Attached files
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EXCEL - IDEA: XBRL DOCUMENT - ENTERPRISE DIVERSIFIED, INC. | Financial_Report.xls |
EX-31.2 - 302 CFO CERTIFICATION - ENTERPRISE DIVERSIFIED, INC. | ex31_2302cfocertification.htm |
EX-31.1 - 302 CEO CERTIFICATION - ENTERPRISE DIVERSIFIED, INC. | ex31_1302ceocertification.htm |
EX-32 - 906 CERTIFICATION - ENTERPRISE DIVERSIFIED, INC. | ex32_906certification.htm |
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, 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 November 14, 2013, the issuer had 91,326,463 shares of common stock issued and 74,085,705 outstanding
SITESTAR CORPORATION
SITESTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2013 AND DECEMBER 31, 2012
ASSETS
2013 (Unaudited) | 2012 | |||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 120,852 | $ | 148,590 | ||||
Accounts receivable, net of allowance of $1,314 and $1,614 | 20,822 | 30,488 | ||||||
Prepaid expenses | 43,926 | 50,411 | ||||||
Real estate, at cost | 3,268,675 | 2,918,263 | ||||||
Total current assets | 3,454,275 | 3,147,752 | ||||||
PROPERTY AND EQUIPMENT, net | 146,314 | 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 | 94,356 | 209,699 | ||||||
OTHER ASSETS | 217,650 | 218,097 | ||||||
TOTAL ASSETS | $ | 5,201,154 | $ | 5,018,519 |
See the accompanying notes to the unaudited condensed consolidated financial statements.
SITESTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS, continued
SEPTEMBER 30, 2013 AND DECEMBER 31, 2012
LIABILITIES AND STOCKHOLDERS’ EQUITY
2013 (Unaudited) | 2012 | |||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 2,672 | $ | 32,879 | ||||
Accrued expenses | 128,637 | 45,074 | ||||||
Deferred revenue | 329,323 | 387,258 | ||||||
Notes payable, current portion | 900,615 | 900,615 | ||||||
Total current liabilities | 1,361,247 | 1,365,826 | ||||||
NOTES PAYABLE – STOCKHOLDERS, less current portion | 50,280 | 50,280 | ||||||
TOTAL LIABILITIES | 1,411,527 | 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 | (9,393,128 | ) | (9,580,342 | ) | ||||
Total stockholders’ equity | 3,789,627 | 3,602,413 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 5,201,154 | $ | 5,018,519 | ||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
SITESTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(UNAUDITED)
2013 | 2012 | |||||||
REVENUE | ||||||||
Internet | $ | 516,454 | $ | 688,903 | ||||
Real estate | 8,713 | 34,161 | ||||||
525,167 | 723,064 | |||||||
COST OF REVENUE | ||||||||
Internet | 260,249 | 370,516 | ||||||
Real estate | — | 25,669 | ||||||
260,249 | 396,185 | |||||||
GROSS PROFIT | 264,918 | 326,879 | ||||||
OPERATING EXPENSES: | ||||||||
Selling general and administrative expenses | 127,190 | 164,884 | ||||||
INCOME FROM OPERATIONS | 137,728 | 161,995 | ||||||
OTHER INCOME (EXPENSES): | ||||||||
Other income (expenses) | (514 | ) | (4,058 | ) | ||||
Interest expense | (1,177 | ) | (1,356 | ) | ||||
TOTAL OTHER INCOME (EXPENSE) | (1,691 | ) | (5,414 | ) | ||||
INCOME BEFORE INCOME TAXES | 136,037 | 156,581 | ||||||
INCOME TAXES (EXPENSE) BENEFIT | (52,283 | ) | (59,938 | ) | ||||
NET INCOME | $ | 83,754 | $ | 96,643 | ||||
BASIC AND DILUTED EARNINGS (LOSS) 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.
SITESTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(UNAUDITED)
2013 | 2012 | |||||||
REVENUE | ||||||||
Internet | $ | 1,830,626 | $ | 2,241,611 | ||||
Real estate | 39,706 | 617,274 | ||||||
1,870,332 | 2,858,885 | |||||||
COST OF REVENUE | ||||||||
Internet | 923,675 | 1,208,176 | ||||||
Real estate | 3,076 | 468,207 | ||||||
926,751 | 1,676,383 | |||||||
GROSS PROFIT | 943,580 | 1,182,502 | ||||||
OPERATING EXPENSES: | ||||||||
Selling general and administrative expenses | 637,287 | 593,173 | ||||||
INCOME FROM OPERATIONS | 306,293 | 589,329 | ||||||
OTHER INCOME (EXPENSES): | ||||||||
Other income (expenses) | 1,209 | (3,748 | ) | |||||
Interest expense | (3,648 | ) | (5,404 | ) | ||||
TOTAL OTHER INCOME (EXPENSE) | (2,439 | ) | (9,152 | ) | ||||
INCOME BEFORE INCOME TAXES | 303,854 | 580,177 | ||||||
INCOME TAXES (EXPENSE) BENEFIT | (116,640 | ) | (220,745 | ) | ||||
NET INCOME | $ | 187,214 | $ | 359,432 | ||||
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.
SITESTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(UNAUDITED)
2013 | 2012 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 187,214 | $ | 359,432 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization expense | 8,542 | 30,671 | ||||||
Allowance for doubtful accounts | (300 | ) | (670 | ) | ||||
Deferred income taxes | 115,343 | 220,745 | ||||||
Increase in accounts receivable | 9,966 | 16,479 | ||||||
(Increase) decrease in prepaid expenses | 6,485 | (53,002 | ) | |||||
Increase in real estate | (350,412 | ) | (435,455 | ) | ||||
Decrease in accounts payable | (30,207 | ) | (25,567 | ) | ||||
Increase in accrued expenses | 83,563 | 11,078 | ||||||
Decrease in deferred revenue | (57,935 | ) | (49,650 | ) | ||||
Net cash provided by (used in) operating activities | (27,741 | ) | 74,061 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
(Increase) decrease in other assets held for resale | 3 | (8 | ) | |||||
Net cash provided by (used in) investing activities | 3 | (8 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Repayment of notes payable – stockholders | — | (45,685 | ) | |||||
Net cash provided by (used in) financing activities | — | (45,685 | ) | |||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (27,738 | ) | 28,368 | |||||
CASH AND CASH EQUIVALENTS – BEGINNING OF PERIOD | 148,590 | 17,268 | ||||||
CASH AND CASH EQUIVALENTS – END OF PERIOD | $ | 120,852 | $ | 45,636 |
See the accompanying notes to the unaudited condensed consolidated financial statements.
SITESTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(UNAUDITED)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
During the nine months ended September 30, 2013 and 2012, the Company used cash to pay income taxes of $1,696 and $101,900 and paid interest expense of $3,648 and $5,404, respectively.
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 nine months ended September 30, 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 September 30, 2013 and 2012:
2013 | 2012 | |||||||
Net income available to common shareholders | $ | 83,754 | $ | 96,643 | ||||
Weighted average number of common shares | 74,085,705 | 74,085,705 | ||||||
Basic and diluted income per share | $ | 0.00 | $ | 0.00 |
For the nine months ended September 30, 2013 and 2012:
2013 | 2012 | |||||||
Net income available to common shareholders | $ | 187,214 | $ | 359,432 | ||||
Weighted average number of common shares | 74,085,705 | 74,085,705 | ||||||
Basic and diluted income per share | $ | 0.00 | $ | 0.00 |
SITESTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 3 – COMMON STOCK
During the nine months ended September 30, 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 September 30, 2013 and 2012:
September 30, 2013 | ||||||||||||||||
Corporate | Real estate | Internet | Consolidated | |||||||||||||
Revenue | $ | — | $ | 8,713 | $ | 516,454 | $ | 525,167 | ||||||||
Operating income (loss) | $ | (12,872 | ) | $ | 8,713 | $ | 141,887 | $ | 137,728 | |||||||
Depreciation and amortization | $ | — | $ | — | $ | 111 | $ | 111 | ||||||||
Interest expense | $ | — | $ | — | $ | 1,177 | $ | 1,177 | ||||||||
Real estate | $ | — | $ | 3,268,675 | $ | — | $ | 3,268,675 | ||||||||
Intangible assets | $ | — | $ | — | $ | 1,288,809 | $ | 1,288,809 | ||||||||
Total assets | $ | — | $ | 3,268,675 | $ | 1,932,479 | $ | 5,201,154 |
SITESTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 4 – SEGMENT INFORMATION, continued
September 30, 2012 | ||||||||||||||||
Corporate | Real estate | Internet | Consolidated | |||||||||||||
Revenue | $ | — | $ | 34,161 | $ | 688,903 | $ | 723,064 | ||||||||
Operating income (loss) | $ | (9,684 | ) | $ | 8,492 | $ | 163,187 | $ | 161,995 | |||||||
Depreciation and amortization | $ | — | $ | — | $ | 10,215 | $ | 10,215 | ||||||||
Interest expense | $ | — | $ | — | $ | 1,356 | $ | 1,356 | ||||||||
Real estate | $ | — | $ | 2,900,149 | $ | — | $ | 2,900,149 | ||||||||
Intangible assets | $ | — | $ | — | $ | 1,301,891 | $ | 1,301,891 | ||||||||
Total assets | $ | — | $ | 2,900,149 | $ | 2,146,802 | $ | 5,046,951 |
Summarized financial information concerning the Company's reportable segments is shown in the following tables as of and for the nine months ended September 30, 2013 and 2012:
September 30, 2013 | ||||||||||||||||
Corporate | Real estate | Internet | Consolidated | |||||||||||||
Revenue | $ | — | $ | 39,706 | $ | 1,830,626 | $ | 1,870,332 | ||||||||
Operating income (loss) | $ | (101,487 | ) | $ | 36,630 | $ | 371,150 | $ | 306,293 | |||||||
Depreciation and amortization | $ | — | $ | — | $ | 8,542 | $ | 8,542 | ||||||||
Interest expense | $ | — | $ | — | $ | 3,648 | $ | 3,648 | ||||||||
Real estate | $ | — | $ | 3,268,675 | $ | — | $ | 3,268,675 | ||||||||
Intangible assets | $ | — | $ | — | $ | 1,288,809 | $ | 1,288,809 | ||||||||
Total assets | $ | — | $ | 3,268,675 | $ | 1,932,479 | $ | 5,201,154 |
September 30, 2012 | ||||||||||||||||
Corporate | Real estate | Internet | Consolidated | |||||||||||||
Revenue | $ | — | $ | 617,274 | $ | 2,241,611 | $ | 2,858,885 | ||||||||
Operating income (loss) | $ | (72,981 | ) | $ | 149,067 | $ | 513,243 | $ | 589,329 | |||||||
Depreciation and amortization | $ | — | $ | — | $ | 30,671 | $ | 30,671 | ||||||||
Interest expense | $ | — | $ | — | $ | 5,404 | $ | 5,404 | ||||||||
Real estate | $ | — | $ | 2,900,149 | $ | — | $ | 2,900,149 | ||||||||
Intangible assets | $ | — | $ | — | $ | 1,301,891 | $ | 1,301,891 | ||||||||
Total assets | $ | — | $ | 2,900,149 | $ | 2,146,802 | $ | 5,046,951 |
SITESTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 5 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
No new accounting pronouncement issued or effective during the nine months ended September 30, 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 September 30, 2013 and 2012 included the following:
2013 | 2012 | |||||||
Current provision: | ||||||||
Federal | $ | — | $ | — | ||||
State | — | — | ||||||
Deferred provision: | ||||||||
Federal | 43,918 | 50,464 | ||||||
State | 8,365 | 9,474 | ||||||
Total income tax provision | $ | 52,283 | $ | 59,938 |
The provision for federal and state income taxes for the nine months ended September 30, 2013 and 2012 included the following:
2013 | 2012 | ||||||||
Current provision: | |||||||||
Federal | $ | — | $ | — | |||||
State | 1,696 | — | |||||||
Deferred provision: | |||||||||
Federal | 96,553 | 185,854 | |||||||
State | 18,391 | 34,891 | |||||||
Total income tax provision | $ | 116,640 | $ | 220,745 |
SITESTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 7 -- PROVISION FOR INCOME TAXES, Continued
Deferred tax assets and liabilities reflect the net effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities at September 30, 2013 and December 31, 2012 are as follows:
2013 | 2012 | |||||||
Accounts receivable | $ | 1,314 | $ | 1,614 | ||||
Amortization of Intangible assets | 2,515,289 | 2,630,332 | ||||||
Less valuation allowance | (2,422,247 | ) | (2,422,247 | ) | ||||
Deferred tax asset | $ | 94,356 | $ | 209,699 |
At September 30, 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 $5,900 and $21,907 for the nine months ended September, 30, 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
SITESTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 9 – DEFERRED REVENUE, Continued
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 September 30, 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 September 30, 2014 | $ | 900,615 | ||||
Twelve months ending September 30, 2015 | — | |||||
Twelve months ending September 30, 2016 | — | |||||
Twelve months ending September 30, 2017 | — | |||||
Twelve months ending September 30, 2018 | — | |||||
Thereafter | — | |||||
Total | $ | 900,615 |
SITESTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 11 - NOTES PAYABLE – STOCKHOLDERS
Notes payable - stockholders at September 30, 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 | $ | 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 September 30, 2014 | $ | — | ||||
Twelve months ending September 30, 2015 | — | |||||
Twelve months ending September 30, 2016 | — | |||||
Twelve months ending September 30, 2017 | — | |||||
Twelve months ending September 30, 2018 | — | |||||
Twelve months ending September 30, 2019 | — | |||||
Twelve months ending September 30, 2020 | 50,280 | |||||
Total | $ | 50,280 |
SITESTAR CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued
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.
SITESTAR CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued
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.
Results of operations
The following tables show financial data for the nine months ended September 30, 2013.
Corporate | Internet | Real estate | Total | |||||||||||||
Revenue | $ | — | $ | 1,830,626 | $ | 39,706 | $ | 1,870,332 | ||||||||
Cost of revenue | — | 923,675 | 3,076 | 926,751 | ||||||||||||
Gross profit | — | 906,950 | 36,630 | 943,580 | ||||||||||||
Operating expenses | 101,487 | 535,800 | — | 637,287 | ||||||||||||
Income (loss) from operations | (101,487 | ) | 371,150 | 36,630 | 306,293 | |||||||||||
Other income (expense) | — | (2,439 | ) | — | (2,439 | ) | ||||||||||
Income (loss) before income taxes | (101,487 | ) | 368,711 | 36,630 | 303,854 | |||||||||||
Income taxes (expense) benefit | — | (116,640 | ) | — | (116,640 | ) | ||||||||||
Net income (loss) | $ | (101,487 | ) | $ | 252,071 | $ | 36,630 | $ | 187,214 |
SITESTAR CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued
The following tables show financial data for the nine months ended September 30, 2012.
Corporate | Internet | Real estate | Total | |||||||||||||
Revenue | $ | — | $ | 2,241,611 | $ | 617,274 | $ | 2,858,885 | ||||||||
Cost of revenue | — | 1,208,176 | 468,207 | 1,676,383 | ||||||||||||
Gross profit | — | 1,033,435 | 149,067 | 1,182,502 | ||||||||||||
Operating expenses | 72,981 | 520,192 | — | 593,173 | ||||||||||||
Income (loss) from operations | (72,981 | ) | 513,243 | 149,067 | 589,329 | |||||||||||
Other income (expense) | — | (9,152 | ) | — | (9,152 | ) | ||||||||||
Income (loss) before income taxes | (72,981 | ) | 504,091 | 149,067 | 580,177 | |||||||||||
Income taxes (expense) benefit | — | (191,795 | ) | (28,950 | ) | (220,745 | ) | |||||||||
Net income (loss) | $ | (72,981 | ) | $ | 312,296 | $ | 120,117 | $ | 359,432 | |||||||
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) consists of revenue less cost of revenue and operating expense. EBITDA is provided because it is a measure commonly used by investors to analyze and compare companies on the basis of operating performance. EBITDA is presented to enhance an understanding of the Company’s operating results and is not intended to represent cash flows or results of operations in accordance with GAAP for the periods indicated. EBITDA is not a measurement under GAAP and is not necessarily comparable with similarly titled measures for other companies. See the Liquidity and Capital Resource section for further discussion of cash generated from operations.
The following tables show a reconciliation of EBITDA to the GAAP presentation of net income for the nine months ended September 30, 2013 and 2012.
SITESTAR CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued
For the nine months ended September 30, 2013
Corporate | Internet | Real estate | Total | |||||||||||||
EBITDA | $ | (101,487 | ) | $ | 380,901 | $ | 36,630 | $ | 316,044 | |||||||
Interest expense | — | (3,648 | ) | — | (3,648 | ) | ||||||||||
Taxes | — | (116,640 | ) | — | (116,640 | ) | ||||||||||
Depreciation | — | (2,643 | ) | — | (2,643 | ) | ||||||||||
Amortization | — | (5,899 | ) | — | (5,899 | ) | ||||||||||
Net income (loss) | $ | (101,487 | ) | $ | 252,071 | $ | 36,630 | $ | 187,214 |
For the nine months ended September 30, 2012
Corporate | Internet | Real estate | Total | |||||||||||||
EBITDA | $ | (72,981 | ) | $ | 540,166 | $ | 149,067 | $ | 616,252 | |||||||
Interest expense | — | (5,404 | ) | — | (5,404 | ) | ||||||||||
Taxes | — | (191,795 | ) | (28,950 | ) | (220,745 | ) | |||||||||
Depreciation | — | (8,764 | ) | — | (8,764 | ) | ||||||||||
Amortization | — | (21,907 | ) | — | (21,907 | ) | ||||||||||
Net income (loss) | $ | (72,981 | ) | $ | 312,296 | $ | 120,117 | $ | 359,432 |
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, September 30, 2013, the Company has invested approximately $3,268,675 in surplus funds and is continuing the investing process.
SITESTAR CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued
NINE MONTHS ENDED SEPTEMBER 30, 2013 COMPARED TO SEPTEMBER 30, 2012
REVENUE
Total revenue for the nine months ended September 30, 2013 decreased by $988,553 or 34.6% from $2,858,885 for the nine months ended September 30, 2012 to $1,870,332 for the same period in 2013. Internet sales decreased $410,985 or 18.3% from $2,241,611 for the nine months ended September 30, 2012 to $1,830,626 for the same period in 2013. Real estate sales decreased $577,568 or 93.6% from $617,274 for the nine months ended June 30, 2012 to $39,706 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. The new real estate division while sales are down is preparing properties for the market and is still providing a profitable revenue stream.
COST OF REVENUE
Total costs of revenue for the nine months ended September 30, 2013 decreased by $749,632 or 44.7% from $1,676,383 for the nine months ended September 30, 2012 to $926,751 for the same period in 2013. Cost of Internet revenue decreased $284,501 or 23.5% from $1,208,176 for the nine months ended September 30, 2012 to $923,675 for the same period in 2013 as a result of declining revenue. Cost of real estate revenue decreased $465,131 or 99.3% from $468,207 for the nine months ended September 30, 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 nine months ended September 30, 2013 increased $44,114 or 7.4% from $593,173 for the nine months ended September 30, 2012 to $637,287 for the same period in 2013. This increase is primarily due to bad debt expense. Bad debt expense increased $46,814 from $1,993 for the nine months ended September 30, 2012 to $48,807 for the same period in 2013.
INCOME TAXES
For the nine months ended September 30, 2013 and September 30, 2012 corporate income tax expenses of $116,640 and $220,745 were accrued.
SITESTAR CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued
INTEREST EXPENSE
Interest expense for the nine months ended September 30, 2013 decreased by $1,756 or 32.5% from $5,404 for the nine months ended September 30, 2012 to $3,648 for the same period in 2013.
SEPTEMBER 30, 2013 COMPARED TO DECEMBER 31, 2012
FINANCIAL CONDITION
Net accounts receivable decreased $9,666 or 31.7% from $30,488 on December 31, 2012 to $20,822 on September 30, 2013. Investment in real estate increased net $350,412 or 12.0% from $2,918,263 on December 31, 2012 to $3,268,675 on September 30, 2013. Accounts payable decreased by $30,207 or 91.9% from $32,879 on December 31, 2012 to $2,672 on September 30, 2013. Deferred revenue decreased by $57,935 or 15.0% from $387,258 on December 31, 2012 to $329,323 on September 30, 2013 representing decreased volume of customer accounts that have been prepaid.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $120,852 and $148,590 at September 30, 2013 and at December 31, 2012. EBITDA was $316,044 for the nine months ended September 30, 2013 as compared to $616,252 for the same period in 2012.
2013 | 2012 | |||||||
EBITDA for the nine months ended September 30, | $ | 316,044 | $ | 616,252 | ||||
Interest expense | (3,648 | ) | (5,404 | ) | ||||
Taxes | (116,640 | ) | (220,745 | ) | ||||
Depreciation | (2,643 | ) | (8,764 | ) | ||||
Amortization | (5,899 | ) | (21,907 | ) | ||||
Net income for the nine months ended September 30, | $ | 187,214 | $ | 359,432 |
The aging of accounts receivable as of September 30, 2013 and December 31, 2012 is as shown:
2013 | 2012 | |||||||||||||||||
Current | $ | 10,749 | 52 | % | $ | 19,319 | 63 | % | ||||||||||
30 < 60 | 5,765 | 28 | % | 6,680 | 22 | % | ||||||||||||
60+ | 4,308 | 20 | % | 4,489 | 15 | % | ||||||||||||
Total | $ | 20,822 | 100 | % | $ | 30,488 | 100 | % |
SITESTAR CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued
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 September 30, 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.
SITESTAR CORPORATION
Item 4. Controls and Procedures, continued
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 September 30, 2013, because of the material weaknesses in internal control over financial reporting discussed in the fiscal 2012 Form 10-K. The material weaknesses related to an overall lack of segregation of duties and the improper recording of revenues, deferred revenues, and income tax accounts.
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. Pursuant to the material weakness related to recognition of deferred revenues, we have made changes to our revenue accounting policies and are now properly recording deferred revenue adjustments through our revenue account as they are earned. Pursuant to the material weakness related to calculation of income tax related accounts, we have reviewed all inputs and calculations to ensure accuracy. Due to limited staffing, we are currently unable to remediate the material weakness related to segregation of duties.
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 September 30, 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.
SITESTAR CORPORATION
None
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.
None
(a) The following are filed as exhibits to this form 10-Q:
SITESTAR CORPORATION
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: November 14, 2013
By:_/s/ Frank Erhartic, Jr.
Frank Erhartic, Jr.
President, Chief Executive Officer
(Principal Executive Officer and
Principal Accounting Officer)
Date: November 14, 2013
By:_/s/ Daniel A. Judd.
Daniel A. Judd
Chief Financial Officer
(Principal Financial Officer)