period in 2009.  Cost of revenue remained steady with sales volume
reflecting consistency in the costs of providing services to
customers.




28




SITESTAR
CORPORATION





Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations, continued





OPERATING
EXPENSES




Operating
expenses for the three months ended March 31, 2009 decreased $344,971 or 23.8%
from $1,449,793 for the three months ended March 31, 2008 to $1,104,822 for the
same period in 2009.  Bad debt expense decreased $264,167 or 66.8% from
$395,694 for the three months ended March 31, 2008 to $131,527 for the same
period in 2009. Corporate expenses for the three months ended March 31, 2009 and
March 31, 2008 consisted primarily of professional fees of $25,781 and
41,700.




INCOME
TAXES





For the
three months ended March 31, 2009 and March 31, 2008 corporate income tax
(expense) benefit of $118,905 and $(687,762) were accrued.




GAIN
ON SALE OF ASSETS





A gain
was recognized on the sale of the assets of Sitestar Applied Technologies, Inc.
to Servatus Development, LLC of $19,551 for the three months ended March 31,
2008.  This represents, per the Definitive Purchase Agreement between
the parties, 20% of the gross revenue of Servatus Development, LLC for the three
months ended March 31, 2008.





INTEREST
EXPENSE





Interest
expense for the three months ended March 31, 2009 decreased by $49,800 or 69.5%
from $71,684 for the three months ended March 31, 2008 to $21,884 for the same
period in 2009.  This decrease is a result of reducing debt to finance the
acquisition of additional customers.





MARCH 31, 2009 (Unaudited)
COMPARED TO DECEMBER 31, 2008 (Audited)





FINANCIAL
CONDITION





Net
accounts receivable increased $373,684 or 103.5% from $361,056 on December 31,
2008 to $734,740 on March 31, 2009.  This increase is substantially due to
the addition of customers from acquisitions.  Due to the slow moving
nature of inventory, management has reclassified it on the balance sheets from
current assets to other assets held for resale which decreased by $31 or 0.04%
from $70,443 on December 31, 2008 to $70,412 on March 31,
2009.  Accounts payable decreased by $66,297 or 82.0% from $80,892 on
December 31, 2008 to $14,595 on March 31, 2009. Accrued expenses increased by
$4,944 or 5.2% from $94,882 on December 31, 2008 to $99,826 on March 31,
2009.




29




SITESTAR
CORPORATION





Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations, continued





Deferred
revenue increased by $113,851 or 9.8% from $1,157,597 on December 31, 2008 to
$1,271,448 on March 31, 2009 representing increased volume of customer accounts
that have been prepaid. The current portion of notes payable decreased $84,288
or 14.8% from $569,372 on December 31, 2008 to $485,084 on March 31,
2009.  This is due to the curtailment of term notes financing the
purchase of customer bases.  Long-term notes payable decreased $90,000
or 9.8% from $915,615 on December 31, 2008 to $825,615 on March 31, 2009. This
is due to the curtailment of term notes financing the purchase of customer
bases.





LIQUIDITY AND CAPITAL
RESOURCES




Cash and
cash equivalents totaled $456,289 and $527,553 at March 31, 2009 and at December
31, 2008.  EBITDA was $1,110,724 for the three months ended March 31,
2009 as compared to $689,739 for the same period in 2008.





2009
            
            
            2008EBITDA
      for the three months ended March 31,
            
            $
            1,110,724
            
            
            $
            689,739Interest
      expense
            
            
            (21,884
            )
            
            
            (71,684
            )Taxes
            
            
            118,905
            
            
            
            (687,762
            )Depreciation
            
            
            (8,592
            )
            
            
            (9,294
            )Amortization
            
            
            (654,290
            )
            
            
            (713,117
            )Net
      income for the three months ended March 31,
            
            $
            544,863
            
            
            $
            (792,118
            )





The aging
of accounts receivable as of March 31, 2009 and December 31, 2008 is as
shown:





2009
            
            
            2008Current
            
            
            $
            448,191
            
            
            
            61
            %
            
            $
            213,023
            
            
            
            59
            %30
      < 60
            
            
            
            154,295
            
            
            
            21
            %
            
            
            79,432
            
            
            
            22
            %60+
            
            
            
            132,254
            
            
            
            18
            %
            
            
            68,601
            
            
            
            19
            %Total
            
            
            $
            734,740
            
            
            
            100
            %
            
            $
            361,056
            
            
            
            100
            %





30




SITESTAR
CORPORATION





OFF-BALANCE
SHEET TRANSACTIONS




The
Company is not a party to any off-balance sheet transactions.




Forward-looking
statements




This
report contains certain 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. Stockholders are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation, the Company’s ability to expand the Company’s customer base, make
strategic acquisitions, general market conditions and competition and
pricing.





Although
the Company believes the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that the forward-looking statements
contained in the report will prove to be accurate.




31




SITESTAR
CORPORATION





Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations, continued





CRITICAL
ACCOUNTING POLICY AND ESTIMATES





The
Company’s Management’s Discussion and Analysis of Financial Condition and
Results of Operations section discusses its condensed consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America as promulgated by the Public
Company Accounting Oversight Board. 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 revenue recognition, accrued expenses, financing
operations, 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. The most
significant accounting estimates inherent in the preparation of the Company’s
financial statements include estimates as to the appropriate carrying value of
certain assets and liabilities which are not readily apparent from other
sources. These accounting policies are described at relevant sections in this
discussion and analysis and in the condensed consolidated financial statements
included in this quarterly report.




Item 3. Quantitative and Qualitative Disclosures About
Market Risk




Item
4. Controls and Procedures




In
connection with the restatement discussed above in the explanatory note to this
Form 10-Q/A and in Note 1 to our financial statements, under the direction of
our Chief Executive Officer and Chief Financial Officer, we reevaluated our
disclosure controls and procedures.  We identified a material
weaknesses in our internal control over financial reporting with respect to
recognition of processing charges and late fees for customers cut off from
internet service because of the collectability of those charges is not
reasonably assured, namely, that the Company did not have adequately designed
procedures to calculate or review the processing charges and late fees for
customers and with respect to ongoing monitoring does not always occur in the
ordinary course of operations, namely, that the Company's financial accounting
and reporting functions are not properly segregated and no monitoring system
consistently exists to mitigate the risk of financial statement
error.  Solely as a result of these material weaknesses, we concluded
that our disclosure controls and procedures were not effective as of March 31,
2009.




32




Item
4. Controls and Procedures, continued




As of May
21, 2010, the Company began evaluating the aforementioned weaknesses and is
remediating the deficiencies with additional procedures and controls including
additional personnel training.  In connection with this amended Form
10-Q, under the direction of our Chief Executive Officer and Chief Financial
Officer, we have evaluated our disclosure controls and procedures as currently
in effect, including the remedial actions discussed above, and we have concluded
that, as of this date, our disclosure controls and procedures are
effective.





As
previously reported, there was no change in our internal control over financial
reporting during the quarter ended March 31, 2009, that materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.





33




PART II.  OTHER INFORMATION




Item 1. Legal Proceedings





A
complaint has been filed in Belmont County, Ohio by First USA, Inc. alleging a
breach of agreement for the purchase and sale of Internet Service Provider
accounts dated July 1, 2006.  The complaint demands judgment of
approximately $150,000.  The Company will vigorously defend this
claim.  A pre-trial or scheduling conference will be scheduled in the
second quarter of 2009.





Item
1A. Risk Factors




None.




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




None.





Item 3. Defaults Upon Senior
Securities




None.




Item 4. Submission of Matters to a Vote of Security
Holders




None.





Item
5. Other Information




None





Item
6. Exhibits




(a)
       The following are filed as exhibits to
this form 10-Q:




31.1
              Certification
      of President Pursuant to the Securities Exchange Act of 1934,
      Rules13a-14 and 15d-14, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Actof
      2002.





31.2
              Certification
      of Chief Financial Officer Pursuant to the Securities Exchange Act of1934,
      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




34




SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.




SITESTAR
      CORPORATIONDate:
      August 16, 2010
              By:
              /s/
      Frank Erhartic, Jr.Frank
      Erhartic, Jr.President,
      Chief Executive Officer(Principal
      Executive Officer and
                Principal
      Accounting Officer)




Date:
      August 16, 2010
              By:
              /s/
      Daniel A. Judd.Daniel
      A. JuddChief
      Financial Officer(Principal
      Financial Officer)




35