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, 2010




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




For the
transition period from ________________ to _______________




000-27763


(Commission
file number)




SITESTAR
CORPORATION


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




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




7109
Timberlake Road, Lynchburg, VA  24502


(Address
of principal executive offices)




(434)
239-4272


(Issuer's
telephone number)




N/A


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




Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.  Yes xNo o





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





Large
Accelerated Filer oAccelerated Filer oNon-Accelerated Filer (Do not check if a smaller reporting
Company) oSmaller 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).


x
Yes      o No





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


Yes oNo x





As
of November 15, 2010, the issuer had 91,326,463 shares of common stock issued
and 75,039,705 outstanding.









SITESTAR
CORPORATION




Index




Page
      NumberPART
      I. FINANCIAL INFORMATIONItem
      1.
            
            Financial
      Statements (Unaudited)Condensed
      Consolidated Balance Sheets as of September 30, 2010 and December 31,
      2009
            
            3-4Condensed
      Consolidated Statements of Income for the three months ended September 30,
      2010 and 2009
            
            5Condensed
      Consolidated Statements of Income for the nine months ended September 30,
      2010 and 2009
            
            6Condensed
      Consolidated Statements of Cash Flows for the nine months ended September
      30, 2010 and 2009
            
            7-8Notes
      to Condensed Consolidated Financial Statements
            
            9-18Item
      2.
            
            Management's
      Discussion and Analysis
            
            19-25Item
      3.
            
            Quantitative
      and Qualitative Disclosures About Market Risk
            
            25Item
      4.
            
            Controls
      and Procedures
            
            25-26Part
      II. OTHER INFORMATION
            
            27Item
      1.
            
            Legal
      Proceedings
            
            27Item
      1A.
            
            Risk
      Factors
            
            27Item
      2.
            
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            
            27Item
      3.
            
            Defaults
      Upon Senior Securities
            
            27Item
      4.
            
            Submission
      of Matters to a Vote of Security Holders
            
            27Item
      5.
            
            Other
      Information
            
            27Item
      6.
            
            Exhibits
            
            27SIGNATURES
            
            28




2




PART I. FINANCIAL INFORMATION




Item 1.     Financial
Statements




SITESTAR
CORPORATION AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETS


SEPTEMBER
30, 2010 AND DECEMBER 31, 2009




ASSETS




2010
            
            
            2009CURRENT
      ASSETS
            
            UnauditedCash
      and cash equivalents
            
            $
            955,803
            
            
            $
            1,090,807Accounts
      receivable, net of allowance of $6,291 and $14,316
            
            
            167,326
            
            
            
            455,773Prepaid
      expenses
            
            
            170,024
            
            
            
            1,430Total
      current assets
            
            
            1,293,153
            
            
            
            1,548,010PROPERTY
      AND EQUIPMENT, net
            
            
            181,812
            
            
            
            193,715CUSTOMER
      LIST, net of accumulated amortization of $11,670,538 and
      $10,216,778
            
            
            586,135
            
            
            
            2,018,375GOODWILL,
      net of impairment
            
            
            1,288,559
            
            
            
            1,288,559DEFERRED
      TAX ASSETS
            
            
            803,162
            
            
            
            760,861REAL
      ESTATE HELD FOR INVESTMENT
            
            
            254,424
            
            
            
            -OTHER
      ASSETS
            
            
            278,643
            
            
            
            496,314TOTAL
      ASSETS
            
            $
            4,685,888
            
            
            $
            6,305,834




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




3





SITESTAR
CORPORATION AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS, continued


SEPTEMBER
30, 2010 AND DECEMBER 31, 2009




LIABILITIES
AND STOCKHOLDERS’ EQUITY




2010
            
            
            2009CURRENT
      LIABILITIES
            
            UnauditedAccounts
      payable
            
            $
            36,366
            
            
            $
            131,598Accrued
      income taxes
            
            
            270,815
            
            
            
            414,815Accrued
      expenses
            
            
            62,439
            
            
            
            29,052Deferred
      revenue
            
            
            643,805
            
            
            
            861,235Notes
      payable
            
            
            905,880
            
            
            
            900,615Total
      current liabilities
            
            
            1,919,305
            
            
            
            2,337,315NOTES
      PAYABLE - STOCKHOLDERS
            
            
            155,567
            
            
            
            547,245TOTAL
      LIABILITIES
            
            
            2,074,872
            
            
            
            2,884,560STOCKHOLDERS'
      EQUITYPreferred
      Stock, $.001 par value, 10,000,000 shares authorized, 0 shares issued and
      outstanding
            
            
            -
            
            
            
            -Common
      stock, $.001 par value, 300,000,000 shares authorized, 91,326,463 shares
      issued in 2010 and 2009 and 75,039,705 and 76,199,705 shares outstanding
      in 2010 and 2009
            
            
            91,326
            
            
            
            91,326Additional
      paid-in capital
            
            
            13,880,947
            
            
            
            13,880,947Treasury
      stock, at cost, 16,286,758 and 15,126,758 common shares
            
            
            (779,204
            )
            
            
            (735,696
            )Accumulated
      deficit
            
            
            (10,582,053
            )
            
            
            (9,815,303
            )Total
      stockholders’ equity
            
            
            2,611,016
            
            
            
            3,421,274TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
            
            $
            4,685,888
            
            
            $
            6,305,834




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, 2010 AND 2009


(UNAUDITED)




2010
            
            
            2009REVENUE
            
            $
            1,196,920
            
            
            $
            1,696,807COST
      OF REVENUE
            
            
            555,294
            
            
            
            695,157GROSS
      PROFIT
            
            
            641,626
            
            
            
            1,001,650OPERATING
      EXPENSES:Selling
      general and administrative expenses
            
            
            798,126
            
            
            
            1,030,490INCOME
      (LOSS) FROM OPERATIONS
            
            
            (156,500
            )
            
            
            (28,840
            )OTHER
      INCOME (EXPENSES)
            
            
            (1,413
            )
            
            
            (21,045
            )INCOME
      (LOSS) BEFORE INCOME TAXES
            
            
            (157,913
            )
            
            
            (49,885
            )INCOME
      TAXES (EXPENSE) BENEFIT
            
            
            (303,238
            )
            
            
            (459,163
            )NET
      INCOME (LOSS)
            
            $
            (461,151
            )
            
            $
            (509,048
            )BASIC
      AND DILUTED EARNINGS PER SHARE
            
            $
            (0.01
            )
            
            $
            (0.01
            )WEIGHTED
      AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED
            
            
            75,124,922
            
            
            
            77,771,500




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, 2010 AND 2009


(UNAUDITED)




2010
            
            
            2009REVENUE
            
            $
            3,955,530
            
            
            $
            6,126,649COST
      OF REVENUE
            
            
            1,806,604
            
            
            
            2,367,879GROSS
      PROFIT
            
            
            2,148,926
            
            
            
            3,758,770OPERATING
      EXPENSES:Selling
      general and administrative expenses
            
            
            2,422,018
            
            
            
            3,293,824INCOME
      (LOSS) FROM OPERATIONS
            
            
            (273,092
            )
            
            
            464,946OTHER
      INCOME (EXPENSES)
            
            
            (34,131
            )
            
            
            (71,626
            )INCOME
      (LOSS) BEFORE INCOME TAXES
            
            
            (307,223
            )
            
            
            393,320INCOME
      TAXES EXPENSE
            
            
            (459,527
            )
            
            
            (367,946
            )NET
      INCOME (LOSS)
            
            $
            (766,750
            )
            
            $
            25,374BASIC
      AND DILUTED EARNINGS PER SHARE
            
            $
            (0.01
            )
            
            $
            0.00WEIGHTED
      AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED
            
            
            75,306,903
            
            
            
            77,771,500




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, 2010 AND 2009


(UNAUDITED)




2010
            
            
            2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
            
            $
            (766,750
            )
            
            $
            25,374Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Depreciation
      and amortization expense
            
            
            1,580,830
            
            
            
            1,895,893Allowance
      for doubtful accounts
            
            
            (8,025
            )
            
            
            (32,556
            )Deferred
      income taxes
            
            
            (42,301
            )
            
            
            (80,423
            )(Increase)
      decrease in:Accounts
      receivable
            
            
            296,472
            
            
            
            (290,383
            )Prepaid
      expenses
            
            
            (168,594
            )
            
            
            (155
            )Other
      assets
            
            
            101,742
            
            
            
            -Increase
      (decrease) in:Accounts
      payable
            
            
            (95,232
            )
            
            
            25,394Accrued
      expenses
            
            
            33,387
            
            
            
            (695
            )Deferred
      revenue
            
            
            (217,430
            )
            
            
            (71,422
            )Accrued
      income taxes
            
            
            (144,000
            )
            
            
            27,650Net
      cash provided by operating activities
            
            
            570,099
            
            
            
            1,498,677CASH
      FLOWS FROM INVESTING ACTIVITIES:Other
      assets held for resale
            
            
            1,762
            
            
            
            (573
            )Purchase
      of property and equipment
            
            
            -
            
            
            
            (3,000
            )Purchase
      of real estate held for investment
            
            
            (254,424
            )
            
            
            -Purchase
      of non-compete
            
            
            (1,000
            )
            
            
            (1,000
            )Purchase
      of customer list
            
            
            (21,520
            )
            
            
            (67,398
            )Net
      cash provided by (used in) investing activities
            
            
            (275,182
            )
            
            
            (71,971
            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Repayment
      of notes payable – stockholders
            
            
            (391,678
            )
            
            
            (62,985
            )Purchase
      treasury stock
            
            
            (43,508
            )
            
            
            (667,206
            )Proceeds
      from notes payable
            
            
            17,020
            
            
            
            -Repayment
      of notes payable
            
            
            (11,755
            )
            
            
            (436,943
            )Net
      cash (used in) financing activities
            
            
            (429,921
            )
            
            
            (1,167,134
            )NET
      (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            (135,004
            )
            
            
            259,572CASH
      AND CASH EQUIVALENTS –BEGINNING OF PERIOD
            
            
            1,090,807
            
            
            
            527,553CASH
      AND CASH EQUIVALENTS -END OF PERIOD
            
            $
            955,803
            
            
            $
            787,125




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, 2010 AND 2009


(UNAUDITED)




SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:




During
the nine months ended September 30, 2010 and 2009, the Company used cash to pay
income taxes of $632,000 and $0 and paid interest expense of approximately
$26,000 and $66,000, respectively.




8




SITESTAR
CORPORATION


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


UNAUDITED





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 U.S. 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, 2009 included in the Company’s Annual Report on Form 10-K.
 The results for the three and nine months ended September 30, 2010 are not
necessarily indicative of the results to be expected for the full year ending
December 31, 2010.





NOTE
2 – EARNINGS PER SHARE




GAAP
requires dual presentation of basic and diluted earnings per share on the face
of the statements of income and requires a reconciliation of the numerators and
denominators of the basic and diluted earnings per share calculation. Basic
earnings per share are calculated based on the weighted average number of shares
of common stock outstanding during each period. Diluted income per share is
computed using weighted average shares outstanding adjusted to reflect the
dilutive effect of all potential common shares that were outstanding during the
period.





For the
three months ended September 30, 2010 and 2009:




2010
            
            
            2009Net
      income (loss) available to common shareholders
            
            $
            (461,151
            )
            
            $
            (509,048
            )Weighted
      average number of common shares
            
            
            75,124,922
            
            
            
            77,771,500Basic
      and diluted income per share
            
            $
            (0.01
            )
            
            $
            (0.01
            )





For the
nine months ended September 30, 2010 and 2009:




2010
            
            
            2009Net
      income (loss) available to common shareholders
            
            $
            (766,750
            )
            
            $
            25,374Weighted
      average number of common shares
            
            
            75,306,903
            
            
            
            77,771,500Basic
      and diluted income per share
            
            $
            (0.01
            )
            
            $
            0.00




9




SITESTAR
CORPORATION


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


UNAUDITED





NOTE
3 – COMMON STOCK





During
the nine months ended September 30, 2010, the Company issued no shares of common
stock and repurchased 1,160,000 treasury shares.




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, 2010 and
2009:




September
      30, 2010Corporate
            
            
            Internet
            
            
            ConsolidatedRevenue
            
            $
            -
            
            
            $
            1,196,920
            
            
            $
            1,196,920Operating
      Income (loss)
            
            $
            (25,040
            )
            
            $
            (131,460
            )
            
            $
            (156,500
            )Depreciation
      and amortization
            
            $
            -
            
            
            $
            526,967
            
            
            $
            526,967Interest
      expense
            
            $
            -
            
            
            $
            4,638
            
            
            $
            4,638Real
      estate held for investment
            
            $
            254,424
            
            
            $
            -
            
            
            $
            254,424Intangible
      assets
            
            $
            -
            
            
            $
            2,712,300
            
            
            $
            2,712,300Total
      assets
            
            $
            254,424
            
            
            $
            4,431,464
            
            
            $
            4,685,888





10




SITESTAR
CORPORATIONNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


UNAUDITED




NOTE
4 – SEGMENT INFORMATION, continued




September
      30, 2009Corporate
            
            
            Internet
            
            
            ConsolidatedRevenue
            
            $
            -
            
            
            $
            1,696,807
            
            
            $
            1,696,807Operating
      Income (loss)
            
            $
            (13,841
            )
            
            $
            (14,999
            )
            
            $
            (28,840
            )Depreciation
      and amortization
            
            $
            -
            
            
            $
            608,601
            
            
            $
            608,601Interest
      expense
            
            $
            -
            
            
            $
            17,842
            
            
            $
            17,842Real
      estate held for investment
            
            $
            -
            
            
            $
            -
            
            
            $
            -Intangible
      assets
            
            $
            -
            
            
            $
            4,024,534
            
            
            $
            4,024,534Total
      assets
            
            $
            -
            
            
            $
            6,471,856
            
            
            $
            6,471,856





Summarized
financial information concerning the Company's reportable segments is shown in
the following table for the nine months ended September 30, 2010 and
2009:





September
      30, 2010Corporate
            
            
            Internet
            
            
            ConsolidatedRevenue
            
            $
            -
            
            
            $
            3,955,530
            
            
            $
            3,955,530Operating
      Income (loss)
            
            $
            (89,718
            )
            
            $
            (183,374
            )
            
            $
            (273,092
            )Depreciation
      and amortization
            
            $
            -
            
            
            $
            1,580,830
            
            
            $
            1,580,830Interest
      expense
            
            $
            -
            
            
            $
            25,682
            
            
            $
            25,682Real
      estate held for investment
            
            $
            254,424
            
            
            $
            -
            
            
            $
            254,424Intangible
      assets
            
            $
            -
            
            
            $
            2,712,300
            
            
            $
            2,712,300Total
      assets
            
            $
            254,424
            
            
            $
            4,431,464
            
            
            $
            4,685,888





September
      30, 2009Corporate
            
            
            Internet
            
            
            ConsolidatedRevenue
            
            $
            -
            
            
            $
            6,126,649
            
            
            $
            6,126,649Operating
      Income (loss)
            
            $
            (93,456
            )
            
            $
            558,402
            
            
            $
            464,946Depreciation
      and amortization
            
            $
            -
            
            
            $
            1,895,893
            
            
            $
            1,895,893Interest
      expense
            
            $
            -
            
            
            $
            66,293
            
            
            $
            66,293Real
      estate held for investment
            
            $
            -
            
            
            
            -
            
            
            
            -Intangible
      assets
            
            $
            -
            
            
            $
            4,024,534
            
            
            $
            4,024,534Total
      assets
            
            $
            -
            
            
            $
            6,471,856
            
            
            $
            6,471,856





11





SITESTAR
CORPORATION


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


UNAUDITED




NOTE
5 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS





In April
2009, the Financial Accounting Standard Board (FASB) issued FASB Accounting
Standard Codification (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 value 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 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 previous guidance, 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 requires 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 FASB ASC 825-10 did not have a material impact on the
Company’s condensed consolidated financial statements.




12




SITESTAR
CORPORATION


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


UNAUDITED




NOTE
5 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS, continued




In June
2009, the 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
Accounting Standards 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 superseded 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 did not
have an impact on the Company’s financial position or results of operations, but
changed 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, 2010 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. The Company does not anticipate
any material impact from this Update.




13




SITESTAR
CORPORATION


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


UNAUDITED





NOTE
6 – ACQUISITIONS





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





The
following table presents the unaudited pro forma condensed consolidated
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
acquisition 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 acquisition.





2009Net
      sales
            
            $
            6,135,869Gross
      profit
            
            $
            3,763,790Selling,
      general and administrative expenses
            
            $
            3,295,747Net
      income
            
            $
            28,471Basic
      income per share
            
            $
            0.00





14




SITESTAR
CORPORATION


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


UNAUDITED





NOTE
6 – ACQUISITIONS, continued





Jellico.com,
Inc.




Effective
August 1, 2010, the Company entered into an Asset Purchase Agreement pursuant to
which it acquired the Internet related assets of Jellico.com, Inc., a
Tennessee-based Internet Service Provider.  The total purchase price
was $17,020 representing the fair value of the assets acquired which consisted
of a $10,000 cash payment at closing with the remaining balance due in 4 monthly
installments beginning September 2010.





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
            
            $
            -Customer
      list
            
            
            21,520Non-compete
      agreement
            
            
            1,000Deferred
      revenue
            
            
            (5,500
            )Purchase
      price
            
            $
            17,020





The
following table presents the unaudited pro forma condensed consolidated
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
Jellico.com had been effective January 1, 2010. The pro forma amounts are not
necessarily indicative of the combined results of operations had the acquisition
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 acquisition.





2010Net
      sales
            
            $
            3,966,909Gross
      profit
            
            $
            2,158,711Selling,
      general and administrative expenses
            
            $
            2,424,589Net
      income
            
            $
            (759,536
            )Basic
      income per share
            
            $
            (0.01
            )





15




SITESTAR
CORPORATION


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


UNAUDITED





NOTE
7 -- PROVISION FOR INCOME TAXES





The
provision for federal and state income taxes for the nine months ended September
30, 2010 and 2009 included the following:





2010
            
            
            2009Current
      provision:Federal
            
            $
            426,554
            
            
            $
            381,113State
            
            
            75,274
            
            
            
            67,256Deferred
      provision:Federal
            
            
            (35,956
            )
            
            
            (68,359
            )State
            
            
            (6,345
            )
            
            
            (12,064
            )
      )Total
      income tax provision
            
            $
            459,527
            
            
            $
            367,946





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, 2010 and
December 31, 2009 are as follows:





2010
            
            
            2009Accounts
      receivable
            
            $
            6,291
            
            
            $
            14,695Amortization
      of Intangible assets
            
            
            3,349,291
            
            
            
            3,298,586Less
      valuation allowance
            
            
            (2,552,420
            )
            
            
            (2,552,420
            )Deferred
      tax asset
            
            $
            803,162
            
            
            $
            760,861





At
September 30, 2010 and December 31, 2009, 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.  The Company is subject to Federal income taxes as well as income
taxes of state jurisdictions.  For Federal and state taxes purposes,
tax years 2006 through 2009 remain open to examination.





16




SITESTAR
CORPORATION


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


UNAUDITED




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. Total amortization expense was $1,568,927 and $1,870,031 for the
nine months ended September 30, 2010 and 2009.





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 to which 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.





NOTE
10 - NOTES PAYABLE





Notes
payable at September 30, 2010 and December 31, 2009 consist of the
following:






2010
            
            
            2009Non-interest
      bearing amount due on acquisition of USA Telephone.
            
            $
            900,615
            
            
            $
            900,615Non-interest
      bearing amount due on acquisition of Jellico
            
            
            5,265
            
            
            
            -Totals
            
            
            905,880
            
            
            
            900,615Less
      current portion
            
            
            (905,880
            )
            
            
            (900,615
            )Long-term
      portion
            
            $
            -
            
            
            $
            -





17




SITESTAR
CORPORATION


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


UNAUDITED





The
future principal maturities of these notes are as follows:




Twelve
      months ending September 30, 2011
            
            $
            905,880Twelve
      months ending  September 30, 2012
            
            
            -Twelve
      months ending  September 30, 2013
            
            
            -Twelve
      months ending  September 30, 2014
            
            
            -Twelve
      months ending September  30, 2015
            
            
            -Thereafter
            
            
            -Total
            
            $
            905,880





NOTE
11 - NOTES PAYABLE – STOCKHOLDERS





Notes
payable - stockholders at September 30, 2010 and December 31, 2009 consist of
the following:




2010
            
            
            2009Note
      payable to officer and stockholder on a line of credit of $750,000 at an
      annual interest rate of 10% interest.  The accrued interest and
      principal are due on January 1, 2014.
            
            $
            155,567
            
            
            $
            424,930Note
      payable to stockholder. The note is payable on January 1, 2014 and bears
      interest at an annual rate of 8.0%.
            
            
            -
            
            
            
            122,315Totals
            
            
            155,567
            
            
            
            547,245Less
      current portion
            
            
            -
            
            
            
            -Long-term
      portion
            
            $
            155,567
            
            
            $
            547,245





The
future principal maturities of these notes are as follows:




Year
      ending June 30, 2011
            
            $
            -Year
      ending June 30, 2012
            
            
            -Year
      ending June 30, 2013
            
            
            -Year
      ending June 30, 2014
            
            
            155,567Year
      ending June 30, 2015
            
            
            -Total
            
            $
            155,567




18




SITESTAR
CORPORATION





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





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.




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, 2009 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:




·




·




·




·




·





19




SITESTAR
CORPORATION





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





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.





Results
of operations




The
following tables show financial data for the nine months ended September 30,
2010 and 2009. Operating results for any period are not necessarily indicative
of results for any future period.





For the nine months ended
              September 30, 2010Corporate
            
            
            Internet
            
            
            TotalRevenue
            
            $
            -
            
            
            $
            3,955,530
            
            
            $
            3,955,530Cost
      of revenue
            
            
            -
            
            
            
            1,806,604
            
            
            
            1,806,604Gross
      profit
            
            
            -
            
            
            
            2,148,926
            
            
            
            2,148,926Operating
      expenses
            
            
            89,718
            
            
            
            2,332,300
            
            
            
            2,422,018Income
      (loss) from operations
            
            
            (89,718
            )
            
            
            (183,374
            )
            
            
            (273,092
            )Other
      income (expense)
            
            
            -
            
            
            
            (34,131
            )
            
            
            (34,131
            )Income
      (loss) before income taxes
            
            
            (89,718
            )
            
            
            (217,505
            )
            
            
            (307,223
            )Income
      taxes expense (benefit)
            
            
            -
            
            
            
            459,527
            
            
            
            459,527Net
      income (loss)
            
            $
            (89,718
            )
            
            $
            (677,032
            )
            
            $
            (766,750
            )





20





SITESTAR
CORPORATION





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





For the nine months ended
              September 30, 2009Corporate
            
            
            Internet
            
            
            TotalRevenue
            
            $
            -
            
            
            $
            6,126,649
            
            
            $
            6,126,649Cost
      of revenue
            
            
            -
            
            
            
            2,367,879
            
            
            
            2,367,879Gross
      profit
            
            
            -
            
            
            
            3,758,770
            
            
            
            3,758,770Operating
      expenses
            
            
            93,456
            
            
            
            3,200,368
            
            
            
            3,293,824Income
      (loss) from operations
            
            
            (93,456
            )
            
            
            558,402
            
            
            
            464,946Other
      income (expense)
            
            
            -
            
            
            
            (71,626
            )
            
            
            (71,626
            )Income
      (loss) before income taxes
            
            
            (93,456
            )
            
            
            486,776
            
            
            
            393,320Income
      taxes (expense) benefit
            
            
            -
            
            
            
            367,946
            
            
            
            367,946Net
      income (loss)
            
            $
            (93,456
            )
            
            $
            118,830
            
            
            $
            25,374





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.




21




SITESTAR
CORPORATION





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








For
      the nine months ended
              September
      30, 2010Corporate
            
            
            Internet
            
            
            TotalEBITDA
            
            $
            (89,718
            )
            
            $
            1,389,006
            
            
            $
            1,299,288Interest
      expense
            
            
            -
            
            
            
            (25,681
            )
            
            
            (25,681
            )Taxes
            
            
            -
            
            
            
            (459,527
            )
            
            
            (459,527
            )Depreciation
            
            
            -
            
            
            
            (11,903
            )
            
            
            (11,903
            )Amortization
            
            
            -
            
            
            
            (1,568,927
            )
            
            
            (1,568,927
            )Net
      income (loss)
            
            $
            (89,718
            )
            
            $
            (677,032
            )
            
            $
            (766,750
            )





For
      the nine months ended
              September
      30, 2009Corporate
            
            
            Internet
            
            
            TotalEBITDA
            
            $
            (93,456
            )
            
            $
            2,448,962
            
            
            $
            2,355,506Interest
      expense
            
            
            -
            
            
            
            (66,293
            )
            
            
            (66,293
            )Taxes
            
            
            -
            
            
            
            (367,946
            )
            
            
            (367,946
            )Depreciation
            
            
            -
            
            
            
            (25,862
            )
            
            
            (25,862
            )Amortization
            
            
            -
            
            
            
            (1,870,031
            )
            
            
            (1,870,031
            )Net
      income (loss)
            
            $
            (93,456
            )
            
            $
            118,830
            
            
            $
            25,374





NINE
MONTHS ENDED SEPTEMBER 30, 2010 COMPARED TO SEPTEMBER 30, 2009





REVENUE





Revenue
for the nine months ended September 30, 2010 decreased by $2,171,119 or 35.4%
from $6,126,649 for the nine months ended September 30, 2009 to $3,955,530 for
the same period in 2010.  Internet sales decreased due primarily to
customer attrition to broadband services and is 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, 2010 decreased by $561,275 or
23.7% from $2,367,879 for the nine months ended September 30, 2009 to $1,806,604
for the same period in 2010.  Cost of revenue decreased as a result of
declining revenue.




22





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, 2010 decreased $871,806 or
26.5% from $3,293,824 for the nine months ended September 30, 2009 to $2,422,018
for the same period in 2010.  This decrease is a reflection of lower
revenue and associated variable costs.  Amortization expense decreased
$301,104 or 16.1% from $1,870,031 for the nine months ended September 30, 2009
to $1,568,927 for the same period in 2010.  Bad debt expense decreased
$399,113 or 90.7% from $440,257 for the nine months ended September 30, 2009 to
$41,144 for the same period in 2010.




INCOME
TAXES





For the
nine months ended September 30, 2010 and September 30, 2009 corporate income tax
expenses of $459,527 and $367,946 were accrued.





INTEREST
EXPENSE





Interest
expense for the nine months ended September 30, 2010 decreased by $40,612 or
61.3% from $66,293 for the nine months ended September 30, 2009 to $25,681 for
the same period in 2010.  This decrease is a result of reducing debt used
to finance the acquisition of additional customers.





SEPTEMBER 30, 2010 COMPARED
TO DECEMBER 31, 2009





FINANCIAL
CONDITION





Net
accounts receivable decreased $288,447 or 63.3% from $455,773 on December 31,
2009 to $167,326 on September 30, 2010.  Accounts payable decreased by
$95,232 or 72.4% from $131,598 on December 31, 2009 to $36,366 on September 30,
2010. Accrued expenses increased by $33,387 or 114.9% from $29,052 on December
31, 2009 to $62,439 on September 30, 2010.  Deferred revenue decreased
by $217,430 or 25.2% from $861,235 on December 31, 2009 to $643,805 on September
30, 2010 representing decreased volume of customer accounts that have been
prepaid. Long-term notes payable to shareholders decreased $391,678 or 71.6%
from $547,245 on December 31, 2009 to $155,567 on September 30,
2010.




23




SITESTAR
CORPORATION





LIQUIDITY AND CAPITAL
RESOURCES




Cash and
cash equivalents totaled $955,803 and $1,090,807 at September 30, 2010 and at
December 31, 2009.  EBITDA was $1,299,288 for the nine months ended
September 30, 2010 as compared to $2,355,506 for the same period in
2009.


2010
              
              
              2009EBITDA
      for the nine months ended September 30,
              
              $
              1,299,288
              
              
              $
              2,355,506Interest
      expense
              
              
              (25,681
              )
              
              
              (66,293
              )Taxes
              
              
              (459,527
              )
              
              
              (367,946
              )Depreciation
              
              
              (11,903
              )
              
              
              (25,862
              )Amortization
              
              
              (1,568,927
              )
              
              
              (1,870,031
              )Net
      income for the nine months ended September 30,
              
              $
              (766,750
              )
              
              $
              25,374





The aging
of accounts receivable as of September 30, 2010 and December 31, 2009 is as
shown:





2010
            
            
            2009Current
            
            $
            61,716
            
            
            
            37
            %
            
            $
            150,467
            
            
            
            33
            %30
      < 60
            
            
            26,386
            
            
            
            16
            %
            
            
            159,585
            
            
            
            35
            %60
      +
            
            
            79,224
            
            
            
            47
            %
            
            
            145,721
            
            
            
            32
            %Total
            
            $
            167,326
            
            
            
            100
            %
            
            $
            455,773
            
            
            
            100
            %





OFF-BALANCE
SHEET TRANSACTIONS




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




24




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 pursuant to the rules and regulations of
the Securities and Exchange Commission. 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




None.




Item
4.    Controls and Procedures




Evaluation
of Disclosure Controls and Procedures:





Management,
including our Chief Executive Officer and Chief Financial Officer, conducted an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended, as of September 30, 2010. Our
disclosure controls and procedures 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 accurately and on a
timely basis.




25




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




Based
upon that evaluation, our Chief Executive Officer and Chief Financial Officer
have concluded that our disclosure controls and procedures were effective as of
September 30, 2010, as related to the material weaknesses in internal
control over financial reporting discussed in the fiscal 2009 Form
10-K.  The material weaknesses related to proper revenue recognition
of processing charges and late fees of customers cut off from internet service
because the collectability of those charges is not reasonably assured and the
material weakness that ongoing monitoring does not always occur in the ordinary
course of operations.





As of May
21, 2010, the Company began evaluating the aforementioned weaknesses and is
remediating the deficiencies with additional procedures and controls including
additional personnel training.  The Company has evaluated the
effectiveness of its disclosure controls and procedures and internal controls
over financial reporting as of September 30, 2010, including the remedial
actions discussed above.





Because
of the material weaknesses in internal control over financial reporting
described in the fiscal 2009 Form 10-K, we performed additional analyses and
other post-closing procedures to ensure that our condensed consolidated
financial statements were prepared in accordance with generally accepted
accounting principles. Accordingly, management, including our Chief Executive
Officer and Chief Financial Officer, believes the condensed consolidated
financial statements included in this report fairly present, in all material
respects, our financial condition, results of operations and cash flows for the
periods presented.





Changes
in Internal Control over Financial Reporting:




No change
in our internal control over financial reporting (as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended
September 30, 2010 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting, except for the
changes in our internal controls discussed above in order to remediate material
weaknesses.




26




SITESTAR
CORPORATION





PART II.  OTHER INFORMATION




Item 1.     Legal Proceedings





None





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




27




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 15, 2010
              By:
              /s/
      Frank Erhartic, Jr.Frank
      Erhartic, Jr.President,
      Chief Executive Officer(Principal
      Executive Officer and
                Principal Accounting Officer)




Date:
      November 15, 2010
              By:
              /s/
      Daniel A. Judd.Daniel
      A. JuddChief
      Financial Officer(Principal
      Financial Officer)




28