10-Q

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 March 31, 2013

[  ]    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). [X] Yes [ ] 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 May15, 2013, the issuer had 91,326,463 shares of common stock issued and 74,085,705 outstanding.

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	SITESTAR CORPORATION
	Table of Contents
		Page
PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012	3
	Condensed Consolidated Statements of Income for the three months ended March 31, 2013 and 2012	4
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14
Item 4.	Controls and Procedures	14
Item II.	OTHER INFORMATION	16
Item 1.	Legal Proceedings	16
Item 1A.	Risk Factors	16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3.	Defaults Upon Senior Securities	16
Item 4.	Submission of Matters to a Vote of Security Holders	16
Item 5.	Other Information	16
Item 6.	Exhibits	16
	SIGNATURES	17

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PART I. FINANCIAL INFORMATION

Item 1.      Financial Statements

SITESTAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

MARCH 31, 2013 AND DECEMBER 31, 2012

	March 31, 2013 (Unaudited)			December 31, 2012
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	135,979		$	148,590
Accounts receivable, net of allowance of $6,654 and $1,614		82,927			30,488
Prepaid expenses		43,550			50,411
Real estate, at cost		2,991,994			2,918,263
Total current assets		3,254,450			3,147,752
PROPERTY AND EQUIPMENT, net		147,636			148,957
CUSTOMER LIST, net of accumulated amortization of $12,320,673 and $12,315,218		—			5,455
GOODWILL, net of impairment		1,288,559			1,288,559
DEFERRED TAX ASSETS		162,073			209,699
OTHER ASSETS		217,929			218,097
TOTAL ASSETS	$	5,070,647		$	5,018,519
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	41,878		$	32,879
Accrued expenses		38,050			45,074
Deferred revenue		355,588			387,258
Notes payable, current portion		900,615			900,615
Total current liabilities		1,336,131			1,365,826
NOTES PAYABLE – STOCKHOLDERS, less current portion		50,280			50,280
TOTAL LIABILITIES		1,386,411			1,416,106
STOCKHOLDERS' EQUITY
Preferred Stock, $.001 par value, 10,000,000 shares authorized, 0 shares issued and outstanding		—			—
Common stock, $.001 par value, 300,000,000 shares authorized, 91,326,463 shares issued in 2013 and 2012 and 74,085,705 shares outstanding in 2013 and 2012		91,326			91,326
Additional paid-in capital		13,880,947			13,880,947
Treasury stock, at cost, 17,240,758 common shares		(789,518	)		(789,518	)
Accumulated deficit		(9,498,519	)		(9,580,342	)
Total stockholders’ equity		3,684,236			3,602,413
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	5,070,647		$	5,018,519

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

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SITESTAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

(UNAUDITED)

		2013			2012
REVENUE
Internet	$	719,899		$	819,192
Real estate		15,870			487,875
		735,769			1,307,067
COST OF REVENUE
Internet		350,973			444,052
Real estate		3,076			382,540
		354,049			826,592
GROSS PROFIT		381,720			480,475
OPERATING EXPENSES:
Selling general and administrative expenses		251,444			214,556
INCOME FROM OPERATIONS		130,276			265,919
OTHER INCOME (EXPENSES):
Other income (expenses)		503			(531	)
Interest expense		(1,330	)		(2,089	)
TOTAL OTHER INCOME (EXPENSE)		(827	)		(2,620	)
INCOME BEFORE INCOME TAXES		129,449			263,299
INCOME TAXES (EXPENSE) BENEFIT		(47,626	)		(99,949	)
NET INCOME	$	81,823		$	163,350
BASIC AND DILUTED EARNINGS PER SHARE	$	0.00		$	0.00
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC AND DILUTED		74,085,705			74,085,705

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

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SITESTAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

(UNAUDITED) 

		2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	81,823		$	163,350
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization expense		6,943			10,242
Allowance for doubtful accounts		5,040			2,337
Deferred income taxes		47,626			99,949
Increase in accounts receivable		(57,479	)		(10,012	)
(Increase) decrease in prepaid expenses		6,861			(14,947	)
Increase in real estate		(73,731	)		(39,413	)
Increase (decrease) in accounts payable		8,999			(42,690	)
Increase (decrease) in accrued expenses		(7,024	)		2,193
Decrease in deferred revenue		(31,670	)		(5,013	)
Net cash provided by (used in) operating activities		(12,612	)		165,996
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in other assets held for resale		1			(2	)
Net cash provided by (used in) investing activities		1			(2	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable – stockholders		—			(13,113	)
Net cash used in financing activities		—			(13,113	)
NET DECREASE IN CASH AND CASH  EQUIVALENTS		(12,611	)		152,881
CASH AND CASH EQUIVALENTS – BEGINNING OF  PERIOD		148,590			17,268
CASH AND CASH EQUIVALENTS – END OF  PERIOD	$	135,979		$	170,149

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

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

During the three months ended March 31, 2013 and 2012, the Company used cash to pay income taxes of $0 and $64,000 and paid interest expense of approximately $1,000 and $2,000, respectively.

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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, 2012 included in the Company’s Annual Report on Form 10-K.  The results for the three months ended March 31, 2013 are not necessarily indicative of the results to be expected for the full year ending December 31, 2013.

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 March 31, 2013 and 2012:

	2013		2012
Net income available to common shareholders	$	81,823	$	163,350
Weighted average number of common shares		74,085,705		74,085,705
Basic and diluted income per share	$	0.00	$	0.00

NOTE 3 – COMMON STOCK

During the three months ended March 31, 2013, the Company issued no shares of common stock and repurchased no treasury shares.

NOTE 4 – SEGMENT INFORMATION

The Company has three business units that have been aggregated into three reportable segments: Corporate, Real estate and Internet.

The Corporate group is the holding company and oversees the operation of the other business units. The Corporate group also arranges financing for the entire organization. The real estate group invests in, refurbishes and markets real estate for resale. 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 tables as of and for the three months ended March 31, 2013 and 2012: 

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NOTE 4 - SEGMENT INFORMATION, continued

March 31, 2013
		Corporate			Real estate		Internet		Consolidated
Revenue	$	—		$	15,870	$	719,899	$	735,769
Operating income (loss)	$	(37,125	)	$	12,794	$	154,607	$	130,276
Depreciation and amortization	$	—		$	—	$	6,943	$	6,943
Interest expense	$	—		$	—	$	1,330	$	1,330
Real estate	$	—		$	2,991,994	$	—	$	2,991,994
Intangible assets	$	—		$	—	$	1,288,975	$	1,288,975
Total assets	$	—		$	2,991,994	$	2,078,653	$	5,070,647

March 31, 2012
		Corporate			Real estate		Internet		Consolidated
Revenue	$	—		$	487,875	$	819,192	$	1,307,067
Operating income (loss)	$	(42,926	)	$	105,335	$	203,510	$	265,919
Depreciation and amortization	$	—		$	—	$	10,242	$	10,242
Interest expense	$	—		$	—	$	2,089	$	2,089
Real estate	$	—		$	2,504,107	$	—	$	2,504,107
Intangible assets	$	—		$	—	$	1,316,477	$	1,316,477
Total assets	$	—		$	2,504,107	$	2,397,965	$	4,902,072

NOTE 5 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

No new accounting pronouncement issued or effective during the three months ended March 31, 2013 has had or is expected to have a material impact on the condensed consolidated financial statements.

NOTE 6 – ACQUISITIONS

None

NOTE 7 -- PROVISION FOR INCOME TAXES

The provision for federal and state income taxes for the three months ended March 31, 2013 and 2012 included the following: 

	2013		2012
Current provision:
Federal	$	—	$	—
State		—		—
Deferred provision:
Federal		40,098		84,151
State		7,528		15,798
Total income tax provision	$	47,626	$	99,949

Deferred tax assets and liabilities reflect the net effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes.  Significant components of the Company's deferred tax assets and liabilities at March 31, 2013 and December 31, 2012 are as follows:

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NOTE 7 - PROVISION FOR INCOME TAXES, continued

	2013			2012
Accounts receivable	$	6,654		$	1,614
Amortization of intangible assets		2,577,666			2,630,332
Less valuation allowance		(2,422,247	)		(2,422,247	)
Deferred tax asset	$	162,073		$	209,699

At March 31, 2013 and December 31, 2012, the Company has provided a valuation allowance for a portion of the deferred tax asset that management has not been able to determine that realization 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 tax purposes, tax years 2009 through 2012 remain open to examination.

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 a discounted 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 $5,622 and $7,321 for the three months ended March, 31, 2013 and 2012.

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

Internet

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.

Real Estate

Revenue from real estate is recognized upon closing of the sale, as all conditions for full revenue recognition have been met at that time. All costs associated with the property sold are removed from the consolidated balance sheets and charged to cost of revenue at that time.

NOTE 10 - NOTES PAYABLE

Notes payable at March 31, 2013 and December 31, 2012 consist of the following:

	2013			2012
Non-interest bearing amount due on acquisition of USA Telephone.	$	900,615		$	900,615
Totals		900,615			900,615
Less current portion		(900,615	)		(900,615	)
Long-term portion	$	—		$	—

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NOTE 10 - NOTES PAYABLE, continued

The future principal maturities of these notes are as follows:

Twelve months ending  March 31, 2014	$	900,615
Twelve months ending  March 31, 2015		—
Twelve months ending  March 31, 2016		—
Twelve months ending  March 31, 2017		—
Twelve months ending  March 31, 2018		—
Thereafter		—
Total	$	900,615

NOTE 11 - NOTES PAYABLE – STOCKHOLDERS

Notes payable - stockholders at March 31, 2013 and December 31, 2012 consist of the following: 

	2013		2012
Note payable to officer and stockholder on a line of credit of $750,000 at an annual interest rate of 10%.  The accrued interest and principal are due on January 1, 2020.	$	280	$	45,280
Note payable to stockholder for $50,000 at an annual interest rate of 8 % interest.  The accrued interest and principal are due on January 1, 2020.		50,000		50,000
Totals		50,280		50,280
Less current portion		—		—
Long-term portion	$	50,280	$	50,280

The future principal maturities of these notes are as follows:

Twelve months ending March 31, 2014	$	-
Twelve months ending March 31, 2015		-
Twelve months ending March 31, 2016		-
Twelve months ending March 31, 2017		-
Twelve months ending March 31, 2018		-
Twelve months ending March 31, 2019		-
Twelve months ending March 31, 2020		50,280
Total	$	50,280

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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, 2012 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

Internet

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;

The Company’s Internet division markets and sells narrow-band (dial-up and ISDN) and broadband services (DSL, fiber-optic 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.

Real Estate

The real estate group invests in, refurbishes and markets real estate for resale. The increase in real estate sales marks the beginning of the Company’s efforts to turn investments of excess cash from the Internet division into a new revenue stream. With the increased inventory of real estate investments, the sales should become a more prominent source of revenue.

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Results of operations

The following tables show financial data for the three months ended March 31, 2013.

		Corporate			Internet			Real estate		Total
Revenue	$	—		$	719,899		$	15,870	$	735,769
Cost of revenue		—			350,973			3,076		354,049
Gross profit		—			368,926			12,794		381,720
Operating expenses		37,125			214,319			—		251,444
Income (loss) from operations		(37,125	)		154,607			12,794		130,276
Other income (expense)		—			(827	)		—		(827	)
Income (loss) before income taxes		(37,125	)		153,780			12,794		129,449
Income taxes (expense) benefit		—			(47,626	)		—		(47,626	)
Net income (loss)	$	(37,125	)	$	106,154		$	12,794	$	81,823

The following tables show financial data for the three months ended March 31, 2012.

		Corporate			Internet			Real estate			Total
Revenue	$	—		$	819,192		$	487,875		$	1,307,067
Cost of revenue		—			444,052			382,540			826,592
Gross profit		—			370,127			110,348			480,475
Operating expenses		42,926			171,630			—			214,556
Income (loss) from operations		(42,926	)		198,497			110,348			265,919
Other income (expense)		—			(2,620	)		—			(2,620	)
Income (loss) before income taxes		(42,926	)		195,877			110,348			263,299
Income taxes (expense) benefit		—			(59,964	)		(39,985	)		(99,949	)
Net income (loss)	$	(42,926	)	$	135,913		$	70,363		$	163,350

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

The following tables show a reconciliation of EBITDA to the GAAP presentation of net income for the three months ended March 31, 2013 and 2012.

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For the three months ended March 31, 2013
	Corporate			Internet			Real estate		Total
EBITDA	$	(37,125	)	$	162,053		$	12,794	$	137,722
Interest expense		—			(1,330	)		—		(1,330	)
Taxes		—			(47,626	)		—		(47,626	)
Depreciation		—			(1,321	)		—		(1,321	)
Amortization		—			(5,622	)		—		(5,622	)
Net income (loss)	$	(37,125	)	$	106,154		$	12,794	$	81,823

For the three months ended March 31, 2012
	Corporate			Internet			Real estate			Total
EBITDA	$	(42,926	)	$	208,208		$	110,348		$	275,630
Interest expense		—			(2,089	)		—			(2,089	)
Taxes		—			(59,964	)		(39,985	)		(99,949	)
Depreciation		—			(2,921	)		—			(2,921	)
Amortization		—			(7,321	)		—			(7,321	)
Net income (loss)	$	(42,926	)	$	135,913		$	70,363		$	163,350

Pursuant to the approval of the board of directors, the Company’s management believes that it is in the best interests of the Corporation to implement a program to purchase (“Purchase Program”), as investments, real estate with the Company’s surplus cash flows. Any real estate purchased pursuant to the Purchase Program will be held as investment until such time or times as the Board of Directors, in its discretion, may deem advisable to sell or otherwise dispose of the property.

The current real estate market presents the unique opportunity to acquire properties at deep discounts from fair market value with the potential for substantial profits. Management evaluates property as it becomes available with respect to the market value versus the acquisition cost, in addition to other conditions that could affect the resale value. Renovations are made as needed to maximize the market appeal and value prior to listing for sale.

Management believes that there is sustainable cash flow potential for the near future in real estate and is actively pursuing the program. As of the balance sheet date, March 31, 2013, the Company has invested approximately $2,991,994 in surplus funds and is continuing the investing process.

THREE MONTHS ENDED MARCH 31, 2013 COMPARED TO MARCH 31, 2012 

REVENUE

Total revenue for the three months ended March 31, 2013 decreased by $571,298 or 43.7% from $1,307,067 for the three months ended March 31, 2012 to $735,769 for the same period in 2013. Internet sales decreased $99,293 or 12.1% from $819,192 for the three months ended March 31, 2012 to $719,899 for the same period in 2013. Real estate sales decreased $472,005 or 96.7% from $487,875 for the three months ended March 31, 2012 to $15,870 for the same period in 2013.

The decrease in Internet sales is attributed to the lack of acquisitions of Internet access and web hosting customers of ISPs. Although the Company continues to sign up new customers, competition from ubiquitous nationwide telecommunications and cable providers threatens significant and sustainable organic growth. To insure continued strength in revenues, the Company has acquired and plans to continue to acquire the assets of additional ISPs, folding them into its operations to provide future revenues. The new real estate division while sales are down is preparing properties for the market and is still providing a profitable revenue stream.

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COST OF REVENUE

Total costs of revenue for the three months ended March 31, 2013 decreased by $472,543 or 57.2% from $826,592 for the three months ended March 31, 2012 to $354,049 for the same period in 2013.  Cost of Internet revenue decreased $93,079 or 21.0% from $444,052 for the three months ended March 31, 2012 to $350,973 for the same period in 2013 as a result of declining revenue. Cost of real estate revenue decreased $379,464 or 99.2% from $382,540 for the three months ended March 31, 2012 to $3,076 for the same period in 2013. Cost of real estate revenue is a direct result of lower sales.

OPERATING EXPENSES

Operating expenses for the three months ended March 31, 2013 increased $36,888 or 17.2% from $214,556 for the three months ended March 31, 2012 to $251,444 for the same period in 2013. This increase is primarily due to bad debt expense. Bad debt expense increased $55,695 from $(18,129) for the three months ended March 31, 2012 to $37,566 for the same period in 2013.

INCOME TAXES

For the three months ended March 31, 2013 and March 31, 2012 corporate income tax expenses of $47,626 and $99,949 were accrued.

INTEREST EXPENSE

Interest expense for the three months ended March 31, 2013 decreased by $759 or 36.3% from $2,089 for the three months ended March 31, 2012 to $1,330 for the same period in 2013.  

MARCH 31, 2013 COMPARED TO DECEMBER 31, 2012

FINANCIAL CONDITION

Net accounts receivable increased $52,439 or 172.0% from $30,488 on December 31, 2012 to $82,927 on March 31, 2013. This increase is due to back billing for a wholesale internet customer.  Investment in real estate increased net $73,731 or 2.5% from $2,918,263 on December 31, 2012 to $2,991,994 on March 31, 2013. Accounts payable increased by $8,999 or 27.4% from $32,879 on December 31, 2012 to $41,878 on March 31, 2013. Deferred revenue decreased by $31,670 or 8.2% from $387,258 on December 31, 2012 to $355,588 on March 31, 2013 representing decreased volume of customer accounts that have been prepaid.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents totaled $135,979 and $148,590 at March 31, 2013 and at December 31, 2012. EBITDA was $137,722 for the three months ended March 31, 2013 as compared to $275,630 for the same period in 2012.

	2013			2012
EBITDA For the three months ended March 31,	$	137,722		$	275,630
Interest Expense		(1,330	)		(2,089	)
Taxes		(47,626	)		(99,949	)
Depreciation		(1,321	)		(2,921	)
Amortization		(5,622	)		(7,321	)
Net income for the three months ended March 31,	$	81,823		$	163,350

Table of Contents -13-

The aging of accounts receivable as of March 31, 2013 and December 31, 2012 is as shown:

	2013				2012
Current	$	51,699	62	%	$	26,007	43	%
30 < 60		4,364	5	%		13,862	23	%
60+		26,864	33	%		20,896	34	%
Total	$	82,927	100	%	$	53,090	100	%

OFF-BALANCE SHEET TRANSACTIONS

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

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 March 31, 2013. 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.

Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of March 31, 2013, because of the material weaknesses in internal control over financial reporting discussed in the fiscal 2012 Form 10-K.  The material weaknesses related, for having a lack of segregation of duties and the material weakness that ongoing monitoring does not always occur in the ordinary course of operations.

Table of Contents -14-

As of April 15, 2013, 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 March 31, 2013, including the remedial actions discussed above. Pursuant to the material weakness related to recognition of deferred revenue, we have made changes to our revenue accounting policies and are now properly recording deferred revenue adjustments properly, through our revenue account as they are earned.

Because of the material weaknesses in internal control over financial reporting described in the fiscal 2012 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 March 31, 2013 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.

Table of Contents -15-

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

Table of Contents -16-

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 CORPORATION
Date:	May 15, 2013	By:	/s/ Frank Erhartic, Jr.
			Frank Erhartic, Jr.
			President, Chief Executive Officer
			(Principal Executive Officer)
			(Principal Accounting Officer)
Date:	May 15, 2013	By:	/s/ Daniel A. Judd
			Daniel A. Judd
			Chief Financial Officer
			(Principal Financial Officer)

Table of Contents -17-

EX-31.1

EXHIBIT 31.1

I, Frank R. Erhartic, Jr., certify that:

1. I have reviewed this Annual Report on Form 10-K of Sitestar Corporation (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s third fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s Board of Directors:

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May 15, 2013
By:	/s/ Frank Erhartic, Jr.
	Frank Erhartic, Jr. Chief Executive Officer

EX-31.2

EXHIBIT 31.2

I, Daniel Judd, certify that:

1. I have reviewed this Annual Report on Form 10-K of Sitestar Corporation (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s third fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s Board of Directors:

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May 15, 2013
By:	/s/ Daniel Judd
	Daniel Judd Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Sitestar Corporation, (the “Company”) on Form 10-K for the period ending December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Frank Erhartic, Jr., Chief Executive Officer and President of the Company, and Daniel Judd, Chief Financial Officer of the Company, respectively, certify to our knowledge and in our capacity as officers of the Company, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

/s/ Frank Erhartic, Jr.	/s/ Daniel Judd
Frank Erhartic, Jr.	Daniel Judd
Chief Executive Officer and President	Chief Financial Officer
May 15, 2013	May 15, 2013

XML

NOTE 7 - PROVISION FOR INCOME TAXES - Components of Income Tax Benefit (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Accounting Policies [Abstract]
Accounts receivable	$ 6,654	$ 1,614
Amortization of Intangible assets	2,577,666	2,630,332
Less valuation allowance	(2,422,247)	(2,422,247)
Deferred tax asset	$ 162,013	$ 209,699

XML

NOTE 4 - SEGMENT INFORMATION

3 Months Ended

Mar. 31, 2013

Segment Reporting [Abstract]

NOTE 4 - SEGMENT INFORMATION

NOTE 4 – SEGMENT INFORMATION

The Company has three business units that have been aggregated into three reportable segments: Corporate, Real estate and Internet.

The Corporate group is the holding company and oversees the operation of the other business units. The Corporate group also arranges financing for the entire organization. The real estate group invests in, refurbishes and markets real estate for resale. 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 tables as of and for the three months ended March 31, 2013 and 2012:

March 31, 2013
		Corporate			Real estate		Internet		Consolidated
Revenue	$	—		$	15,870	$	719,899	$	735,769
Operating income (loss)	$	(37,125	)	$	12,794	$	154,607	$	130,276
Depreciation and amortization	$	—		$	—	$	6,943	$	6,943
Interest expense	$	—		$	—	$	1,330	$	1,330
Real estate	$	—		$	2,515,528	$	—	$	2,515,528
Intangible assets	$	—		$	—	$	1,288,975	$	1,288,975
Total assets	$	—		$	2,515,528	$	2,551,133	$	5,066,661

March 31, 2012
		Corporate			Real estate		Internet		Consolidated
Revenue	$	—		$	487,875	$	819,192	$	1,307,067
Operating income (loss)	$	(42,926	)	$	105,335	$	203,510	$	265,919
Depreciation and amortization	$	—		$	—	$	10,242	$	10,242
Interest expense	$	—		$	—	$	2,089	$	2,089
Real estate	$	—		$	2,504,107	$	—	$	2,504,107
Intangible assets	$	—		$	—	$	1,316,477	$	1,316,477
Total assets	$	—		$	2,504,107	$	2,397,965	$	4,902,072

XML

NOTE 11 - NOTES PAYABLE - STOCKHOLDERS - Related Party Transactions (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Related Party Transactions [Abstract]
Note payable to officer and stockholder on a line of credit of $750,000 at an annual interest rate of 10%. The accrued interest and principal are due on January 1, 2020.	$ 280	$ 45,280
Note payable to stockholder for $50,000 at an annual interest rate of 8 % interest. The accrued interest and principal are due on January 1, 2020.	50,000	50,000
Totals	50,280	50,280
Less current portion
Long-term portion	$ 50,280	$ 50,280

XML

NOTE 10 - NOTES PAYABLE - Future Principal Maturities of Notes Payable (Details) (USD $)	Mar. 31, 2013
Payables and Accruals [Abstract]
Twelve months ending March 31, 2014	$ 900,615
Twelve months ending March 31, 2015
Twelve months ending March 31, 2016
Twelve months ending March 31, 2017
Twelve months ending March 31, 2018
Thereafter
Total	$ 900,615

XML

NOTE 11 - NOTES PAYABLE - STOCKHOLDERS - Maturities of Related Party Debt (Details) (USD $)	Mar. 31, 2013
Related Party Transactions [Abstract]
Twelve months ending March 31, 2014
Twelve months ending March 31, 2015
Twelve months ending March 31, 2016
Twelve months ending March 31, 2017
Twelve months ending March 31, 2018
Twelve months ending March 31, 2019
Twelve months ending March 31, 2020	50,280
Total	$ 50,280

XML

NOTE 3 - COMMON STOCK

3 Months Ended

Mar. 31, 2013

Equity [Abstract]

NOTE 3 - COMMON STOCK

NOTE 3 – COMMON STOCK

During the three months ended March 31, 2013, the Company issued no shares of common stock and repurchased no treasury shares.

XML

Balance Sheets (Unaudited) (USD $)	Mar. 31, 2013	Dec. 31, 2012
CURRENT ASSETS
Cash and cash equivalents	$ 135,979	$ 148,590
Accounts receivable, net of allowance of $6,654 and $1,614	82,927	30,488
Prepaid expenses	43,550	50,411
Real estate, at cost	2,991,994	2,918,263
Total current assets	3,254,450	3,147,752
PROPERTY AND EQUIPMENT, net	147,636	148,957
CUSTOMER LIST, net of accumulated amortization of $12,320,673 and $12,315,218		5,455
GOODWILL, net of impairment	1,288,559	1,288,559
DEFERRED TAX ASSETS	162,073	209,699
OTHER ASSETS	217,929	218,097
TOTAL ASSETS	5,070,647	5,018,519
CURRENT LIABILITIES
Accounts payable	41,878	32,879
Accrued expenses	38,050	45,074
Deferred revenue	355,588	387,258
Notes payable, current portion	900,615	900,615
Total current liabilities	1,336,131	1,365,826
NOTES PAYABLE STOCKHOLDERS, less current portion	50,280	50,280
TOTAL LIABILITIES	1,386,411	1,416,106
STOCKHOLDERS' EQUITY
Preferred Stock, $.001 par value, 10,000,000 shares authorized, 0 shares issued and outstanding
Common stock, $.001 par value, 300,000,000 shares authorized, 91,326,463 shares issued in 2013 and 2012 and 74,085,705 shares outstanding in 2013 and 2012	91,326	91,326
Additional paid-in capital	13,880,947	13,880,947
Treasury stock, at cost, 17,240,758 common shares	(789,518)	(789,518)
Accumulated deficit	(9,498,519)	(9,580,342)
Total stockholders equity	3,684,236	3,602,413
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 5,070,647	$ 5,018,519

XML

NOTE 1 - BASIS OF PRESENTATION

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

NOTE 1 - BASIS OF PRESENTATION

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, 2012 included in the Company’s Annual Report on Form 10-K.  The results for the three months ended March 31, 2013 are not necessarily indicative of the results to be expected for the full year ending December 31, 2013.

XML

NOTE 2 - EARNINGS PER SHARE - Earnings Per Share (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Earnings Per Share [Abstract]
Net income available to common shareholders	$ 81,823	$ 163,350
Weighted average number of common shares	74,085,705	74,085,705
Basic and diluted income per share	$ 0.00	$ 0.00

XML

NOTE 7 - PROVISION FOR INCOME TAXES - Income Tax Provision (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Current provision:
Federal
State
Deferred provision:
Federal	40,098	84,151
State	7,528	15,798
Total income tax provision	$ 47,626	$ 99,949

XML

NOTE 2 - EARNINGS PER SHARE

3 Months Ended

Mar. 31, 2013

Earnings Per Share [Abstract]

NOTE 2 - EARNINGS PER SHARE

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 March 31, 2013 and 2012:

	2013		2012
Net income available to common shareholders	$	81,823	$	163,350
Weighted average number of common shares		74,085,705		74,085,705
Basic and diluted income per share	$	0.00	$	0.00

XML

Balance Sheets (Parenthetical) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Statement of Financial Position [Abstract]
Allowance for Doubtful Accounts	$ 6,654	$ 1,614
Accumulated Amortization	$ 2,577,666	$ 2,630,332
Preferred Stock Par Value	$ 0.001	$ 0.001
Preferred Stock Shares Authorized	10,000,000	10,000,000
Preferred Stock Shares Issued	0	0
Preferred Stock Shares Outstanding	0	0
Common Stock Par Value	$ 0.001	$ 0.001
Common Stock Shares Authorized	300,000,000	300,000,000
Common Stock Shares Issued	91,326,463	91,326,463
Common Stock Shares Outstanding	74,085,705	74,085,705
Common Shares Treasury Stock	17,240,758	17,240,758

XML

NOTE 2 - EARNINGS PER SHARE (Tables)

3 Months Ended

Mar. 31, 2013

Earnings Per Share [Abstract]

Earnings Per Share

	2013		2012
Net income available to common shareholders	$	81,823	$	163,350
Weighted average number of common shares		74,085,705		74,085,705
Basic and diluted income per share	$	0.00	$	0.00

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2013	May 15, 2013
Document And Entity Information
Entity Registrant Name	SiteStar Corp.
Entity Central Index Key	0001096934
Document Type	10-Q
Document Period End Date	Mar. 31, 2013
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		74,085,705
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2013

XML

NOTE 4 - SEGMENT INFORMATION (Tables)

3 Months Ended

Mar. 31, 2013

Segment Reporting [Abstract]

Financial Information Concerning Company's Reportable Segments

March 31, 2013
		Corporate			Real estate		Internet		Consolidated
Revenue	$	—		$	15,870	$	719,899	$	735,769
Operating income (loss)	$	(37,125	)	$	12,794	$	154,607	$	130,276
Depreciation and amortization	$	—		$	—	$	6,943	$	6,943
Interest expense	$	—		$	—	$	1,330	$	1,330
Real estate	$	—		$	2,515,528	$	—	$	2,515,528
Intangible assets	$	—		$	—	$	1,288,975	$	1,288,975
Total assets	$	—		$	2,515,528	$	2,551,133	$	5,066,661

March 31, 2012
		Corporate			Real estate		Internet		Consolidated
Revenue	$	—		$	487,875	$	819,192	$	1,307,067
Operating income (loss)	$	(42,926	)	$	105,335	$	203,510	$	265,919
Depreciation and amortization	$	—		$	—	$	10,242	$	10,242
Interest expense	$	—		$	—	$	2,089	$	2,089
Real estate	$	—		$	2,504,107	$	—	$	2,504,107
Intangible assets	$	—		$	—	$	1,316,477	$	1,316,477
Total assets	$	—		$	2,504,107	$	2,397,965	$	4,902,072

XML

Statements of Operations (Unaudited) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
REVENUE
Internet	$ 719,899	$ 819,192
Real estate	15,870	487,875
Revenue	735,769	1,307,067
COST OF REVENUE
Internet	350,973	444,052
Real estate	3,076	382,540
Cost of Revenue	354,049	826,592
GROSS PROFIT	381,720	480,475
OPERATING EXPENSES:
Selling general and administrative expenses	251,444	214,556
INCOME FROM OPERATIONS	130,276	265,919
OTHER INCOME (EXPENSES):
Other income (expenses)	503	(531)
Interest expense	(1,330)	(2,089)
TOTAL OTHER INCOME (EXPENSE)	(827)	(2,620)
INCOME BEFORE INCOME TAXES	129,449	263,299
INCOME TAXES (EXPENSE) BENEFIT	(47,626)	(99,949)
NET INCOME	$ 81,823	$ 163,350
BASIC AND DILUTED EARNINGS PER SHARE	$ 0.00	$ 0.00
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED	74,085,705	74,085,705

XML

NOTE 7 - PROVISION FOR INCOME TAXES

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

NOTE 7 - PROVISION FOR INCOME TAXES

NOTE 7 -- PROVISION FOR INCOME TAXES

The provision for federal and state income taxes for the three months ended March 31, 2013 and 2012 included the following: 

	2013		2012
Current provision:
Federal	$	—	$	—
State		—		—
Deferred provision:
Federal		40,098		84,151
State		7,528		15,798
Total income tax provision	$	47,626	$	99,949

Deferred tax assets and liabilities reflect the net effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes.  Significant components of the Company's deferred tax assets and liabilities at March 31, 2013 and December 31, 2012 are as follows:

	2013			2012
Accounts receivable	$	6,654		$	1,614
Amortization of Intangible assets		2,577,666			2,630,332
Less valuation allowance		(2,422,247	)		(2,422,247	)
Deferred tax asset	$	162,013		$	209,699

At March 31, 2013 and December 31, 2012, the Company has provided a valuation allowance for a portion of the deferred tax asset that management has not been able to determine that realization 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 tax purposes, tax years 2009 through 2012 remain open to examination.

XML

NOTE 6 - ACQUISITIONS

3 Months Ended

Mar. 31, 2013

Business Combinations [Abstract]

NOTE 6 - ACQUISITIONS

NOTE 6 – ACQUISITIONS

None

XML

NOTE 4 - SEGMENT INFORMATION - Financial Information Concerning Company's Reportable Segments (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Corporate
Revenue
Operating income (loss)	(37,125)	(42,926)
Depreciation and amortization
Interest expense
Real estate
Intangible assets
Total assets
Real Estate
Revenue	15,870	487,875
Operating income (loss)	12,794	105,335
Depreciation and amortization
Interest expense
Real estate	2,515,528	2,504,107
Intangible assets
Total assets	2,515,528	2,504,107
Internet
Revenue	719,899	819,192
Operating income (loss)	154,607	203,510
Depreciation and amortization	6,943	10,242
Interest expense	1,330	2,089
Real estate
Intangible assets	1,288,975	1,316,477
Total assets	2,551,133	1,316,477
Consolidated
Revenue	735,769	1,307,067
Operating income (loss)	130,276	265,919
Depreciation and amortization	6,943	10,242
Interest expense	1,330	2,089
Real estate	2,515,528	2,504,107
Intangible assets	1,288,975	2,397,965
Total assets	$ 5,066,661	$ 4,902,072

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NOTE 7 - PROVISION FOR INCOME TAXES (Tables)

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

Income Tax Provision

	2013		2012
Current provision:
Federal	$	—	$	—
State		—		—
Deferred provision:
Federal		40,098		84,151
State		7,528		15,798
Total income tax provision	$	47,626	$	99,949

Components of Income Tax Benefit

	2013			2012
Accounts receivable	$	6,654		$	1,614
Amortization of Intangible assets		2,577,666			2,630,332
Less valuation allowance		(2,422,247	)		(2,422,247	)
Deferred tax asset	$	162,013		$	209,699

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NOTE 10 - NOTES PAYABLE

3 Months Ended

Mar. 31, 2013

Payables and Accruals [Abstract]

NOTE 10 - NOTES PAYABLE

NOTE 10 - NOTES PAYABLE

Notes payable at March 31, 2013 and December 31, 2012 consist of the following:

	2013			2012
Non-interest bearing amount due on acquisition of USA Telephone.	$	900,615		$	900,615
Totals		900,615			900,615
Less current portion		(900,615	)		(900,615	)
Long-term portion	$	—		$	—

The future principal maturities of these notes are as follows:

Twelve months ending  March 31, 2014	$	900,615
Twelve months ending  March 31, 2015		—
Twelve months ending  March 31, 2016		—
Twelve months ending  March 31, 2017		—
Twelve months ending  March 31, 2018		—
Thereafter		—
Total	$	900,615

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NOTE 8 - INTANGIBLE ASSETS

3 Months Ended

Mar. 31, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

NOTE 8 - INTANGIBLE ASSETS

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 a discounted 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 $5,622 and $7,321 for the three months ended March, 31, 2013 and 2012.

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NOTE 9 - DEFERRED REVENUE

3 Months Ended

Mar. 31, 2013

Deferred Revenue Disclosure [Abstract]

NOTE 9 - DEFERRED REVENUE

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

Internet

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.

Real Estate

Revenue from real estate is recognized upon closing of the sale, as all conditions for full revenue recognition have been met at that time. All costs associated with the property sold are removed from the consolidated balance sheets and charged to cost of revenue at that time.

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NOTE 11 - NOTES PAYABLE - STOCKHOLDERS

3 Months Ended

Mar. 31, 2013

Related Party Transactions [Abstract]

NOTE 11 - NOTES PAYABLE - STOCKHOLDERS

NOTE 11 - NOTES PAYABLE – STOCKHOLDERS

Notes payable - stockholders at March 31, 2013 and December 31, 2012 consist of the following: 

	2013		2012
Note payable to officer and stockholder on a line of credit of $750,000 at an annual interest rate of 10%.  The accrued interest and principal are due on January 1, 2020.	$	280	$	45,280
Note payable to stockholder for $50,000 at an annual interest rate of 8 % interest.  The accrued interest and principal are due on January 1, 2020.		50,000		50,000
Totals		50,280		50,280
Less current portion		—		—
Long-term portion	$	50,280	$	50,280

The future principal maturities of these notes are as follows:

Twelve months ending March 31, 2014	$	-
Twelve months ending March 31, 2015		-
Twelve months ending March 31, 2016		-
Twelve months ending March 31, 2017		-
Twelve months ending March 31, 2018		-
Twelve months ending March 31, 2019		-
Twelve months ending March 31, 2020		50,280
Total	$	50,280

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NOTE 11 - NOTES PAYABLE - STOCKHOLDERS (Tables)

3 Months Ended

Mar. 31, 2013

Related Party Transactions [Abstract]

Related Party Transactions

	2013		2012
Note payable to officer and stockholder on a line of credit of $750,000 at an annual interest rate of 10%.  The accrued interest and principal are due on January 1, 2020.	$	280	$	45,280
Note payable to stockholder for $50,000 at an annual interest rate of 8 % interest.  The accrued interest and principal are due on January 1, 2020.		50,000		50,000
Totals		50,280		50,280
Less current portion		—		—
Long-term portion	$	50,280	$	50,280

Maturities of Related Party Debt

Twelve months ending March 31, 2014	$	-
Twelve months ending March 31, 2015		-
Twelve months ending March 31, 2016		-
Twelve months ending March 31, 2017		-
Twelve months ending March 31, 2018		-
Twelve months ending March 31, 2019		-
Twelve months ending March 31, 2020		50,280
Total	$	50,280

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NOTE 8 - INTANGIBLE ASSETS (Details Narrative) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization of Intangible Assets	$ 5,622	$ 7,321

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Statements of Cash Flows (Unaudited) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 81,823	$ 163,350
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization expense	6,943	10,242
Allowance for doubtful accounts	5,040	2,337
Deferred income taxes	47,626	99,949
Increase in accounts receivable	(57,479)	(10,012)
(Increase) decrease in prepaid expenses	6,861	(14,947)
Increase in real estate	(73,731)	(39,413)
Increase (decrease) in accounts payable	8,999	(42,690)
Increase (decrease) in accrued expenses	(7,024)	2,193
Decrease in deferred revenue	(31,670)	(5,013)
Net cash provided by (used in) operating activities	(12,612)	165,996
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in other assets held for resale	1	(2)
Net cash used in investing activities	1	(2)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable stockholders		(13,113)
Net cash provided by (used in) financing activities		(13,113)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(12,611)	152,881
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD	148,590	17,268
CASH AND CASH EQUIVALENTS END OF PERIOD	135,979	170,149
Interest	1,000	2,000
Income taxes	$ 0	$ 64,000

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NOTE 5 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

3 Months Ended

Mar. 31, 2013

Accounting Changes and Error Corrections [Abstract]

NOTE 5 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

NOTE 5 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

No new accounting pronouncement issued or effective during the three months ended March 31, 2013 has had or is expected to have a material impact on the condensed consolidated financial statements.

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NOTE 10 - NOTES PAYABLE - Short Term Debt (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Payables and Accruals [Abstract]
Non-interest bearing amount due on acquisition of USA Telephone.	$ 900,615	$ 900,615
Totals	900,615	900,615
Less current portion	(900,615)	(900,615)
Long-term portion

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NOTE 10 - NOTES PAYABLE (Tables)

3 Months Ended

Mar. 31, 2013

Payables and Accruals [Abstract]

Short Term Debt

	2013			2012
Non-interest bearing amount due on acquisition of USA Telephone.	$	900,615		$	900,615
Totals		900,615			900,615
Less current portion		(900,615	)		(900,615	)
Long-term portion	$	—		$	—

Future Principal Maturities of Notes Payable

Twelve months ending  March 31, 2014	$	900,615
Twelve months ending  March 31, 2015		—
Twelve months ending  March 31, 2016		—
Twelve months ending  March 31, 2017		—
Twelve months ending  March 31, 2018		—
Thereafter		—
Total	$	900,615