UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
  FORM
10-Q
  x
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES
 EXCHANGE ACT
OF 1934
  For
the quarterly period ended September 30, 2009
   ̈
   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  ̈
 
 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  ̈ Accelerated Filer
 ̈ Non-Accelerated
Filer (Do not check if a smaller reporting Company)  ̈ 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  ̈No
 
 Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Exchange Act). Yes  ̈ No x
 
 As
of November 13, 2009, the issuer had 84,526,510 shares of common stock issued
and outstanding.
  
  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
                                                      3-4Condensed
      Consolidated Statements of Income for the three months ended September 30,
      2009 and 2008
                                                      5Condensed
      Consolidated Statements of Income for the nine months ended September 30,
      2009 and 2008
                                                      6Condensed
      Consolidated Statements of Cash Flows for the nine months ended September
      30, 2009 and 2008
                                                      7-8Notes
      to Condensed Consolidated Financial Statements
                                                      9-26Item
      2.
                                                      Management's
      Discussion and Analysis
                                                      27-34Item
      3.
                                                      Quantitative
      and Qualitative Disclosures About Market Risk
                                                      34Item
      4.
                                                      Controls
      and Procedures
                                                      34-37Part
      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
                                                      38SIGNATURES
                                                      39
  2
 
 PART
I. FINANCIAL INFORMATION
  Item 1.     Financial
Statements
  SITESTAR
CORPORATION AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 SEPTEMBER
30, 2009 AND DECEMBER 31, 2008
 (UNAUDITED)
 
 ASSETS
 2009
                  
                  
                  2008CURRENT
      ASSETSCash
      and cash equivalents
                  
                  $
                  787,125
                  
                  
                  $
                  527,553Accounts
      receivable, net of allowance of $51,274and
      $26,764
                  
                  
                  978,990
                  
                  
                  
                  738,824Prepaid
      expenses
                  
                  
                  1,382
                  
                  
                  
                  1,227Total
      current assets
                  
                  
                  1,767,497
                  
                  
                  
                  1,267,604PROPERTY
      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
                  
                  
                  998,034
                  
                  
                  
                  421,031OTHER
      ASSETS
                  
                  
                  460,543
                  
                  
                  
                  583,637TOTAL
      ASSETS
                  
                  $
                  7,263,431
                  
                  
                  $
                  8,010,457
  See the
accompanying notes to the unaudited condensed consolidated financial
statements.
  3
 
 SITESTAR
CORPORATION AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS, continued
 SEPTEMBER
30, 2009 AND DECEMBER 31, 2008
 (UNAUDITED)
  LIABILITIES
AND STOCKHOLDERS’ EQUITY
  2009
                    
                    
                    2008CURRENT
      LIABILITIESAccounts
      payable
                    
                    $
                    106,286
                    
                    
                    $
                    80,892Accrued
      income taxes
                    
                    
                    366,666
                    
                    
                    
                    339,016Accrued
      expenses
                    
                    
                    94,187
                    
                    
                    
                    94,882Deferred
      revenue
                    
                    
                    1,086,175
                    
                    
                    
                    1,157,597Notes
      payable
                    
                    
                    347,429
                    
                    
                    
                    569,372Total
      current liabilities
                    
                    
                    2,000,743
                    
                    
                    
                    2,241,759NOTES
      PAYABLE, less current portion
                    
                    
                    700,615
                    
                    
                    
                    915,615NOTES
      PAYABLE - STOCKHOLDERS, less current portion
                    
                    
                    476,296
                    
                    
                    
                    539,281TOTAL
      LIABILITIES
                    
                    
                    3,177,654
                    
                    
                    
                    3,696,655STOCKHOLDERS'
      EQUITYPreferred
      Stock, $.001 par value, 10,000,000 sharesauthorized, 0 shares
      issued and outstanding
                    
                    
                    -
                    
                    
                    
                    -Common
      stock, $.001 par value, 300,000,000 sharesauthorized,
      84,526,510 and 91,326,463 shares issued andoutstanding
      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 commonshares
      on September 30,  2009 and December 31,
    2008
                    
                    
                    (731,426
                    )
                    
                    
                    (64,220
                    )Accumulated
      deficit
                    
                    
                    (9,155,070
                    )
                    
                    
                    (9,594,251
                    )Total
      stockholders’ equity
                    
                    
                    4,085,777
                    
                    
                    
                    4,313,802TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                    
                    $
                    7,263,431
                    
                    
                    $
                    8,010,457
  See the
accompanying notes to the unaudited condensed consolidated financial
statements.
  4
 
 SITESTAR
CORPORATION AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
 FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
 (UNAUDITED)
  2009
                      
                      
                      2008REVENUE
                      
                      $
                      2,012,619
                      
                      
                      $
                      2,485,294COST
      OF REVENUE
                      
                      
                      695,157
                      
                      
                      
                      709,708GROSS
      PROFIT
                      
                      
                      1,317,462
                      
                      
                      
                      1,775,586OPERATING
      EXPENSES:Selling
      general and administrative expenses
                      
                      
                      1,219,689
                      
                      
                      
                      1,351,087INCOME
      FROM OPERATIONS
                      
                      
                      97,773
                      
                      
                      
                      424,499OTHER
      INCOME (EXPENSES)
                      
                      
                      (21,045
                      )
                      
                      
                      (32,439
                      )INCOME
      BEFORE INCOME TAXES
                      
                      
                      76,728
                      
                      
                      
                      392,060INCOME
      TAXES (EXPENSE) BENEFIT
                      
                      
                      37,417
                      
                      
                      
                      56,165NET
      INCOME
                      
                      $
                      114,145
                      
                      
                      $
                      448,225BASIC
      AND DILUTED EARNINGS PER SHARE
                      
                      $
                      0.00
                      
                      
                      $
                      0.00WEIGHTED
      AVERAGE SHARESOUTSTANDING - BASIC AND
DILUTED
                      
                      
                      86,589,181
                      
                      
                      
                      91,326,463
  See the
accompanying notes to the unaudited condensed consolidated financial
statements.
  5
 
 SITESTAR
CORPORATION AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
 FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
 (UNAUDITED)
  2009
                    
                    
                    2008REVENUE
                    
                    $
                    6,845,230
                    
                    
                    $
                    7,644,538COST
      OF REVENUE
                    
                    
                    2,367,879
                    
                    
                    
                    2,097,509GROSS
      PROFIT
                    
                    
                    4,477,351
                    
                    
                    
                    5,547,029OPERATING
      EXPENSES:Selling
      general and administrative expenses
                    
                    
                    4,095,179
                    
                    
                    
                    4,335,119INCOME
      FROM OPERATIONS
                    
                    
                    382,172
                    
                    
                    
                    1,211,910OTHER
      INCOME (EXPENSES)
                    
                    
                    (71,626
                    )
                    
                    
                    (118,971
                    )INCOME
      BEFORE INCOME TAXES
                    
                    
                    310,546
                    
                    
                    
                    1,092,939INCOME
      TAXES (EXPENSE) BENEFIT
                    
                    
                    128,635
                    
                    
                    
                    44,888NET
      INCOME
                    
                    $
                    439,181
                    
                    
                    $
                    1,137,827BASIC
      AND DILUTED EARNINGS PER SHARE
                    
                    $
                    0.00
                    
                    
                    $
                    0.01WEIGHTED
      AVERAGE SHARESOUTSTANDING - BASIC AND
DILUTED
                    
                    
                    86,589,181
                    
                    
                    
                    91,326,463
 
 See the
accompanying notes to the unaudited condensed consolidated financial
statements.
  6
 
 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:Net
      income
                  
                  $
                  439,181
                  
                  
                  $
                  1,137,827Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization expense
                  
                  
                  1,895,893
                  
                  
                  
                  2,223,989Bad
      debt expense
                  
                  
                  1,869
                  
                  
                  
                  31,048(Increase)
      decrease in:Accounts
      receivable
                  
                  
                  (242,034
                  )
                  
                  
                  (413,704
                  )Prepaid
      expenses
                  
                  
                  (155
                  )
                  
                  
                  15,084Deferred
      tax asset
                  
                  
                  (577,003
                  )
                  
                  
                  (299,150
                  )Increase
      (decrease) in:Accounts
      payable
                  
                  
                  25,393
                  
                  
                  
                  (56,305
                  )Accrued
      expenses
                  
                  
                  (695
                  )
                  
                  
                  (31,673
                  )Deferred
      revenue
                  
                  
                  (71,422
                  )
                  
                  
                  (96,576
                  )Accrued
      income taxes
                  
                  
                  27,650
                  
                  
                  
                  254,262Net
      cash provided by operating activities
                  
                  
                  1,498,677
                  
                  
                  
                  2,764,802CASH
      FLOWS FROM INVESTING ACTIVITIES:Other
      assets held for resale
                  
                  
                  (574
                  )
                  
                  
                  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
                  
                  
                  (71,972
                  )
                  
                  
                  (1,046,241
                  )CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      proceeds from notes payable
                  
                  
                  -
                  
                  
                  
                  559,729Repayment
      of notes payable – stockholders
                  
                  
                  (62,984
                  )
                  
                  
                  (147,406
                  )Purchase
      treasury stock
                  
                  
                  (667,206
                  )
                  
                  
                  -Repayment
      of notes payable
                  
                  
                  (436,943
                  )
                  
                  
                  (2,073,938
                  )Net
      cash (used in) financing activities
                  
                  
                  (1,167,133
                  )
                  
                  
                  (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.
  7
 
 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.
  8
 
 SITESTAR
CORPORATION
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
1 – 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
2 – 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
                        
                        
                        2008Net
      income available to common shareholders
                        
                        $
                        439,181
                        
                        
                        $
                        1,137,827Weighted
      average number of common shares
                        
                        
                        86,589,181
                        
                        
                        
                        91,326,463Basic
      and diluted income per share
                        
                        $
                        0.00
                        
                        
                        $
                        0.01
  9
 
 SITESTAR
CORPORATION
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
3 – COMMON STOCK
 
 During
the nine months ended September 30, 2009, the Company issued no shares of common
stock.
  NOTE
4 – 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
                          
                          
                          ConsolidatedRevenue
                          
                          $
                          -
                          
                          
                          $
                          2,012,619
                          
                          
                          $
                          2,012,619Operating
      Income (loss)
                          
                          $
                          (13,841
                          )
                          
                          $
                          111,614
                          
                          
                          $
                          97,773Depreciation
      and amortization
                          
                          $
                          -
                          
                          
                          $
                          608,601
                          
                          
                          $
                          608,601Interest
      expense
                          
                          $
                          -
                          
                          
                          $
                          17,842
                          
                          
                          $
                          17,842Intangible
      assets
                          
                          $
                          -
                          
                          
                          $
                          5,157,463
                          
                          
                          $
                          5,157,463Total
      assets
                          
                          $
                          -
                          
                          
                          $
                          7,263,431
                          
                          
                          $
                          7,263,431
  10
 
 SITESTAR
CORPORATION
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  NOTE
4 – SEGMENT INFORMATION, continued
  September
      30, 2008Corporate
                          
                          
                          Internet
                          
                          
                          ConsolidatedRevenue
                          
                          $
                          -
                          
                          
                          $
                          2,485,294
                          
                          
                          $
                          2,485,294Operating
      Income (loss)
                          
                          $
                          (19,185
                          )
                          
                          $
                          443,684
                          
                          
                          $
                          424,499Depreciation
      and amortization
                          
                          $
                          -
                          
                          
                          $
                          737,703
                          
                          
                          $
                          737,703Interest
      expense
                          
                          $
                          -
                          
                          
                          $
                          34,069
                          
                          
                          $
                          34,069Intangible
      assets
                          
                          $
                          -
                          
                          
                          $
                          6,198,095
                          
                          
                          $
                          6,198,095Total
      assets
                          
                          $
                          -
                          
                          
                          $
                          7,777,806
                          
                          
                          $
                          7,777,806
 
 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
                        
                        
                        ConsolidatedRevenue
                        
                        $
                        -
                        
                        
                        $
                        6,845,230
                        
                        
                        $
                        6,845,230Operating
      Income (loss)
                        
                        $
                        (93,456
                        )
                        
                        $
                        475,628
                        
                        
                        $
                        382,172Depreciation
      and amortization
                        
                        $
                        -
                        
                        
                        $
                        1,895,893
                        
                        
                        $
                        1,895,893Interest
      expense
                        
                        $
                        -
                        
                        
                        $
                        66,293
                        
                        
                        $
                        66,293Intangible
      assets
                        
                        $
                        -
                        
                        
                        $
                        5,157,463
                        
                        
                        $
                        5,157,463Total
      assets
                        
                        $
                        -
                        
                        
                        $
                        7,263,431
                        
                        
                        $
                        7,263,431
  September
      30, 2008Corporate
                        
                        
                        Internet
                        
                        
                        ConsolidatedRevenue
                        
                        $
                        -
                        
                        
                        $
                        7,644,538
                        
                        
                        $
                        7,644,538Operating
      Income (loss)
                        
                        $
                        (88,893
                        )
                        
                        $
                        1,300,803
                        
                        
                        $
                        1,211,910Depreciation
      and amortization
                        
                        $
                        -
                        
                        
                        $
                        2,223,989
                        
                        
                        $
                        2,223,989Interest
      expense
                        
                        $
                        -
                        
                        
                        $
                        144,587
                        
                        
                        $
                        144,587Intangible
      assets
                        
                        $
                        -
                        
                        
                        $
                        6,198,095
                        
                        
                        $
                        6,198,095Total
      assets
                        
                        $
                        -
                        
                        
                        $
                        7,777,806
                        
                        
                        $
                        7,777,806
  11
 
 SITESTAR
CORPORATION
 NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENT
 
 NOTE
5 – 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.
  12
 
 SITESTAR
CORPORATION
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  NOTE
5 – 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.
  13
 
 SITESTAR
CORPORATION
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  NOTE 5 –
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.
  14
 
 SITESTAR
CORPORATION
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
6 – 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.
  15
 
 SITESTAR
CORPORATION
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
6 – 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.
  16
 
 SITESTAR
CORPORATION
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
6 – 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.
  17
 
 SITESTAR
CORPORATION
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
6 – 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.
  18
 
 SITESTAR
CORPORATION
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
6 – 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.
  19
 
 SITESTAR
CORPORATION
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
6 – 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.
  20
 
 SITESTAR
CORPORATION
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
6 – 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.
  21
  SITESTAR
CORPORATION
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
6 – 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.
  22
 
 SITESTAR
CORPORATION
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
6 – 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
7 — PROVISION FOR INCOME TAXES
 
 The
reconciliation of the effective income tax rate to the federal statutory rate as
of September 30, 2009 and 2008 is as follows:
  2009
                                                            
                                                            
                                                            2008Federal
      and state income tax rate
                                                            
                                                            
                                                            40.0
                                                            %
                                                            
                                                            
                                                            40.0
                                                            %Effect
      of net operating loss
                                                            
                                                            
                                                            (0.0
                                                            )%
                                                            
                                                            
                                                            (0.0
                                                            )%Effective
      income tax rate
                                                            
                                                            
                                                            40.0
                                                            %
                                                            
                                                            
                                                            40.0
                                                            %
 
 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
                              
                              
                              $
                              216,123State
                              
                              
                              67,255
                              
                              
                              
                              38,139Deferred
      provision:Federal
                              
                              
                              (490,453
                              )
                              
                              
                              (254,278
                              )State
                              
                              
                              (86,550
                              )
                              
                              
                              (44,872
                              )Total
      income tax provision
                              
                              $
                              (128,635
                              )
                              
                              $
                              (44,888
                              )
  23
 
 SITESTAR
CORPORATION
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
7 — 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
                      
                      
                      3,529,944
                      
                      
                      
                      2,953,689Less
      valuation allowance
                      
                      
                      (2,552,420
                      )
                      
                      
                      (2,552,420
                      )Deferred
      tax
      asset
                      
                      $
                      998,034
                      
                      
                      $
                      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
8 – 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
9 – 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.
  24
 
 SITESTAR
CORPORATION
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
10 - 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
  25





SITESTAR
CORPORATION


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
11 - 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


26





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.


27


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
                
                $
                -
                
                
                $
                6,845,230
                
                
                $
                6,845,230Cost
      of revenue
                
                
                -
                
                
                
                2,367,879
                
                
                
                2,367,879Gross
      profit
                
                
                -
                
                
                
                4,477,351
                
                
                
                4,477,351Operating
      expenses
                
                
                93,456
                
                
                
                4,001,723
                
                
                
                4,095,179Income
      (loss) from operations
                
                
                (93,456
                )
                
                
                475,628
                
                
                
                382,172Other
      income (expense)
                
                
                -
                
                
                
                (71,626
                )
                
                
                (71,626
                )Income
      (loss) before income taxes
                
                
                (93,456
                )
                
                
                404,002
                
                
                
                310,546Income
      taxes expense (benefit)
                
                
                (128,635
                )
                
                
                -
                
                
                
                (128,635
                )Net
      income (loss)
                
                $
                35,179
                
                
                $
                404,002
                
                
                $
                439,181


28





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
                
                $
                -
                
                
                $
                7,644,538
                
                
                $
                7,644,538Cost
      of revenue
                
                
                -
                
                
                
                2,097,509
                
                
                
                2,097,509Gross
      profit
                
                
                -
                
                
                
                5,547,029
                
                
                
                5,547,029Operating
      expenses
                
                
                88,893
                
                
                
                4,246,226
                
                
                
                4,335,119Income
      (loss) from operations
                
                
                (88,893
                )
                
                
                1,300,803
                
                
                
                1,211,910Other
      income (expense)
                
                
                -
                
                
                
                (118,971
                )
                
                
                (118,971
                )Income
      (loss) before income taxes
                
                
                (88,893
                )
                
                
                1,181,832
                
                
                
                1,092,939Income
      taxes
                
                
                (44,888
                )
                
                
                -
                
                
                
                (44,888
                )Net
      income (loss)
                
                $
                (44,005
                )
                
                $
                1,181,832
                
                
                $
                1,137,827





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.


29





SITESTAR
CORPORATION





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





For the
nine months ended September 30, 2009


Corporate
                
                
                Internet
                
                
                TotalEBITDA
                
                $
                (93,456
                )
                
                $
                2,366,188
                
                
                $
                2,272,732Interest
      expense
                
                
                -
                
                
                
                (66,293
                )
                
                
                (66,293
                )Taxes
                
                
                128,635
                
                
                
                -
                
                
                
                128,635Depreciation
                
                
                -
                
                
                
                (25,862
                )
                
                
                (25,862
                )Amortization
                
                
                -
                
                
                
                (1,870,031
                )
                
                
                (1,870,031
                )Net
      income (loss)
                
                $
                35,179
                
                
                $
                404,002
                
                
                $
                439,181





For the
nine months ended September 30, 2008


Corporate
                
                
                Internet
                
                
                TotalEBITDA
                
                $
                (88,893
                )
                
                $
                3,550,408
                
                
                $
                3,461,515Interest
      expense
                
                
                -
                
                
                
                (144,587
                )
                
                
                (144,587
                )Taxes
                
                
                44,888
                
                
                
                -
                
                
                
                44,888Depreciation
                
                
                -
                
                
                
                (31,039
                )
                
                
                (31,039
                )Amortization
                
                
                -
                
                
                
                (2,192,950
                )
                
                
                (2,192,950
                )Net
      income (loss)
                
                $
                (44,005
                )
                
                $
                1,181,832
                
                
                $
                1,137,827





NINE MONTHS ENDED SEPTEMBER
30, 2009 COMPARED TO SEPTEMBER 30, 2008 (Unaudited)




REVENUE





Revenue
for the nine months ended September 30, 2009 decreased by $799,308 or 10.5% from
$7,644,538 for the nine months ended September 30, 2008 to $6,845,230 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.


30





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 $239,939 or 5.5%
from $4,335,119 for the nine months ended September 30, 2008 to $4,095,180 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.  These decreases were offset in part by an
increase in bad debt expense of $167,346 or 15.6% from $1,074,266 for the nine
months ended September 30, 2008 to $1,241,612 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 $128,635 and $44,888 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 $240,166 or 32.5% from $738,824 on December 31,
2008 to $978,990 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.


31


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 $62,988 or
11.7% from $539,281 on December 31, 2008 to $476,293 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 $2,196,573 for the nine months ended
September 30, 2009 as compared to $3,461,515 for the same period in
2008.




2009
                                                
                                                
                                                2008EBITDA
      for the nine months ended September 30,
                                                
                                                $
                                                2,272,732
                                                
                                                
                                                $
                                                3,461,515Interest
      expense
                                                
                                                
                                                (66,293
                                                )
                                                
                                                
                                                (144,587
                                                )Taxes
                                                
                                                
                                                128,635
                                                
                                                
                                                
                                                44,888Depreciation
                                                
                                                
                                                (25,862
                                                )
                                                
                                                
                                                (31,039
                                                )Amortization
                                                
                                                
                                                (1,870,031
                                                )
                                                
                                                
                                                (2,192,950
                                                )Net
      income for the nine months ended September 30,
                                                
                                                $
                                                439,181
                                                
                                                
                                                $
                                                1,137,827




The aging
of accounts receivable as of September 30, 2009 and December 31, 2008 is as
shown:





2009
                  
                  
                  2008Current
                  
                  $
                  631,365
                  
                  
                  
                  65
                  %
                  
                  $
                  433,518
                  
                  
                  
                  59
                  %30
      < 60
                  
                  
                  168,749
                  
                  
                  
                  17
                  %
                  
                  
                  159,585
                  
                  
                  
                  22
                  %60
      +
                  
                  
                  178,876
                  
                  
                  
                  18
                  %
                  
                  
                  145,721
                  
                  
                  
                  19
                  %Total
                  
                  $
                  978,990
                  
                  
                  
                  100
                  %
                  
                  $
                  738,824
                  
                  
                  
                  100
                  %


32


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.


33


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





We
identified a material weakness in our internal control over financial reporting
with respect to accounting for the income tax provision, namely, that we did not
have adequately designed procedures to calculate or review the tax provision.
Solely as a result of this material weakness, we concluded that our disclosure
controls and procedures were not effective as of December 31,
2008.


34





As of May
14, 2009, we began evaluating the tax provision and remediated the related
internal control weakness. We have evaluated the effectiveness of our disclosure
controls and procedures and internal controls over financial reporting as of
December 31, 2008, including the remedial actions discussed
above.  This evaluation was carried out under the supervision and with
the participation of our management, including our principal executive officer
and principal financial officer.  Based on this evaluation, these
officers have concluded that our disclosure controls and procedures are
effective.  Except for the aforementioned income tax controls and
procedures, there were no significant changes to our internal controls during
the last fiscal quarter ended September 30, 2009.  Disclosure controls and
procedures and internal controls over financial reporting are designed to ensure
that information required to be disclosed by us in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the SEC’s rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by us in the
reports that we file under the Exchange Act is accumulated and communicated to
our management, including principal executive officer and principal financial
officer, as appropriate, to allow timely decisions regarding required
disclosure.




Management’s
Report on Internal Control over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting.  The Company’s internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of our financial reporting and the preparation of
financial statements for external purposes in accordance with U.S. generally
accepted accounting principles. As required by Rule 13a-15 under the Exchange
Act, as of the end of the period covered by this report, we carried out an
evaluation under the supervision and with the participation of our management,
of the effectiveness of the design and operation of our disclosure controls and
procedures.





In
designing and evaluating our disclosure controls and procedures, we and our
management recognize that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and our management necessarily was required to apply
its judgment in evaluating and implementing possible controls and
procedures.


35


The
effectiveness of our disclosure controls and procedures and our internal control
over financial reporting is subject to various inherent limitations, including
cost limitations, judgments used in decision making, assumptions about the
likelihood of future events, the soundness of our systems, the possibility of
human error, and the risk of fraud.  Moreover, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions and the risk
that the degree of compliance with policies or procedures may deteriorate over
time.  Because of these limitations, there can be no assurance that
any system of disclosure controls and procedures or internal control over
financial reporting will be successful in preventing all errors or fraud or in
making all material information known in a timely manner to the appropriate
levels of management.




Based on
our assessment, management has concluded that our internal control over
financial reporting was ineffective as of the end of the fiscal year to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external reporting purposes in
accordance with U.S. GAAP as a result of the material weaknesses in internal
control as described and defined below. We reviewed the results of management’s
assessment with the Board of Directors. In addition, on a quarterly basis we
will evaluate any changes to our internal control over financial reporting to
determine if a material changed occurred.





Material
Weaknesses in Internal Controls




Bagell,
Josephs, Levine & Company, L.L.C., (“Bagell”) our independent registered
public accounting firm, has provided us with an unqualified report on our
consolidated financial statements for the fiscal year ended December 31,
2008. However, during the conduct of our audit for the year ended December
31, 2008, Bagell identified a material weakness in the calculation of the tax
provision and have advised our board of directors that the following material
weakness existed at December 31, 2008. As defined by the Public Company
Accounting Oversight Board Auditing Standard No. 5, a material weakness is a
deficiency or a combination of deficiencies in internal control over financial
reporting such that there is a reasonable possibility that a material
misstatement of the annual or interim financial statements will not be prevented
or detected on a timely basis.




The
material weakness exists in the internal control over financial reporting with
respect to accounting for the income tax provision, namely, that we did not have
adequately designed procedures to calculate or review the tax provision. Solely
as a result of this material weakness, we concluded that our disclosure controls
and procedures were not effective as of December 31,
2008.


36





While
this material weakness did not have an effect on our reported results, it
nevertheless constituted a deficiency in our controls. In light of this material
weakness and the requirements enacted by the Sarbanes-Oxley act of 2002, and the
related rules and regulations adopted by the SEC, our Chief Executive Officer
and Chief Accounting Officer concluded that, as of December 31, 2008, our
controls and procedures needed improvement and were not effective at a
reasonable assurance level. Despite this deficiency in our internal controls,
management believes that there were no material inaccuracies or omissions of
material fact in this annual report.




Since the
discovery of the material weaknesses in the tax provision we began evaluating
the tax provision and remediated the related internal control weakness. 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.




We have
discussed our corrective actions and future plans with our board of directors
and Bagell as of the date of this quarterly report, and believe the planned
actions should serve to correct the above listed material weaknesses in our
internal controls. However, we cannot provide assurance that either we or our
independent auditors will not in the future identify further material weaknesses
or significant deficiencies in our internal control over financial reporting
that we have not discovered to date.





Inherent
Limitations of the Effectiveness of Internal Control.





A control
deficiency exists when the design or operation of a control does not allow
management or employees, in the ordinary course of performing their assigned
functions, to prevent or detect misstatements on a timely basis.  A
significant deficiency is a control deficiency, or combination of control
deficiencies, that adversely affects the Company’s ability to initiate,
authorize, record, process, or report external financial data reliably in
accordance with GAAP, such that there is a more than remote likelihood that a
misstatement of the Company’s annual or interim financial statements that is
more than inconsequential will not be prevented or detected.


37


SITESTAR
CORPORATION





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





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


38





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:
      November 13, 2009By:
                      /s/
      Frank Erhartic, Jr.Frank
      Erhartic, Jr.President,
      Chief Executive Officer(Principal
      Executive Officer andPrincipal
      Accounting Officer)Date:
      November 13, 2009By:
                      /s/
      Daniel A. Judd.Daniel
      A. JuddChief Financial Officer(Principal
      Financial
Officer)


39