Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2016 | Aug. 08, 2016 | |
Document And Entity Information | ||
Entity Registrant Name | SITESTAR CORP | |
Entity Central Index Key | 1,096,934 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2016 | |
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 | 77,404,010 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2,016 |
Balance Sheets (Unaudited)
Balance Sheets (Unaudited) - USD ($) | Mar. 31, 2016 | Mar. 31, 2015 |
Current assets: | ||
Cash and cash equivalents | $ 420,763 | $ 184,731 |
Accounts receivable, net | 13,036 | 14,428 |
Other current assets | 10,057 | 1,081 |
Total current assets | 443,856 | 200,240 |
Real estate - held for resale | 2,336,668 | 2,671,311 |
Real estate - held for investment, net | 903,306 | 911,162 |
Goodwill, net | 212,445 | 212,445 |
Other assets | 211,250 | 200,055 |
TOTAL ASSETS | 4,107,525 | 4,195,213 |
Current Liabilities: | ||
Deferred revenue | 255,176 | 246,262 |
Notes payable, current | 90,000 | |
Accounts payable | 57,112 | 58,094 |
Accrued expenses | 49,765 | 49,812 |
Total current liabilities | 362,053 | 444,168 |
Stockholders' equity | ||
Preferred Stock, $0.001 par value, 10,000,000 shares authorized, 0 shares issued and outstanding | ||
Common stock, $0.001 par value, 300,000,000 shares authorized; 91,326,463 shares issued; 77,404,010 shares outstanding. | 91,327 | 91,327 |
Additional paid-in capital | 13,728,989 | 13,728,989 |
Treasury stock, at cost, 13,922,453 common shares in 2015 and 2014 (as restated) | (637,561) | (637,561) |
Accumulated other comprehensive income | 7,059 | 3,415 |
Accumulated deficit | (9,444,342) | (9,435,125) |
Total stockholders' equity | 3,745,472 | 3,751,045 |
Total Liabilities and Stockholders' Equity | $ 4,107,525 | $ 4,195,213 |
Balance Sheets (Parenthetical)
Balance Sheets (Parenthetical) - $ / shares | Mar. 31, 2015 | Mar. 31, 2014 |
Statement of Financial Position [Abstract] | ||
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 | 77,404,010 |
Common Stock Shares Outstanding | 91,326,463 | 77,404,010 |
Common Shares Treasury Stock | 13,922,453 | 13,922,453 |
Statements of Operations (Unaud
Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Income Statement [Abstract] | ||
Revenues – internet operations | $ 356,084 | $ 418,974 |
Revenues – real estate | 408,217 | 39,975 |
Total revenue | 764,301 | 458,949 |
Cost of revenues – internet operations | 126,072 | 199,749 |
Cost of revenues – real estate | 436,104 | 14,410 |
Total cost of revenues | 562,176 | 214,159 |
Gross profit – internet operations | 230,012 | 256,842 |
Gross profit (loss) – real estate | (27,887) | (12,052) |
Total gross profit | 202,125 | 244,790 |
Selling, general and administrative expenses | 212,254 | 402,912 |
Total operating expenses | 212,254 | 402,912 |
Loss from operations | (10,129) | (158,122) |
Other income (expense), net | 912 | (14,933) |
Loss before income taxes | (9,217) | (173,055) |
Income tax benefit (expense) | ||
Net loss | (9,217) | (173,055) |
Other comprehensive income (expense) – foreign exchange translation | 3,644 | 1,237 |
Comprehensive (loss) income | $ (5,573) | $ (171,818) |
Earnings per share, basic and diluted | $ 0 | $ 0 |
Statements of Cash Flows (Unaud
Statements of Cash Flows (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net (loss) income | $ (5,573) | $ (171,818) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||
Amortization | 55 | |
Depreciation | 9,137 | 5,518 |
Loss on sale of real estate | 3,557 | |
Bad debt | 34 | 5,544 |
(Increase) decrease in: | ||
Accounts receivable, net | 1,358 | (1,546) |
Other current assets | (8,976) | |
Increase (decrease) in: | ||
Deferred revenue, net | 8,914 | 10,711 |
Accounts payable | (982) | 64,121 |
Accrued expenses | (47) | 1,560 |
Net cash provided by (used in) operating activities | 338,563 | (193,923) |
Cash flows from investing activities: | ||
Purchases of real estate held for investment | (41,588) | |
Improvements to real estate held for investment | (1,281) | (9,319) |
Proceeds from sale of real estate held for investment | ||
Improvements to real estate held for resale | (53,738) | (108,013) |
Proceeds from sale of real estate held for resale | 384,824 | |
Purchase of domain names | (11,250) | |
Net cash provided by (used in) investing activities | 318,555 | (158,920) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Principal payments on note payable | (90,000) | |
Net cash used provided by (used in) financing activities | (90,000) | |
Net increase (decrease) in cash | 236,032 | (244,830) |
Cash and cash equivalents at beginning of the period | 184,731 | 339,694 |
Cash and cash equivalents at end of the period | $ 420,763 | $ 184,731 |
1. ORGANIZATION, SIGNIFICANT AC
1. ORGANIZATION, SIGNIFICANT ACCOUNTING POLICIES, AND BACKGROUND ON THE 2015 RESTATEMENT | 3 Months Ended |
Mar. 31, 2016 | |
Accounting Policies [Abstract] | |
1. ORGANIZATION, SIGNIFICANT ACCOUNTING POLICIES, AND BACKGROUND ON THE 2015 RESTATEMENT | NOTE 1 ORGANIZATION, SIGNIFICANT ACCOUNTING POLICIES, AND BACKGROUND ON THE 2015 RESTATEMENT Organization and Lines of Business Sitestar Corporation (formerly White Dove Systems, Inc., and then Interfoods Consolidated, Inc.) was incorporated in Nevada on December 17, 1992. On July 26, 1999 the Company restated its Articles of Incorporation to change the name of the Company to Sitestar Corporation. The Company formerly was in the International specialty foods distribution business. In 1999, through the acquisition of two Internet Service Providers, the Company changed from a food distribution company to an internet holding company. The Company services customers throughout the U.S. and Canada with multiple sites of operation. In 2008, the Companys management implemented a program to purchase real estate with the Companys surplus cash flows. However, as of the change in the Companys management on December 14, 2015, the Company determined to discontinue this real estate program, and currently is pursuing an orderly liquidation of the Companys real estate portfolio. In addition to these two historical segments, as of August 8, 2016, Sitestar holds investments in marketable securities and in HVAC Value Fund LLC, an entity focused on the acquisition and management of HVAC companies in Arizona and throughout the Southwest. The management of the Company currently is reviewing investment opportunities in the public and private markets, including in other lines of business. Principles of Consolidation The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries including: Sitestar.net, Inc., FRE Enterprises, Inc., Advanced Internet Services, Inc. and NetRover Inc. The accompanying unaudited condensed consolidated financial statements do not include the Companys subsidiary, HVAC Value Fund, LLC, which was organized and wholly owned by the Company on June 13, 2016, subsequent to the reporting period of the unaudited condensed consolidated financial statements in this Form 10-Q. All intercompany accounts and transactions have been eliminated. Background on the 2015 restatement As previously reported in our Annual Report of Form 10-K filed with the SEC on July 18, 2016, on December 3, 2015 Sitestars former auditor notified the independent Directors of the Company of his concerns about several related party transactions and what the former auditor considered to be former managements inadequate responses regarding these matters. The former auditor had not previously disclosed these concerns to the independent Directors and had not included the independent Directors in previous communications on the matter. The independent Directors requested information from former management on December 7, 2015 and believed that the responses from former management to be inadequate. The independent Directors provided former management with an additional opportunity to explain the issues on December 14, 2015 and again found the responses to be lacking. Accordingly, the Board of Directors voted to terminate the former CEO and place the now former CFO on probation. An independent Director, Steven L. Kiel, was appointed as the interim CEO during that meeting. Directors also voted to form an Audit Committee at the December 14, 2015 meeting and appointed two independent Directors to the Committee. Among other things, the Audit Committee was tasked with reviewing and approving the engagement with an outside auditor. Also at the December 14, 2015 meeting, Directors agreed to engage outside legal counsel to lead an investigation into the allegations by the Companys former auditor. Legal counsel engaged an accounting firm to carry out an analysis of a range of transactions over the previous five years. The information above was originally detailed in 8-K filings on December 15, 2015 and December 29, 2015. A final investigation report was delivered to management in February 2016. This report served as the basis for a lawsuit filed by the Company against the former CEO, Mr. Erhartic, in April 2016. This lawsuit is described more fully in Note 7. The results of the investigation, along with the problematic items identified by the former auditor and the accounting firm engaged to conduct the investigation, led the Company to make the decision that it was necessary to restate the 2014 10-K as well as the interim reports for 2014 and 2015. Results in this quarterly report include the restated comparison figures for the corresponding interim periods of fiscal 2015. Adjustments to asset and liability balances for the quarter ended March 31, 2015 are related primarily to previous errors related to the fair value analysis and capitalization policy for real estate properties held for investment and resale, errors in the revenue recognition criteria, errors in the calculation of depreciation, errors in the calculation of tax expenses, and cut-off deficiencies related to quarter-end accruals. Adjustments to cost of revenue for the quarter ended March 31, 2015 are related to previous errors in the accrual of expenses. Adjustments to operating expenses are related to errors in the accrual of salaries, errors in the accrual of expenses, errors in the calculation of bad debts, errors in the calculation of depreciation in the real estate segment and in property and equipment, reclassifications of expenses related to disputed use of funds by the former CEO, and clerical errors. Adjustments to other income are related to errors in the reporting of currency translations. |
2. SUMMARY OF SIGNIFICANT ACCOU
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 3 Months Ended |
Mar. 31, 2016 | |
Accounting Policies [Abstract] | |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 notes for the year ended December 31, 2015 included in the Companys Annual Report on Form 10-K filed with the SEC on July 18, 2016 (the 2015 Form 10-K). The comparative results for the three months ended March 31, 2015 included in the unaudited condensed consolidated financial statements in this Form 10-Q reflect restated amounts, as described in and reported under the 2015 Form 10-K. The results for the three months ended March 31, 2016 are not necessarily indicative of the results to be expected for the full year ending December 31, 2016. Use of Estimates In accordance with Accounting Principles Generally Accepted in the United State of America (GAAP), 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, goodwill valuation, 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 Companys 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 the notes to the consolidated financial statements. Fair Value of Financial Instruments For certain of the Company's assets and liabilities, including cash, accounts receivable, accounts payable, accrued expenses and deferred revenue, the carrying amounts approximate fair value due to their short maturities. Cash and Cash Equivalents For purposes of the statements of cash flows, the Company defines cash equivalents as all highly liquid instruments purchased with a maturity of three months or less. Concentration of Credit Risk Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and accounts receivable. The Company places its cash with high quality financial institutions and, at times, may exceed the FDIC and CDIC insurance limit. The Company extends credit based on an evaluation of the customers financial condition, generally without collateral. Exposure to losses on receivables is principally dependent on each customer's financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses. Accounts Receivable The Company grants credit in the form of unsecured accounts receivable to its customers. The estimate of the allowance for doubtful accounts, which is charged off to bad debt expense, is based on managements assessment of current economic conditions and historical collection experience with each customer. Specific customer receivables are considered past due when they are outstanding beyond their contractual terms and are charged off to the allowance for doubtful accounts when determined uncollectible. Sales of Internet services, which are not automatically processed via credit card or bank account drafts, have been the Companys highest exposure to collection risk. The Company attempts to reduce this risk by including a late payment fee and a manual processing payment fee to accounts. Receivables more than ninety days past due are no longer included in accounts receivable and are turned over to a collection agency. Accounts more than 30 days are considered past due. Impairment of Long-Lived Assets In accordance with GAAP, long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. Long-lived assets to be disposed are reported at the lower of carrying amount or fair value of the asset less cost to sell. Goodwill and Other Intangible Assets Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations accounted for under the acquisition method of accounting. The Company does not amortize goodwill. The Company tests its goodwill annually during the fourth quarter of its fiscal year or when events and circumstances indicate that those assets might not be recoverable. Impairment testing of goodwill is required at the reporting unit level (operating segment or one level below operating segment) and involves a two-step process. Prior to performing the two-step impairment test, the Company may make a qualitative assessment of the likelihood of goodwill impairment in order to determine whether a detailed quantitative analysis is required. The first step of the impairment test involves comparing the estimated fair values of the Company's reporting units with the reporting units' carrying amounts, including goodwill. The Company estimates the fair value of its reporting units using discounted expected future cash flows. If the carrying amount of the reporting unit exceeds its fair value, a second step is performed to compare the carrying amount of goodwill to the implied fair value of that goodwill. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess. The Company performs an analysis of its goodwill as of December 31 annually. Other intangible assets consist of customer relationships, developed technology and software, trade names and other assets acquired in conjunction with the purchases of businesses or purchases of assets from other companies. When management determines material intangible assets are acquired in conjunction with the purchase of a business, the Company determines the fair values of the identifiable intangible assets by taking into account management's own analysis and an independent third party valuation specialist's appraisal. Intangible assets determined to have definite lives are amortized over their estimated useful lives. The Company owns approximately 115 domain names. These domains are valued at historical cost. Real Estate Real estate held for resale properties are carried at the lower of cost or fair market value. All costs directly related to the improvement and carrying of real estate are capitalized, including renovations and property taxes, to the extent the capitalized costs of the property do not exceed the estimated fair value of the property. If the cost of the real estate exceeds the estimated fair value, the excess is charged to expense. Fair value is estimated based on comparable sales in the geographic area the real estate is located and tax assessed values, and is evaluated annually, or when events or changes in circumstances indicate the carrying value of the real estate may not be recoverable. Real estate held for investment are carried at the cost basis plus additional expenses where the expense extended the life or added value to the property. Otherwise, the expense is not capitalized and is charged to expense. Properties categorized as real estate held for investment are not expected by management to be sold in the next 12 months. This determination is periodically reviewed by management. Accrued Expenses Accrued expenses represent accrued but not yet paid expenses from Sales and Use taxes for ISP services, vacation accruals, and other payroll accruals. Deferred Revenue Deferred revenue represents collections from customers in advance of internet services to be performed. Revenue is recognized in the period service is provided. Revenue Recognition Internet Operations 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. The Company generates revenue in its internet segment from consumer and business-grade internet access, wholesale managed modem services for downstream ISPs, Web hosting, and various ancillary services in the United States and Canada. Services include narrow-band (dial-up and ISDN) and broadband services (DSL, fiber-optic and wireless), web hosting and related services to consumers and businesses and broadband services. Customers may downgrade from internet access to web hosting plans, to include email access and storage. In some years this change can be significant. Internet revenue is affected by the changing composition of revenue sources. Real Estate Operations Revenue from real estate held for resale 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. Rental revenue from real estate held for investment is recognized when it is due, generally on the first of each month or at another regular period agreed upon between the Company and the tenant. If payments are not provided in a timely manner, the amount due is designated as an account receivable. Accounts receivable from rental revenue are generally considered unrecoverable after 90 days unless the Company reasonably believes that recovery is probable. Tenants generally provide a security deposit at the time of possession. This deposit is held separate from revenue and only applied to revenue when rental payment comparable to the security deposit amount is not provided in a timely manner and considered unlikely to be recovered. Otherwise, the security deposit is returned in a timely manner after the property is surrendered back to the Company. Income Taxes Deferred taxes are provided on the liability method, whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The last three tax years are open to potential IRS examination. Income Per Share The basic income per common share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding. Diluted income per common share is computed similar to basic income per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company has no potentially dilutive securities. Comprehensive Income The comprehensive income is the result of foreign currency translations related to the Companys operations in Canada. Recently Issued Accounting Pronouncements In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance in ASU 2016-02 supersedes the lease recognition requirements in ASC Topic 842, Leases. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We are required to adopt this standard in the first quarter of 2019. The Company is currently evaluating the effect this standard will have on its Consolidated Financial Statements. In August 2015, the FASB issued ASU No. 2015-14, which defers the effective date of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) by one year. As a result, the ASU is now effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. ASU No. 2014-09 provides comprehensive guidance on the recognition of revenue from customers arising from the transfer of goods and services. The ASU also provides guidance on accounting for certain contract costs, and requires new disclosures. Early adoption is not permitted. We are required to adopt this standard in the first quarter of 2017. The initial application of the standard is not expected to significantly impact the Company. In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740). The ASU provides guidance related to the classifications of deferred income tax assets and liabilities into current and noncurrent amounts in a classified statement of financial position. Deferred tax assets and liabilities are classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. Deferred tax assets and liabilities that are not related to an asset or liability for financial reporting are classified according to the expected reversal date of the temporary difference. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted. We are required to adopt this standard in the first quarter of 2018. The initial application of the standard is not expected to significantly impact the Company. |
3. REAL ESTATE
3. REAL ESTATE | 3 Months Ended |
Mar. 31, 2016 | |
Notes to Financial Statements | |
3. REAL ESTATE | NOTE 3 REAL ESTATE As of March 31, 2016, the Company owned 38 residential properties, one commercial property, and interests in several lots. The Company sold four residential properties in the quarter ended March 31, 2016 for gross proceeds of $384,824. Net proceeds totaled $356,063. This compares to their carrying value of $388,381. Real Estate Held for Investment As of March 31, 2016, the Company held 14 residential properties and several lots as held for investments. Each of the 14 properties had tenants. Nine were current with regards to tenant payments as of March 31, 2016. These properties held for investment were carried on the balance sheet at $903,306. The leases in effect as of the quarter ended March 31, 2016 are based on either annual or multi-year time periods and include month-to-month provisions after the completion of the initial term. An outside property management company manages these rental properties on behalf of the Company. The property management company has introduced updated and renewed leases for existing rental properties. Depreciation expense totaled $9,137 for the three months ended March 31, 2016. Total accumulated depreciation as of March 31, 2016 totaled $101,764. Real Estate Held for Resale As of March 31, 2016, the Company held 24 residential properties and one commercial property as held for resale. These properties held for resale were carried on the balance sheet at $2,336,668. |
4. NOTES PAYABLE
4. NOTES PAYABLE | 3 Months Ended |
Mar. 31, 2016 | |
Payables and Accruals [Abstract] | |
4. NOTES PAYABLE | NOTE 4 NOTES PAYABLE Notes payable at March 31, 2016 and 2015 (as restated) consist of the following: 2016 2015 (As Restated) Non-interest bearing amount due on acquisition of USA Telephone payable in thirty-six monthly installments starting January 2008. $ $ 90,000 Less current portion Long-term portion $ $ 90,000 On December 8, 2015, Sitestar settled a breach of contract claim with United Systems Access, Inc., et al. in connection with the matter, United Systems Access, Inc., et al. v. Sitestar Corporation, Civil Action, Docket No. CV-13-161, (York County, Maine Superior Court), previously commenced against the Company and whereby the plaintiff had alleged that the Company had failed to pay certain amounts owed on a promissory note. The settlement required Sitestar to pay $90,000 to United Systems Access. This claim by United Systems Access was accrued as a note payable in the amount of $900,615 as of December 31, 2013. Upon settlement of the agreement, the liability was marked to $90,000 as of December 31, 2014. The Company paid the settlement amount in three installments on January 4, 2016, January 15, 2016, and February 11, 2016. No additional payments are due. |
5. SEGMENT INFORMATION
5. SEGMENT INFORMATION | 3 Months Ended |
Mar. 31, 2016 | |
Segment Reporting [Abstract] | |
5. SEGMENT INFORMATION | NOTE 5 SEGMENT INFORMATION As of March 31, 2016, the Company has three business units with separate management and reporting infrastructures that offer different products and services. The business units have been aggregated into three reportable segments: Corporate, Real estate and Internet. The corporate segment includes any revenue or expenses derived from corporate office operations as well as expenses related to public company reporting, the oversight of subsidiaries, and other items that affect the Company as a whole. The real estate segment includes revenue and expenses related to the management of properties held for investment and revenue and expenses involving the preparation and sale of properties held for resale. The internet segment includes revenue and expenses related to the sale of internet access, hosting, storage, and other ancillary services. The internet segment includes revenue generated by operations in both the United States and Canada. In the quarter ended March 31, 2016, the internet segment generated revenue of $329,611 in the United States and revenue of $26,473 in Canada. This compares to the quarter ended March 31, 2015 where the internet segment generated revenue of $390,843 in the United States and revenue of $30,131 in Canada. Summarized financial information concerning the Company's reportable segments is shown in the following tables for the three months ended March 31, 2016 and 2015: As of March 31, 2016 Corporate Real Estate Internet Consolidated Revenues $ $ 408,217 $ 356,085 $ 764,301 Cost of revenue 436,104 126,072 562,176 Gross profit (27,887 ) 230,012 202,125 Operating expenses 111,808 2,849 97,597 212,254 Income (loss) from operations (111,808 ) (30,737 ) 132,416 (10,129 ) Other income (expense) 912 3,644 4,556 Net income $ (110,896 ) $ (30,737 ) $ 136,060 $ (5,573 ) Identifiable assets 194,863 3,238,874 673,788 4,107,525 As of March 31, 2015 (As restated) Corporate Real Estate Internet Consolidated Revenues $ $ 37,975 $ 420,974 $ 458,949 Cost of revenue 14,410 199,749 214,159 Gross profit 23,565 221,225 244,790 Operating expenses 295,268 9,167 98,477 402,912 Income (loss) from operations (295,268 ) 14,398 122,748 (158.122 ) Other income (expense) (11,774 ) (1,922 ) (13,696 ) Net income $ (307,042 ) $ 14,398 $ 120,826 $ (171,818 ) Identifiable assets 196,727 3,548,254 1,290,520 5,035,501 |
6. ACCOUNTS RECEIVABLE AND BAD
6. ACCOUNTS RECEIVABLE AND BAD DEBT EXPENSE | 3 Months Ended |
Mar. 31, 2016 | |
Notes to Financial Statements | |
6. ACCOUNTS RECEIVABLE AND BAD DEBT EXPENSE | NOTE 6 ACCOUNTS RECEIVABLE AND BAD DEBT EXPENSE For the quarters ended March 31, 2016 and 2015 (as restated), bad debt expense was $34 and $5,544, respectively. As of March 31, 2016 and 2015 (as restated), accounts receivable consists of the following: 2016 2015 (As Restated) Gross accounts receivable $ 13,619 $ 18,575 Less allowance for doubtful accounts (583 ) (762 ) Accounts receivable, net $ 13,036 $ 17,813 |
7. SUBSEQUENT EVENTS
7. SUBSEQUENT EVENTS | 3 Months Ended |
Mar. 31, 2016 | |
Subsequent Events [Abstract] | |
7. SUBSEQUENT EVENTS | NOTE 7 SUBSEQUENT EVENTS On April 12, 2016, Sitestar filed a civil action complaint against Frank Erhartic, Jr. (the Former CEO), the Companys former CEO and director and currently an owner of record or beneficially of more than five percent of the Companys Common Stock, alleging, among other things, that the Former CEO engaged in, and caused the Company to engage in to its detriment, a series of unauthorized and wrongful related party transactions, including causing the Company to borrow certain amounts from the Former CEOs mother unnecessarily and at a commercially unreasonable rate of interest, converting certain funds of the Company for personal rent payments to the Former CEO, commingling in land trusts certain real properties owned by the Company and real properties owned by the Former CEO, causing the Company to pay certain amounts to the Former CEO for lease payments under an unauthorized lease as to a storage facility owned by the Former CEO, causing the Company to pay rent on its corporate headquarters owned by the Former CEOs ex-wife in amounts commercially unreasonable and excessive and to make real estate tax payments thereon for the personal benefit of the Former CEO, converting to the Former CEO five motor vehicles owned by the Company, causing the Company to pay real property and personal property taxes on numerous properties owned personally by the Former CEO, causing the Company to pay personal credit card debt of the Former CEO, causing the Company to significantly overpay the Former CEOs health and dental insurance for the benefit of the Former CEO, and causing the Company to pay the Former CEOs personal automobile insurance. The Company is seeking, among other relief available, monetary damages in excess of $350,000. This litigation matter is currently pending in the Circuit Court for the City of Lynchburg (Lynchburg, Virginia). Subsequent to March 31, 2016, and as of August 8, 2016, we have sold 17 residential properties including one property that is pending closing. Of the 16 properties that have closed, the net proceeds total $1,368,569. This compares to their carrying value as of the quarter ended March 31, 2016 of $1,262,763. We continue to market for sale or prepare to market for sale each property in the held for resale category. Properties have either sold as-is or have been repaired and upgraded before being listed for sale. Several real estate agents have been engaged to market the remaining properties listed for resale. We are happy with the progress made and continue to pursue the strategy of an orderly liquidation of our real estate portfolio. As previously reported in our Current Report on Form 8-K filed with the SEC on June 14, 2016, we organized, along with JNJ Investments, LLC, HVAC Value Fund, LLC. The purpose of this entity is to acquire and manage companies in the Heating, Ventilation, and Air Conditioning (HVAC) industry. As of August 8, 2016, HVAC Value Fund, LLC has completed four acquisitions in the HVAC industry. Subsequent to March 31, 2016, the Company filed with the SEC on July 18, 2016 the Companys Annual Report on Form 10-K for the year ended December 31, 2015. Subsequent to March 31, 2016, the Company sold the domain, First.com for net proceeds of $233,750. |
1. BASIS OF PRESENTATION AND SI
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies) | 3 Months Ended |
Mar. 31, 2016 | |
Accounting Policies [Abstract] | |
Basis of Presentation | 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 notes for the year ended December 31, 2015 included in the Companys Annual Report on Form 10-K filed with the SEC on July 18, 2016 (the 2015 Form 10-K). The comparative results for the three months ended March 31, 2015 included in the unaudited condensed consolidated financial statements in this Form 10-Q reflect restated amounts, as described in and reported under the 2015 Form 10-K. The results for the three months ended March 31, 2016 are not necessarily indicative of the results to be expected for the full year ending December 31, 2016. |
Use of Estimates | Use of Estimates In accordance with Accounting Principles Generally Accepted in the United State of America (GAAP), 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, goodwill valuation, 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 Companys 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 the notes to the consolidated financial statements. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments For certain of the Company's assets and liabilities, including cash, accounts receivable, accounts payable, accrued expenses and deferred revenue, the carrying amounts approximate fair value due to their short maturities. |
Cash and Cash Equivalents | Cash and Cash Equivalents For purposes of the statements of cash flows, the Company defines cash equivalents as all highly liquid instruments purchased with a maturity of three months or less. |
Concentration of Credit Risk | Concentration of Credit Risk Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and accounts receivable. The Company places its cash with high quality financial institutions and, at times, may exceed the FDIC and CDIC insurance limit. The Company extends credit based on an evaluation of the customers financial condition, generally without collateral. Exposure to losses on receivables is principally dependent on each customer's financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses. |
Accounts Receivable | Accounts Receivable The Company grants credit in the form of unsecured accounts receivable to its customers. The estimate of the allowance for doubtful accounts, which is charged off to bad debt expense, is based on managements assessment of current economic conditions and historical collection experience with each customer. Specific customer receivables are considered past due when they are outstanding beyond their contractual terms and are charged off to the allowance for doubtful accounts when determined uncollectible. Sales of Internet services, which are not automatically processed via credit card or bank account drafts, have been the Companys highest exposure to collection risk. The Company attempts to reduce this risk by including a late payment fee and a manual processing payment fee to accounts. Receivables more than ninety days past due are no longer included in accounts receivable and are turned over to a collection agency. Accounts more than 30 days are considered past due. |
Impairment of Long-Lived Assets | Impairment of Long-Lived Assets In accordance with GAAP, long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. Long-lived assets to be disposed are reported at the lower of carrying amount or fair value of the asset less cost to sell. |
Goodwill and Other Intangible Assets | Goodwill and Other Intangible Assets Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations accounted for under the acquisition method of accounting. The Company does not amortize goodwill. The Company tests its goodwill annually during the fourth quarter of its fiscal year or when events and circumstances indicate that those assets might not be recoverable. Impairment testing of goodwill is required at the reporting unit level (operating segment or one level below operating segment) and involves a two-step process. Prior to performing the two-step impairment test, the Company may make a qualitative assessment of the likelihood of goodwill impairment in order to determine whether a detailed quantitative analysis is required. The first step of the impairment test involves comparing the estimated fair values of the Company's reporting units with the reporting units' carrying amounts, including goodwill. The Company estimates the fair value of its reporting units using discounted expected future cash flows. If the carrying amount of the reporting unit exceeds its fair value, a second step is performed to compare the carrying amount of goodwill to the implied fair value of that goodwill. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess. The Company performs an analysis of its goodwill as of December 31 annually. Other intangible assets consist of customer relationships, developed technology and software, trade names and other assets acquired in conjunction with the purchases of businesses or purchases of assets from other companies. When management determines material intangible assets are acquired in conjunction with the purchase of a business, the Company determines the fair values of the identifiable intangible assets by taking into account management's own analysis and an independent third party valuation specialist's appraisal. Intangible assets determined to have definite lives are amortized over their estimated useful lives. The Company owns approximately 115 domain names. These domains are valued at historical cost. |
Real Estate | Real Estate Real estate held for resale properties are carried at the lower of cost or fair market value. All costs directly related to the improvement and carrying of real estate are capitalized, including renovations and property taxes, to the extent the capitalized costs of the property do not exceed the estimated fair value of the property. If the cost of the real estate exceeds the estimated fair value, the excess is charged to expense. Fair value is estimated based on comparable sales in the geographic area the real estate is located and tax assessed values, and is evaluated annually, or when events or changes in circumstances indicate the carrying value of the real estate may not be recoverable. Real estate held for investment are carried at the cost basis plus additional expenses where the expense extended the life or added value to the property. Otherwise, the expense is not capitalized and is charged to expense. Properties categorized as real estate held for investment are not expected by management to be sold in the next 12 months. This determination is periodically reviewed by management. |
Accrued Expenses | Accrued Expenses Accrued expenses represent accrued but not yet paid expenses from Sales and Use taxes for ISP services, vacation accruals, and other payroll accruals. |
Deferred Revenue | Deferred Revenue Deferred revenue represents collections from customers in advance of internet services to be performed. Revenue is recognized in the period service is provided. |
Revenue Recognition | Revenue Recognition Internet Operations 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. The Company generates revenue in its internet segment from consumer and business-grade internet access, wholesale managed modem services for downstream ISPs, Web hosting, and various ancillary services in the United States and Canada. Services include narrow-band (dial-up and ISDN) and broadband services (DSL, fiber-optic and wireless), web hosting and related services to consumers and businesses and broadband services. Customers may downgrade from internet access to web hosting plans, to include email access and storage. In some years this change can be significant. Internet revenue is affected by the changing composition of revenue sources. Real Estate Operations Revenue from real estate held for resale 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. Rental revenue from real estate held for investment is recognized when it is due, generally on the first of each month or at another regular period agreed upon between the Company and the tenant. If payments are not provided in a timely manner, the amount due is designated as an account receivable. Accounts receivable from rental revenue are generally considered unrecoverable after 90 days unless the Company reasonably believes that recovery is probable. Tenants generally provide a security deposit at the time of possession. This deposit is held separate from revenue and only applied to revenue when rental payment comparable to the security deposit amount is not provided in a timely manner and considered unlikely to be recovered. Otherwise, the security deposit is returned in a timely manner after the property is surrendered back to the Company. |
Income Taxes | Income Taxes Deferred taxes are provided on the liability method, whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The last three tax years are open to potential IRS examination. |
Income Per Share | Income Per Share The basic income per common share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding. Diluted income per common share is computed similar to basic income per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company has no potentially dilutive securities. |
Comprehensive Income | Comprehensive Income The comprehensive income is the result of foreign currency translations related to the Companys operations in Canada. |
Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncements In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance in ASU 2016-02 supersedes the lease recognition requirements in ASC Topic 842, Leases. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We are required to adopt this standard in the first quarter of 2019. The Company is currently evaluating the effect this standard will have on its Consolidated Financial Statements. In August 2015, the FASB issued ASU No. 2015-14, which defers the effective date of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) by one year. As a result, the ASU is now effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. ASU No. 2014-09 provides comprehensive guidance on the recognition of revenue from customers arising from the transfer of goods and services. The ASU also provides guidance on accounting for certain contract costs, and requires new disclosures. Early adoption is not permitted. We are required to adopt this standard in the first quarter of 2017. The initial application of the standard is not expected to significantly impact the Company. In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740). The ASU provides guidance related to the classifications of deferred income tax assets and liabilities into current and noncurrent amounts in a classified statement of financial position. Deferred tax assets and liabilities are classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. Deferred tax assets and liabilities that are not related to an asset or liability for financial reporting are classified according to the expected reversal date of the temporary difference. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted. We are required to adopt this standard in the first quarter of 2018. The initial application of the standard is not expected to significantly impact the Company. |
4. NOTES PAYABLE (Tables)
4. NOTES PAYABLE (Tables) | 3 Months Ended |
Mar. 31, 2016 | |
Payables and Accruals [Abstract] | |
Notes Payable | 2016 2015 (As Restated) Non-interest bearing amount due on acquisition of USA Telephone payable in thirty-six monthly installments starting January 2008. $ $ 90,000 Less current portion Long-term portion $ $ 90,000 |
5. SEGMENT INFORMATION (Tables)
5. SEGMENT INFORMATION (Tables) | 3 Months Ended |
Mar. 31, 2016 | |
Segment Information Tables | |
Segment Information | As of March 31, 2016 Corporate Real Estate Internet Consolidated Revenues $ $ 408,217 $ 356,085 $ 764,301 Cost of revenue 436,104 126,072 562,176 Gross profit (27,887 ) 230,012 202,125 Operating expenses 111,808 2,849 97,597 212,254 Income (loss) from operations (111,808 ) (30,737 ) 132,416 (10,129 ) Other income (expense) 912 3,644 4,556 Net income $ (110,896 ) $ (30,737 ) $ 136,060 $ (5,573 ) Identifiable assets 194,863 3,238,874 673,788 4,107,525 As of March 31, 2015 (As restated) Corporate Real Estate Internet Consolidated Revenues $ $ 37,975 $ 420,974 $ 458,949 Cost of revenue 14,410 199,749 214,159 Gross profit 23,565 221,225 244,790 Operating expenses 295,268 9,167 98,477 402,912 Income (loss) from operations (295,268 ) 14,398 122,748 (158.122 ) Other income (expense) (11,774 ) (1,922 ) (13,696 ) Net income $ (307,042 ) $ 14,398 $ 120,826 $ (171,818 ) Identifiable assets 196,727 3,548,254 1,290,520 5,035,501 |
6. ACCOUNTS RECEIVABLE AND BA16
6. ACCOUNTS RECEIVABLE AND BAD DEBT EXPENSE (Tables) | 3 Months Ended |
Mar. 31, 2016 | |
Accounts Receivable And Bad Debt Expense Tables | |
Accounts Receivable and Bad Debt Expense | 2016 2015 (As Restated) Gross accounts receivable $ 13,619 $ 18,575 Less allowance for doubtful accounts (583 ) (762 ) Accounts receivable, net $ 13,036 $ 17,813 |
4. NOTES PAYABLE - Notes Payabl
4. NOTES PAYABLE - Notes Payable (Details) - USD ($) | Mar. 31, 2016 | Mar. 31, 2015 |
Payables and Accruals [Abstract] | ||
Non-interest bearing amount due on acquisition of USA Telephone customers per contract payable in thirty six monthly installments starting January 2008. | $ 90,000 | |
Less current portion | ||
Long-term portion | $ 90,000 |
4. NOTES PAYABLE (Details Narra
4. NOTES PAYABLE (Details Narrative) | Mar. 31, 2016USD ($) |
Payables and Accruals [Abstract] | |
Potential Litigation Loss | $ 900,615 |
5. SEGMENT INFORMATION - Segmen
5. SEGMENT INFORMATION - Segment Information (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Cost of revenue | $ 562,176 | $ 214,159 |
Gross profit | 202,125 | 244,790 |
Operating expenses | 212,254 | 402,912 |
Income (loss) from operations | (9,217) | (173,055) |
Net income | (9,217) | (173,055) |
Corporate | ||
Revenue | ||
Cost of revenue | ||
Gross profit | ||
Operating expenses | 111,808 | 295,268 |
Income (loss) from operations | (111,808) | (295,268) |
Other income (expense) | 912 | (11,774) |
Net income | (110,896) | (307,042) |
Identifiable assets | 194,863 | 196,727 |
Real Estate | ||
Revenue | 408,217 | 37,975 |
Cost of revenue | 436,104 | 14,410 |
Gross profit | (27,887) | 23,565 |
Operating expenses | 2,849 | 9,167 |
Income (loss) from operations | (30,737) | 14,398 |
Other income (expense) | ||
Net income | (30,737) | 14,398 |
Identifiable assets | 3,238,874 | 3,548,254 |
Internet | ||
Revenue | 356,085 | 420,974 |
Cost of revenue | 126,072 | 199,749 |
Gross profit | 230,012 | 221,225 |
Operating expenses | 97,597 | 98,477 |
Income (loss) from operations | 132,416 | 122,748 |
Other income (expense) | 3,644 | (1,922) |
Net income | 136,060 | 120,826 |
Identifiable assets | 673,788 | 1,290,520 |
Consolidated | ||
Revenue | 764,301 | 458,949 |
Cost of revenue | 562,176 | 214,159 |
Gross profit | 202,125 | 244,790 |
Operating expenses | 212,254 | 402,912 |
Income (loss) from operations | (10,129) | (158,122) |
Other income (expense) | 4,556 | (13,696) |
Net income | (5,573) | (171,818) |
Identifiable assets | $ 4,107,525 | $ 5,035,501 |
6. ACCOUNTS RECEIVABLE AND BA20
6. ACCOUNTS RECEIVABLE AND BAD DEBT EXPENSE (Details) - USD ($) | Mar. 31, 2016 | Mar. 31, 2015 |
Accounts Receivable And Bad Debt Expense Details | ||
Gross accounts receivable | $ 13,619 | $ 18,575 |
Less allowance for doubtful accounts | (583) | (762) |
Accounts receivable, net | $ 13,036 | $ 17,813 |