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 September 30, 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 Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  xYes   oNo





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





As
of November 13, 2009, the issuer had 84,526,510 shares of common stock issued
and outstanding.










SITESTAR
CORPORATION AND SUBSIDIARIES





EXPLANATORY
NOTE





This
Amendment No. 1 to our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2009 initially filed with the Securities and Exchange
Commission on November 13, 2009 is being filed to reflect restatements of
Sitestar Corporation‘s Consolidated Balance Sheets as of September 30,
2009, and the related Consolidated Statements of Income for the three and nine
months ended September 30, 2009 and, Consolidated Statement of Cash Flows for
the nine months ended Se[tember 30, 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
      Statements (Unaudited)Condensed
      Consolidated Balance Sheets as of September 30, 2009 and December 31,
      2008
              
              4-5Condensed
      Consolidated Statements of Income for the three months ended September 30,
      2009 and 2008
              
              6Condensed
      Consolidated Statements of Income for the nine months ended September 30,
      2009 and 2008
              
              7Condensed
      Consolidated Statements of Cash Flows for the nine months ended September
      30, 2009 and 2008
              
              8-9Notes
      to Condensed Consolidated Financial Statements
              
              10-29Item
      2.
              Management's
      Discussion and Analysis
              
              30-37Item
      3.
              Quantitative
      and Qualitative Disclosures About Market Risk
              
              37Item
      4.
              Controls
      and Procedures
              
              37-38Part
      II.
              OTHER
      INFORMATION
              
              38Item
      1.
              Legal
      Proceedings
              
              38Item
    1A.
              Risk
      Factors
              
              38Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              
              38Item
      3.
              Defaults
      Upon Senior Securities
              
              38Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              
              38Item
      5.
              Other
      Information
              
              38Item
      6.
              Exhibits
              
              39SIGNATURES
              
              40
 
 3
  PART
I. FINANCIAL INFORMATION
  Item 1.     Financial
Statements
  SITESTAR
CORPORATION AND SUBSIDIARIES
 CONDENSED CONSOLIDATED BALANCE SHEETS
 SEPTEMBER
30, 2009 AND DECEMBER 31, 2008
  ASSETS
  2009
              
              
              2008UnauditedRestated
              
              
              RestatedCURRENT
      ASSETSCash
      and cash equivalents
              
              $
              787,125
              
              
              $
              527,553Accounts
      receivable, net of allowance of $16,849and
      $49,405
              
              
              683,995
              
              
              
              361,056Prepaid
      expenses
              
              
              1,382
              
              
              
              1,227Total
      current assets
              
              
              1,472,502
              
              
              
              889,836PROPERTY
      AND EQUIPMENT, net
              
              
              202,350
              
              
              
              225,212CUSTOMER
      LIST, net of accumulated amortization of$9,688,705
      and $7,973,341
              
              
              2,546,448
              
              
              
              4,224,414GOODWILL,
      net of impairment
              
              
              1,288,559
              
              
              
              1,288,559DEFERRED
      INCOME TAXES
              
              
              501,454
              
              
              
              421,031OTHER
      ASSETS
              
              
              460,543
              
              
              
              583,637TOTAL
      ASSETS
              
              $
              6,471,856
              
              
              $
              7,632,689
  See the
accompanying notes to the unaudited condensed consolidated financial
statements.
  4
  SITESTAR
CORPORATION AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS, continued
 SEPTEMBER
30, 2009 AND DECEMBER 31, 2008
  LIABILITIES
AND STOCKHOLDERS’ EQUITY
  2009
              
              
              2008UnauditedRestated
              
              
              RestatedCURRENT
      LIABILITIESAccounts
      payable
              
              $
              106,286
              
              
              $
              80,892Accrued
      income taxes
              
              
              289,947
              
              
              
              262,297Accrued
      expenses
              
              
              94,187
              
              
              
              94,882Deferred
      revenue
              
              
              1,086,175
              
              
              
              1,157,597Notes
      payable
              
              
              347,429
              
              
              
              569,372Total
      current liabilities
              
              
              1,924,024
              
              
              
              2,165,040NOTES
      PAYABLE, less current portion
              
              
              700,615
              
              
              
              915,615NOTES
      PAYABLE - STOCKHOLDERS, less current portion
              
              
              476,296
              
              
              
              539,281TOTAL
      LIABILITIES
              
              
              3,100,935
              
              
              
              3,619,936STOCKHOLDERS'
      EQUITYPreferred
      Stock, $.001 par value, 10,000,000 sharesauthorized,
      0 shares issued and outstanding
              
              
              -
              
              
              
              -Common
      stock, $.001 par value, 300,000,000 shares
                authorized,
      77,771,500 and 83,088,658 shares issued and
                outstanding
      on September 30, 2009 December 31,
                2008 respectively
              
              
              84,526
              
              
              
              91,326Additional
      paid-in capital
              
              
              13,887,747
              
              
              
              13,880,947Treasury
      stock, at cost, 15,037,758 and 8,237,805 common
                shares
      on September 30,  2009 and December 31, 2008
              
              
              (731,426
              )
              
              
              (64,220
              )Accumulated
      deficit
              
              
              (9,869,926
              )
              
              
              (9,895,300
              )Total
      stockholders’ equity
              
              
              3,370,921
              
              
              
              4,012,753TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
              
              $
              6,471,856
              
              
              $
              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 SEPTEMBER 30, 2009 AND 2008
 (UNAUDITED)
  2009
              
              
              2008Restated
              
              
              RestatedREVENUE
              
              $
              1,696,807
              
              
              $
              2,147,890COST
      OF REVENUE
              
              
              695,157
              
              
              
              709,708GROSS
      PROFIT
              
              
              1,001,650
              
              
              
              1,438,182OPERATING
      EXPENSES:Selling
      general and administrative expenses
              
              
              1,030,490
              
              
              
              1,705,075INCOME
      (LOSS) FROM OPERATIONS
              
              
              (28,840
              )
              
              
              (266,893
              )OTHER
      INCOME (EXPENSES)
              
              
              (21,045
              )
              
              
              (32,439
              )INCOME
      (LOSS) BEFORE INCOME TAXES
              
              
              (49,885
              )
              
              
              (299,332
              )INCOME
      TAXES (EXPENSE) BENEFIT
              
              
              (459,163
              )
              
              
              124,685NET
      INCOME (LOSS)
              
              $
              (509,048
              )
              
              $
              (174,647
              )BASIC
      AND DILUTED EARNINGS PER SHARE
              
              $
              0.01
              
              
              $
              0.00WEIGHTED
      AVERAGE SHARESOUTSTANDING
      - BASIC AND DILUTED
              
              
              77,771,500
              
              
              
              83,088,658
  See the
accompanying notes to the unaudited condensed consolidated financial
statements.
 
 6
  SITESTAR
CORPORATION AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
 FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
 (UNAUDITED)
  2009
              
              
              2008Restated
              
              
              RestatedREVENUE
              
              $
              6,126,649
              
              
              $
              6,553,767COST
      OF REVENUE
              
              
              2,367,879
              
              
              
              2,097,509GROSS
      PROFIT
              
              
              3,758,770
              
              
              
              4,456,258OPERATING
      EXPENSES:Selling
      general and administrative expenses
              
              
              3,293,824
              
              
              
              3,935,611INCOME
      FROM OPERATIONS
              
              
              464,946
              
              
              
              520,647OTHER
      INCOME (EXPENSES)
              
              
              (71,626
              )
              
              
              (118,971
              )INCOME
      BEFORE INCOME TAXES
              
              
              393,320
              
              
              
              401,676INCOME
      TAXES (EXPENSE) BENEFIT
              
              
              (367,946
              )
              
              
              (428,600
              )NET
      INCOME (LOSS)
              
              $
              25,374
              
              
              $
              (26,924
              )BASIC
      AND DILUTED EARNINGS PER SHARE
              
              $
              0.00
              
              
              $
              0.00WEIGHTED
      AVERAGE SHARESOUTSTANDING
      - BASIC AND DILUTED
              
              
              77,771,500
              
              
              
              83,088,658
  See the
accompanying notes to the unaudited condensed consolidated financial
statements.
 
 7
  SITESTAR
CORPORATION AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
 (UNAUDITED)
  2009
              
              
              2008CASH
      FLOWS FROM OPERATING ACTIVITIES:
              
              Restated
              
              
              RestatedNet
      income (loss)
              
              $
              25,374
              
              
              $
              (26,924
              )Adjustments
      to reconcile net income (loss) to net cash provided by operating
      activities:Depreciation
      and amortization expense
              
              
              1,895,893
              
              
              
              2,223,989Bad
      debt expense
              
              
              (32,556
              )
              
              
              31,107(Increase)
      decrease in:Accounts
      receivable
              
              
              (290,383
              )
              
              
              277,500Prepaid
      expenses
              
              
              (155
              )
              
              
              15,084Deferred
      tax asset
              
              
              (80,423
              )
              
              
              231,878Increase
      (decrease) in:Accounts
      payable
              
              
              25,394
              
              
              
              (56,305
              )Accrued
      expenses
              
              
              (695
              )
              
              
              (31,673
              )Deferred
      revenue
              
              
              (71,422
              )
              
              
              (96,576
              )Accrued
      income taxes
              
              
              27,650
              
              
              
              196,722Net
      cash provided by operating activities
              
              
              1,498,677
              
              
              
              2,764,802CASH
      FLOWS FROM INVESTING ACTIVITIES:Other
      assets held for resale
              
              
              (573
              )
              
              
              1,081Purchase
      of property and equipment
              
              
              (3,000
              )
              
              
              (32,000
              )Purchase
      of non-compete
              
              
              (1,000
              )
              
              
              (80,000
              )Purchase
      of customer list
              
              
              (67,398
              )
              
              
              (935,322
              )Net
      cash (used in) investing activities
              
              
              (71,971
              )
              
              
              (1,046,241
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      proceeds from notes payable
              
              
              -
              
              
              
              559,729Repayment
      of notes payable – stockholders
              
              
              (62,985
              )
              
              
              (147,406
              )Purchase
      treasury stock
              
              
              (667,206
              )
              
              
              -Repayment
      of notes payable
              
              
              (436,943
              )
              
              
              (2,073,938
              )Net
      cash (used in) financing activities
              
              
              (1,167,134
              )
              
              
              (1,661,615
              )NET
      INCREASE (DECREASE) IN CASH AND
CASH  EQUIVALENTS
              
              
              259,572
              
              
              
              56,946CASH
      AND CASH EQUIVALENTS –BEGINNING OF  PERIOD
              
              
              527,553
              
              
              
              232,249CASH
      AND CASH EQUIVALENTS -END OF  PERIOD
              
              $
              787,125
              
              
              $
              289,195
  See
the accompanying notes to the unaudited condensed consolidated financial
statements.
  8
 
 SITESTAR CORPORATION AND
SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
 FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
 (UNAUDITED)
  SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
  During
the nine months ended September 30, 2009 and 2008, the Company used cash to pay
income taxes of $420,718 and $0 and paid interest expense of approximately
$66,000 and $145,000, respectively.
  NON-CASH
INVESTING AND FINANCING TRANSACTIONS:
  During
the nine months ended September 30, 2009, the Company issued no shares of common
stock.
 
 9
  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
September 30, 2009.
 
 The
correction of the errors noted above decreased 2009 nine months net income by
$413,807.
 
 The
following is a summary of the effects of these changes on the Company’s
consolidated statements of income and cash flows:
  10
  SITESTAR
CORPORATION
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED-
RESTATED
 
 NOTE
1-RESTATEMENT OF FINANCIAL STATEMENTS, continued
  Consolidated Statements of IncomeFor the Quarter Ended September 30, 2009
                
                As Previously
                  Reported
                
                
                Adjustments
                
                
                As RestatedRevenue
                
                
                2,012,619
                
                
                
                (315,812
                )
                
                
                1,696,807Selling,
      general and administrative expenses
                
                
                1,219,689
                
                
                
                (189,199
                )
                
                
                1,030,490Income
      tax benefit (expense)
                
                
                37,417
                
                
                
                (496,580
                )
                
                
                (459,163
                )Net
      income
                
                
                114,145
                
                
                
                (623,193
                )
                
                
                (509,048
                )Basic
      and diluted income per share
                
                
                .00
                
                
                
                .01
                
                
                
                .01
  Consolidated Statements of IncomeFor the Nine
      Months Ended September 30, 2009
                  
                  As Previously
                    Reported
                  
                  
                  Adjustments
                  
                  
                  As RestatedRevenue
                  
                  
                  6,845,230
                  
                  
                  
                  (718,581
                  )
                  
                  
                  6,126,649Selling,
      general and administrative expenses
                  
                  
                  4,095,179
                  
                  
                  
                  (801,355
                  )
                  
                  
                  3,293,824Income
      tax benefit (expense)
                  
                  
                  128,635
                  
                  
                  
                  (496,581
                  )
                  
                  
                  (367,946
                  )Net
      income
                  
                  
                  439,181
                  
                  
                  
                  (413,807
                  )
                  
                  
                  25,374Basic
      and diluted income per share
                  
                  
                  .00
                  
                  
                  
                  -
                  
                  
                  
                  .00
 Consolidated Statements of Cash FlowsFor the Nine
      Months Ended September 30, 2009
                
                As Previously
                  Reported
                
                
                Adjustments
                
                
                As RestatedNet
      income
                
                
                439,181
                
                
                
                (413,807
                )
                
                
                25,374Allowance
      for doubtful accounts
                
                
                1,869
                
                
                
                (34,425
                )
                
                
                (32,556
                )Accounts
      receivable
                
                
                (242,034
                )
                
                
                (48,349
                )
                
                
                (290,383
                )Accrued
      income taxes
                
                
                27,650
                
                
                
                -
                
                
                
                27,650
 
 11
  SITESTAR
CORPORATION
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED-
RESTATED
 
 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 nine months ended September 30, 2009 are not necessarily indicative of the
results to be expected for the full year ending December 31, 2009.
 
 NOTE
3 – EARNINGS PER SHARE
  FASB
Accounting Standards Codification (“ASC”) 260-10 (Prior authoritative
literature: FASB Statement 128, “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
nine months ended September 30, 2009 and 2008:
  2009
              
              
              2008Restated
              
              
              RestatedNet
      income available to common shareholders
              
              $
              25,374
              
              
              $
              (26,924
              )Weighted
      average number of common shares
              
              
              77,771,500
              
              
              
              83,088,658Basic
      and diluted income per share
              
              $
              0.00
              
              
              $
              0.00
 
 12
  SITESTAR
CORPORATION
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED-
RESTATED
 
 NOTE
4 – COMMON STOCK
 
 During
the nine months ended September 30, 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 unit. 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.
  Summarized
financial information concerning the Company's reportable segments is shown in
the following table for the three months ended September 30, 2009 and
2008:
  September
      30, 2009Corporate
              
              
              Internet
              
              
              ConsolidatedRestated
              
              
              Restated
              
              
              RestatedRevenue
              
              $
              -
              
              
              $
              1,696,807
              
              
              $
              1,696,807Operating
      Income (loss)
              
              $
              (13,841
              )
              
              $
              (14,999
              )
              
              $
              (28,840
              )Depreciation
      and amortization
              
              $
              -
              
              
              $
              608,601
              
              
              $
              608,601Interest
      expense
              
              $
              -
              
              
              $
              17,842
              
              
              $
              17,842Intangible
      assets
              
              $
              -
              
              
              $
              4,024,534
              
              
              $
              4,024,534Total
      assets
              
              $
              -
              
              
              $
              6,471,856
              
              
              $
              6,471,856
 
 13
  SITESTAR
CORPORATION
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED-
RESTATED
  NOTE
5 – SEGMENT INFORMATION, continued
  September
      30, 2008Corporate
              
              
              Internet
              
              
              ConsolidatedRestated
              
              
              Restated
              
              
              RestatedRevenue
              
              $
              -
              
              
              $
              2,147,890
              
              
              $
              2,147,890Operating
      Income (loss)
              
              $
              (19,185
              )
              
              $
              (247,708
              )
              
              $
              (266,893
              )Depreciation
      and amortization
              
              $
              -
              
              
              $
              737,703
              
              
              $
              737,703Interest
      expense
              
              $
              -
              
              
              $
              34,069
              
              
              $
              34,069Intangible
      assets
              
              $
              -
              
              
              $
              5,998,095
              
              
              $
              5,998,095Total
      assets
              
              $
              -
              
              
              $
              6,369,543
              
              
              $
              6,369,543
 
 Summarized
financial information concerning the Company's reportable segments is shown in
the following table for the nine months ended September 30, 2009 and
2008:
  September
      30, 2009Corporate
              
              
              Internet
              
              
              ConsolidatedRestated
              
              
              Restated
              
              
              RestatedRevenue
              
              $
              -
              
              
              $
              6,126,649
              
              
              $
              6,126,649Operating
      Income (loss)
              
              $
              (93,456
              )
              
              $
              558,402
              
              
              $
              464,946Depreciation
      and amortization
              
              $
              -
              
              
              $
              1,895,893
              
              
              $
              1,895,893Interest
      expense
              
              $
              -
              
              
              $
              66,293
              
              
              $
              66,293Intangible
      assets
              
              $
              -
              
              
              $
              4,024,534
              
              
              $
              4,024,534Total
      assets
              
              $
              -
              
              
              $
              6,471,856
              
              
              $
              6,471,856
  September
      30, 2008Corporate
              
              
              Internet
              
              
              ConsolidatedRestated
              
              
              Restated
              
              
              RestatedRevenue
              
              $
              -
              
              
              $
              6,553,767
              
              
              $
              6,553,767Operating
      Income (loss)
              
              $
              (88,893
              )
              
              $
              609,540
              
              
              $
              520,647Depreciation
      and amortization
              
              $
              -
              
              
              $
              2,223,989
              
              
              $
              2,223,989Interest
      expense
              
              $
              -
              
              
              $
              144,587
              
              
              $
              144,587Intangible
      assets
              
              $
              -
              
              
              $
              5,998,095
              
              
              $
              5,998,095Total
      assets
              
              $
              -
              
              
              $
              6,369,543
              
              
              $
              6,369,543
 
 14
  SITESTAR
CORPORATION
 NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENT
 UNAUDITED-
RESTATED
 
 NOTE
6 – RECENTLY ISSUED ACCOUNTING PROUNCEMENTS
  In March
2008, the Financial Accounting Standards Board (FASB) issued FASB ASC 815-10
(Prior authoritative literature (“SFAS”) No. 161 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 ASC 815-10, but believes it will not have a material impact on its
financial position or on the results of operations.
  In April
2008, the FASB issued FASB ASC 350-30, Determination of the Useful Life of
Intangible Assets. FASB ASC 350-30 amends the factors an entity should consider
in developing renewal or extension assumptions used in determining the useful
life of recognized intangible assets under SFAS 142, Goodwill and Other
Intangible Assets, and adds certain disclosures for an entity’s accounting
policy of the treatment of the costs, period of extension, and total costs
incurred.  FASB ASC 350-30 must be applied prospectively to intangible
assets acquired after January 1, 2009.  The Company’s adoption of FASB
ASC 350-30 did not have a material impact on the Company’s condensed
consolidated financial statements.
 
 In June
2008, the FASB ratified FASB ASC 840-10, Accounting for Lessees for Maintenance
Deposits Under Lease Arrangements. FASB ASC 840-10 provides guidance for
accounting for nonrefundable maintenance deposits. It also provides revenue
recognition accounting guidance for the lessor. FASB ASC 840-10 is effective for
fiscal years beginning after December 15, 2008. The Company’s adoption of FASB
ASC 840-10 did not have a material impact on the Company’s condensed
consolidated financial statements.
  In
November 2008, the FASB issued FASB ASC 350-30, Accounting for Defensive
Intangible Assets”. FASB ASC 350-30 addresses the accounting for assets acquired
in a business combination or asset acquisition that an entity does not intend to
actively use, otherwise referred to as a ‘defensive asset.’ FASB ASC 350-30
requires defensive intangible assets to be initially accounted for as a separate
unit of accounting and not included as part of the cost of the acquirer’s
existing intangible asset(s) because it is separately identifiable. FASB ASC
350-30 also requires that defensive intangible assets be assigned a useful life
in accordance with FASB ASC 350-30-35 and is effective for financial statements
issued for fiscal years beginning after December 15, 2008.
  15
 
 SITESTAR
CORPORATION
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED-
RESTATED
  NOTE
6 – RECENTLY ISSUED ACCOUNTING PROUNCEMENTS, continued
  The
Company has adopted this standard effective January 1, 2009 and the Company’s
adoption of this pronouncement did not have a material impact on the Company’s
condensed consolidated financial statements.
 
 In April
2009, the FASB issued FASB ASC 320-10, Recognition and Presentation of
Other-Than-Temporary Impairments. FASB ASC 320-10 amends the
other-than-temporary impairment guidance for debt securities to make the
guidance more operational and to improve the presentation and disclosure of
other-than-temporary impairments in the financial statements. The most
significant change FASB ASC 320-10 brings is a revision to the amount of
other-than-temporary loss of a debt security recorded in earnings. FASB ASC
320-10 is effective for interim and annual reporting periods ending after June
15, 2009 The Company’s adoption of FASB ASC 320-10 did not have a material
impact on the Company’s condensed consolidated financial
statements.
  In April
2009, the FASB issued FASB ASC 820-10, Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly. FASB ASC 820-10 provides
additional guidance for estimating fair when the volume and level of activity
for the asset or liability have significantly decreased. FASB ASC 820-10 also
includes guidance on identifying circumstances that indicate a transaction is
not orderly. This FSP emphasizes that even if there has been a significant
decrease in the volume and level of activity for the asset or liability and
regardless of the valuation technique(s) used, the objective of a fair value
measurement remains the same. Fair value is the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction (that
is, not a forced liquidation or distressed sale) between market participants at
the measurement date under current market conditions. FASB ASC 820-10 is
effective for interim and annual reporting periods ending after June 15, 2009,
and is applied prospectively. The Company’s adoption of FASB ASC 820-10 did not
have a material impact on the Company’s condensed consolidated financial
statements.
  In April
2009, the FASB issued FASB ASC 825-10, Interim Disclosures about Fair Value of
Financial Instruments. FASB ASC 825-10 amends FASB Statement No. 107,
Disclosures about Fair Value of Financial Instruments, to require disclosures
about fair value of financial instruments for interim reporting periods of
publicly traded companies as well as in annual financial statements. FASB ASC
825-10 also amends APB Opinion No. 28, Interim Financial Reporting, to require
those disclosures in summarized financial information at interim reporting
periods FASB ASC 825-10 is effective for interim and annual reporting periods
ending after June 15, 2009. The Company’s adoption of issued FASB ASC 825-10 did
not have a material impact on the Company’s condensed consolidated financial
statements.
  16
 
 SITESTAR
CORPORATION
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED-
RESTATED
  NOTE
6 – RECENTLY ISSUED ACCOUNTING PROUNCEMENTS, continued
  In June
2009, the Financial Accounting Standards Board (“FASB”) issued FASB ASC 105-10,
The FASB Accounting Standards Codification and Hierarchy of Generally Accepted
Accounting Principles, a replacement of FASB Statement No. 162. FASB ASC 105-10
establishes the FASB Standards Accounting Codification (“Codification”) as the
source of authoritative GAAP recognized by the FASB to be applied to
nongovernmental entities. The only other source of authoritative GAAP is the
rules and interpretive releases of the SEC which only apply to SEC registrants.
The Codification will supersede all the existing non-SEC accounting and
reporting standards upon its effective date. Since the issuance of the
Codification is not intended to change or alter existing GAAP, adoption of this
statement will not have an impact on the Company’s financial position or results
of operations, but will change the way in which GAAP is referenced in the
Company’s financial statements. FASB ASC 105-10 is effective for interim
and annual reporting periods ending after September 15, 2009.
 
 In May
2009, the FASB issued FASB ASC 855-10, Subsequent Events, which establishes
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before the financial statements are issued or are
available to be issued. The Company adopted FASB ASC 855-10 effective
April 1, 2009 and has evaluated subsequent events after the balance sheet
date of September 30, 2009 through the date the financial statements were
issued.
 
 In
October 2009, the FASB issued Accounting Standards Update 2009-13, “Revenue
Recognition (Topic 605)”. This Update provides amendments to the criteria in
Subtopic 605-24 for separating consideration in multiple-deliverable revenue
arrangements. It establishes a hierarchy of selling prices to determine the
selling price of each specific deliverable which includes vendor-specific
objective evidence (if available), third-party evidence (if vendor-specific
evidence is not available), or estimated selling price if neither of the first
two are available. This Update also eliminates the residual method for
allocating revenue between the elements of an arrangement and requires that
arrangement consideration be allocated at the inception of the arrangement.
Finally, this Update expands the disclosure requirements regarding a vendor’s
multiple-deliverable revenue arrangements. This Update is effective for fiscal
years beginning on or after June 15, 2010. We do not anticipate any
material impact from this Update.
  17
  SITESTAR
CORPORATION
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED-
RESTATED
 
 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 nine months ended September 30, 2008.
 
 The
following table presents the unaudited pro forma condensed statement of
operations for the nine months ended September 30, 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.
 
 18
  SITESTAR
CORPORATION
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED-
RESTATED
 
 NOTE
7 – ACQUISITIONS, continued
  2008Net
      sales
              
              $
              7,703,363Gross
      profit
              
              $
              5,585,955Selling,
      general and administrative expenses
              
              $
              4,363,649Net
      income
              
              $
              1,148,223Basic
      income per share
              
              $
              0.01
 
 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 paid 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
limited results of operations of Comcation in the consolidated financial
statements for the nine months ended September 30, 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 nine months ended September 30, 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
              
              $
              7,713,682Gross
      profit
              
              $
              5,592,125Selling,
      general and administrative expenses
              
              $
              4,362,868Net
      income
              
              $
              1,154,957Basic
      income per share
              
              $
              0.01
 
 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 limited results of operations of Dial Assurance in the consolidated
financial statements for the nine months ended September 30, 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 nine months ended September 30, 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
              
              $
              7,779,720Gross
      profit
              
              $
              5,635,770Selling,
      general and administrative expenses
              
              $
              4,424,172Net
      income
              
              $
              1,137,515Basic
      income per share
              
              $
              0.01
 
 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 USA Telephone was consummated effective May 1, 2008, there
are limited results of operations of USA Telephone in the consolidated financial
statements for the nine months ended September 30, 2008.
 
 21
 
 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 nine months ended September 30, 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
              
              $
              8,065,588Gross
      profit
              
              $
              5,831,592Selling,
      general and administrative expenses
              
              $
              4,478,810Net
      income
              
              $
              1,278,699Basic
      income per share
              
              $
              0.01
 
 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
limited results of operations of AdaNet in the consolidated financial statements
for the nine months ended September 30, 2008.
  22
 
 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 nine months ended September 30, 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
              
              $
              7,666,164Gross
      profit
              
              $
              5,561,657Selling,
      general and administrative expenses
              
              $
              4,348,702Net
      income
              
              $
              1,138,872Basic
      income per share
              
              $
              0.01
 
 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 limited results of operations of Velocity West in the consolidated financial
statements for the nine months ended September 30, 2008.
 
 23
  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 nine months ended September 30, 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
              
              $
              8,092,497Gross
      profit
              
              $
              5,837,392Selling,
      general and administrative expenses
              
              $
              4,347,192Net
      income
              
              $
              1,416,117Basic
      income per share
              
              $
              0.01
  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 nine months ended September 30,
2008.
 
 24
 
 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 nine months ended September 30, 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
              
              $
              8,414,664Gross
      profit
              
              $
              6,057,134Selling,
      general and administrative expenses
              
              $
              4,547,575Net
      income
              
              $
              1,407,892Basic
      income per share
              
              $
              0.01
 
 Pulaski Networks,
LLC
  Effective
February 10, 2009, the Company entered into an Asset Purchase Agreement pursuant
to which it acquired the Internet related assets of Pulaski Networks, LLC, a
Virginia-based ISP.  The total purchase price was $24,907 representing
the fair value of the assets acquired which consisted of applying the amount
owed to the Company by Pulaski Networks for wholesale dial-up service to the
purchase price.
 
 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.
 
 Equipment
              
              $
              3,000Customer
      list
              
              
              62,907Non-compete
      agreement
              
              
              1,000Deferred
      revenue
              
              
              (42,000
              )Purchase
      price
              
              $
              24,907
 
 Because
the acquisition of Pulaski Networks was consummated effective February 10, 2009,
there are limited results of operations of Pulaski Networks in the consolidated
financial statements for the nine months ended September 30, 2009.
 
 25
  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 nine months ended September 30, 2009 and reflects the results
of operations of the Company as if the acquisition of Pulaski Networks had been
effective January 1, 2009.  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.
 
 2009Net
      sales
              
              $
              7,740,548Gross
      profit
              
              $
              5,612,975Selling,
      general and administrative expenses
              
              $
              4,369,460Net
      income
              
              $
              1,169,432Basic
      income per share
              
              $
              0.01
 
 NOTE
8 -- PROVISION FOR INCOME TAXES
  The
provision for federal and state income taxes for the nine months ended September
30, 2009 and 2008 included the following:
 
 2009
              
              
              2008Current
      provision:Federal
              
              $
              381,113
              
              
              $
              167,214State
              
              
              67,256
              
              
              
              29,508Deferred
      provision:Federal
              
              
              (68,359
              )
              
              
              197,096State
              
              
              (12,064
              )
              
              
              34,782Total
      income tax provision
              
              $
              367,946
              
              
              $
              428,600
  26
  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 September 30, 2009 and
December 31, 2008 are as follows:
 2009
              
              
              2008Accounts
      receivable
              
              $
              20,510
              
              
              $
              19,762Amortization
      of Intangible assets
              
              
              3,033,364
              
              
              
              2,953,689Less
      valuation allowance
              
              
              (2,552,420
              )
              
              
              (2,552,420
              )Deferred
      tax
      asset
              
              $
              501,454
              
              
              $
              421,031
 
 At
September 30, 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 as of the year ended December
31, 2008.  Loss carry forwards are set to begin expiring in 2021 for
both federal and state purposes.
 
 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 $1,870,031 and $2,192,950 for the nine
months ended September 30, 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.
 
 27
  SITESTAR
CORPORATION
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED-
RESTATED
 
 NOTE
11 - NOTES PAYABLE
  Notes
payable at September 30, 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
                
                
                47,429
                
                
                
                257,451Non-interest
      bearing amount due on acquisition of USA Telephone payable in thirty six
      monthly installments starting January 2008
                
                
                1,000,615
                
                
                
                1,215,615Totals
                
                
                1,048,044
                
                
                
                1,484,987Less
      current portion
                
                
                (347,429
                )
                
                
                (569,372
                )Long-term
      portion
                
                $
                700,615
                
                
                $
                915,615
  The
future principal maturities of these notes are as follows:
  Twelve
      months ending September 30, 2010
              
              $
              347,429Twelve
      months ending September 30, 2011
              
              
              300,000Twelve
      months ending September 30, 2012
              
              
              300,000Twelve
      months ending September 30, 2013
              
              
              100,615Twelve
      months ending September 30, 2014
              
              
              -Thereafter
              
              
              -Total
              
              $
              1,048,044
 
 28
  SITESTAR
CORPORATION
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED-
RESTATED
 
 NOTE
12 - NOTES PAYABLE - STOCKHOLDERS
  Notes
payable - stockholders at September 30, 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.
              
              $
              371,711
              
              
              $
              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 was paid in full on June 30, 2009 and
      bore interest at an annual rate of 8.0%.
              
              
              -
              
              
              
              54,985Totals
              
              
              476,296
              
              
              
              539,281Less
      current portion
              
              
              -
              
              
              
              -Long-term
      portion
              
              $
              476,296
              
              
              $
              539,281
 
 The
future principal maturities of these notes are as follows:
  Year
      ending September 30, 2010
              
              $
              -Year
      ending September 30, 2011
              
              
              -Year
      ending September 30, 2012
              
              
              476,296Year
      ending September 30, 2013
              
              
              -Year
      ending September 30, 2014
              
              
              -
 Total
              
              
              
              
              
              $
              476,296
 
 29
  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 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.
 
 30
  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 nine months ended September 30,
2009 and 2008. Operating results for any period are not necessarily indicative
of results for any future period.
 
 For the nine months ended September 30, 2009
      (unaudited)Corporate
              
              
              Internet
              
              
              TotalRevenue
              
              $
              -
              
              
              $
              6,126,649
              
              
              $
              6,126,649Cost
      of revenue
              
              
              -
              
              
              
              2,367,879
              
              
              
              2,367,879Gross
      profit
              
              
              -
              
              
              
              3,758,770
              
              
              
              3,758,770Operating
      expenses
              
              
              93,456
              
              
              
              3,200,368
              
              
              
              3,293,824Income
      (loss) from operations
              
              
              (93,456
              )
              
              
              558,402
              
              
              
              464,946Other
      income (expense)
              
              
              -
              
              
              
              (71,626
              )
              
              
              (71,626
              )Income
      (loss) before income taxes
              
              
              (93,456
              )
              
              
              486,776
              
              
              
              393,320Income
      taxes expense (benefit)
              
              
              367,946
              
              
              
              -
              
              
              
              367,946Net
      income (loss)
              
              $
              (461,402
              )
              
              $
              486,776
              
              
              $
              25,374
 
 31
  SITESTAR
CORPORATION
 
 Item
2.     Management's Discussion and Analysis of Financial
Condition and Results of Operations, continued
 
 For the nine months ended September 30, 2008
      (unaudited)Corporate
              
              
              Internet
              
              
              TotalRevenue
              
              $
              -
              
              
              $
              6,553,767
              
              
              $
              6,553,767Cost
      of revenue
              
              
              -
              
              
              
              2,097,509
              
              
              
              2,097,509Gross
      profit
              
              
              -
              
              
              
              4,456,258
              
              
              
              4,456,258Operating
      expenses
              
              
              88,893
              
              
              
              3,846,718
              
              
              
              3,935,611Income
      (loss) from operations
              
              
              (88,893
              )
              
              
              609,540
              
              
              
              520,647Other
      income (expense)
              
              
              -
              
              
              
              (118,971
              )
              
              
              (118,971
              )Income
      (loss) before income taxes
              
              
              (88,893
              )
              
              
              490,569
              
              
              
              401,676Income
      taxes
              
              
              428,600
              
              
              
              -
              
              
              
              428,600Net
      income (loss)
              
              $
              (517,493
              )
              
              $
              490,569
              
              
              $
              (26,924
              )
 
 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 nine months ended September 30, 2009 and 2008.
 
 32
  SITESTAR
CORPORATION
 
 Item
2.     Management's Discussion and Analysis of Financial
Condition and Results of Operations, continued
  For
      the nine months ended September 30, 2009Corporate
              
              
              Internet
              
              
              TotalEBITDA
              
              $
              (93,456
              )
              
              $
              2,448,962
              
              
              $
              2,355,506Interest
      expense
              
              
              -
              
              
              
              (66,293
              )
              
              
              (66,293
              )Taxes
              
              
              (367,946
              )
              
              
              -
              
              
              
              (367,946
              )Depreciation
              
              
              -
              
              
              
              (25,862
              )
              
              
              (25,862
              )Amortization
              
              
              -
              
              
              
              (1,870,031
              )
              
              
              (1,870,031
              )Net
      income (loss)
              
              $
              (461,402
              )
              
              $
              486,776
              
              
              $
              25,374
 
 For
      the nine months ended September 30, 2008Corporate
              
              
              Internet
              
              
              TotalEBITDA
              
              $
              (88,893
              )
              
              $
              2,859,145
              
              
              $
              2,770,252Interest
      expense
              
              
              -
              
              
              
              (144,587
              )
              
              
              (144,587
              )Taxes
              
              
              (428,600
              )
              
              
              -
              
              
              
              (428,600
              )Depreciation
              
              
              -
              
              
              
              (31,039
              )
              
              
              (31,039
              )Amortization
              
              
              -
              
              
              
              (2,192,950
              )
              
              
              (2,192,950
              )Net
      income (loss)
              
              $
              (517,493
              )
              
              $
              490,569
              
              
              $
              (26,924
              )
 
 NINE MONTHS ENDED SEPTEMBER
30, 2009 COMPARED TO SEPTEMBER 30, 2008 (Unaudited)
  REVENUE
 
 Revenue
for the nine months ended September 30, 2009 decreased by $427,118 or 6.5% from
$6,553,767 for the nine months ended September 30, 2008 to $6,126,649 for the
same period in 2009.  Internet sales decreased primarily due to
customer attrition to broadband services and offset in part by the addition of
Internet customers from asset acquisitions.  To help offset this
decline in revenues, the Company has acquired and plans to continue to acquire
the assets of additional ISPs and fold them into its operations.
 
 COST
OF REVENUE
 
 Costs of
revenue for the nine months ended September 30, 2009 increased by $270,370 or
12.9% from $2,097,509 for the nine months ended September 30, 2008 to $2,367,879
for the same period in 2009.  Cost of revenue increased as a result of
increasing the product mix with more broadband services which carries a higher
cost of providing bandwidth and connectivity.  This is a reflection of
the acquisitions of fiber and DSL customers late in the second quarter and
fourth quarters of 2008.
  33
  SITESTAR
CORPORATION
 
 Item
2.     Management's Discussion and Analysis of Financial
Condition and Results of Operations, continued
 
 OPERATING
EXPENSES
  Operating
expenses for the nine months ended September 30, 2009 decreased $641,787 or
16.3% from $3,935,611 for the nine months ended September 30, 2008 to $3,293,824
for the same period in 2009.  This decrease is a reflection of lower
revenue and associated variable costs.  Amortization expense decreased
$322,919 or 14.7% from $2,192,950 for the nine months ended September 30, 2008
to $1,870,031 for the same period in 2009.  Wages decreased $67,384 or
12.5% from $540,046 for the nine months ended September 30, 2008 to $472,662 for
the same period in 2009.  Bad debt expense decreased $234,500 or 34.8%
from $674,757 for the nine months ended September 30, 2008 to $440,257 for the
same period in 2009. Corporate expenses for the nine months ended September 30,
2009 and September 30, 2008 consisted primarily of professional fees of $86,243
and $81,882.
  INCOME
TAXES
 
 For the
nine months ended September 30, 2009 and September 30, 2008 corporate income tax
(expense) benefit of $(367,946) and $(428,600) were accrued.
  INTEREST
EXPENSE
 
 Interest
expense for the nine months ended September 30, 2009 decreased by $78,294 or
54.2% from $144,587 for the nine months ended September 30, 2008 to $66,293 for
the same period in 2009.  This decrease is a result of reducing debt to
finance the acquisition of additional customers.
 
 SEPTEMBER 30, 2009
(Unaudited) COMPARED TO DECEMBER 31, 2008 (Audited)
 
 FINANCIAL
CONDITION
 
 Net
accounts receivable increased $322,939 or 89.4% from $361,056 on December 31,
2008 to $683,995 on September 30, 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 increased by $777 or
1.1% from $70,239 on December 31, 2008 to $71,016 on September 30,
2009.  Accounts payable increased by $25,394 or 31.4% from $80,892 on
December 31, 2008 to $106,286 on September 30, 2009. Accrued expenses decreased
by $695 or 0.7% from $94,882 on December 31, 2008 to $94,187 on September 30,
2009.
 
 34
  SITESTAR
CORPORATION
  Item
2.     Management's Discussion and Analysis of Financial
Condition and Results of Operations, continued
 
 Deferred
revenue decreased by $71,422 or 6.2% from $1,157,597 on December 31, 2008 to
$1,086,175 on September 30, 2009 representing decreased volume of customer
accounts that have been prepaid. The current portion of notes payable decreased
$221,943 or 39.0% from $569,372 on December 31, 2008 to $347,429 on September
30, 2009.  This is due to the curtailment of term notes financing the
purchase of customer bases.  Long-term notes payable decreased
$215,000 or 23.5% from $915,615 on December 31, 2008 to $700,615 on September
30, 2009. This is due to the curtailment of term notes financing the purchase of
customer bases. Long-term notes payable to shareholders decreased $62,985 or
11.7% from $539,281 on December 31, 2008 to $476,296 on September 30,
2009.  This is due primarily to the early payoff of one
note.
 
 LIQUIDITY AND CAPITAL
RESOURCES
  Cash and
cash equivalents totaled $787,125 and $527,553 at September 30, 2009 and at
December 31, 2008.  EBITDA was $2,355,506 for the nine months ended
September 30, 2009 as compared to $2,770,252 for the same period in
2008.
  2009
              
              
              2008EBITDA
      for the nine months ended September 30,
              
              $
              2,355,506
              
              
              $
              2,770,252Interest
      expense
              
              
              (66,293
              )
              
              
              (144,587
              )Taxes
              
              
              (367,946
              )
              
              
              (428,600
              )Depreciation
              
              
              (25,862
              )
              
              
              (31,039
              )Amortization
              
              
              (1,870,031
              )
              
              
              (2,192,950
              )Net
      income for the nine months ended September 30,
              
              $
              25,374
              
              
              $
              (26,924
              )
  The aging
of accounts receivable as of September 30, 2009 and December 31, 2008 is as
shown:
 
 2009
              
              
              2008Current
              
              
              $
              444,597
              
              
              
              65
              %
              
              $
              213,023
              
              
              
              59
              %30
      < 60
              
              
              
              116,279
              
              
              
              17
              %
              
              
              79,432
              
              
              
              22
              %60+
              
              
              
              123,119
              
              
              
              18
              %
              
              
              68,601
              
              
              
              19
              %Total
              
              
              $
              683,995
              
              
              
              100
              %
              
              $
              361,056
              
              
              
              100
              %
 
 35
  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.
 
 36
  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 September
30, 2009.
  37
 
 SITESTAR
CORPORATION
 
 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 September 30, 2009, that materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.
 
 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 Company took a purchase price
adjustment based on a material warranty misrepresentation of customer counts and
revenues by First USA.  The complaint demands judgment of approximately
$150,000.The
Company will vigorously defend this claim.  A Motion to Compel
Discovery was filed on October 14, 2009 on behalf of the Company and a date is
pending for the motion to be heard.
 
 Item
1A.   Risk Factors
  Not
required for small business.
  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
 
 38
 
 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, 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
 
 39
  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. Judd
                  Chief
      Financial Officer
                  (Principal
      Financial Office
  40